News & Insight
Furlough, not fire
Many businesses in the UK are fighting to avoid mass redundancies due to the impact of Covid-19. Already, nearly a million people in the UK have applied for Universal Credit in the last two weeks.
There is still confusion and uncertainty about a number of the financial measures recently introduced by the government. Unsurprising, given their complexity. Click here to see our comprehensive financial and tax guide for businesses and individuals in the time of Covid-19.
One of the schemes introduced is the Coronavirus Job Retention Scheme (“furlough”) open to all UK employers for at least three months starting from 1 March 2020. It allows employers to put employees on a form of temporary paid leave, called ‘furlough leave’, during which the government will reimburse the employer for 80% of furloughed employees’ pay, up to £2,500 per month, or more if the employer chooses to top the payment up to an employee’s normal pay level.
The aim is to guarantee the wages of the British workforce during the current crisis and help businesses whose operations have been severely disrupted by Covid-19 retain their employees, saving mass unemployment and future costs for re-hiring once the country bounces back.
What is furlough?
Just a few weeks back nobody had heard the term ‘furlough’. It is not a concept recognised by UK law.
Furlough – in the context of the government’s scheme – is a form of temporary leave of absence. The scheme is a means by which a workforce can remain intact. With this government backing, businesses can avoid letting their employees go permanently.
Furloughed workers will remain an employee of the employeeing company but stop working and will not earn any wages in the furlough period.
When will it be available?
Employees can be put on furlough leave with effect from 1 March 2020. According to the government, employers will be able to claim the pay reimbursement via an online portal by end of April 2020.
Who is eligible?
Any UK organisation with employees can apply, including:
- businesses (including limited companies, LLPs and sole traders);
- recruitment agencies; and
- public authorities, however public sector employers cannot use it if central government continues funding wage costs in the normal way.
You must have created and started a PAYE payroll scheme on or before 28 February 2020.
Who can be furloughed?
Employers can put the following types of employees on furlough:
- full and part time employees;
- employees on agency contracts but only those on your PAYE payroll; and
- employees on flexible, variable hours or zero-hour contracts.
For any redundancies made before the scheme was announced, employers have the option to reemploy (on furlough leave) staff made redundant after 28 February 2020. Employees recruited after 28 February 2020 are not covered by the scheme.
How to claim?
The government will issue further guidance on the mechanics of claiming the payment in due course (by the end of April). It will be via an online portal.
You can only submit one claim every three weeks, which is the minimum length of time that an employee can be on furlough leave. Claims can be backdated until 1 March 2020 if applicable.
What can be claimed?
HMRC will reimburse 80% of the furloughed employee’s wage costs up to a cap of £2,500 per month, plus the associated employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
Employers then have the option to fund the difference and top up pay to 100%.
Furlough leave must be taken in minimum blocks of three weeks.
At the moment, there is nothing in the guidance which prohibits rotating furlough leave amongst employees, provided each employee is on furlough leave for a period of at least three weeks.
Is consent required?
Employees must agree to be put on furlough leave (and, where applicable, for their pay to be reduced) and therefore employers should discuss options with their staff carefully, with any agreement being recorded in writing.
However, our view is that it is unlikely that employees will disagree to go on furlough leave, given the alternatives in many cases might be redundancy or forced unpaid leave.
The employer must be careful not to discriminate in deciding who to offer furlough leave to.
Sick pay and furlough
Employees on sick pay or self-isolating cannot be placed on furlough leave but can be after the point at which they would have otherwise returned to work. Employees who are shielding in line with public health guidance can be placed on furlough leave.
Holiday and furlough
Holiday will, it seems, continue to accrue during furlough leave. There is uncertainty as to whether employees can be compelled to take holiday during furlough leave, and further government guidance is awaited. It has also been announced that employees will be allowed to carry over up to 4 weeks’ holiday for up to 2 leave years, where it has not been “reasonably practicable” for a worker to take leave due to Covid-19.
This piece was prepared by Lucy Ganbold with input from Amy Cunningham.
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