Furlough Leave: New guidance on Job Retention Scheme
Please note this article is up to date as of 9am on Friday 27 March 2020
The Government last night (26 March 2020) provide further information on its Coronavirus Job Retention Scheme, which is widely being referred to as Furlough Leave. I would advise all employers and employees to read the following:
The Coronavirus Job Retention Scheme is an unprecedented step from the Government which will give support and comfort (until at least June 2020) to both employers and employees. The system is still in its infancy and there will be some who miss out or feel disadvantaged. The Government have explained that further guidance will be provided and no doubt there will be a great deal of coverage and analysis in the press and the media. I would advise all employers and employees to keep a close eye on developments.
I will be providing further comment and analysis on furlough leave over the coming weeks and months. This article sets out my initial observations on the key elements of the Scheme and on some of the key issues that may arise.
- Businesses (sole traders, partnerships, limited and public companies), charities, recruitment agencies and public authorities can all access the scheme.
- Those organisations must have set up a PAYE payroll system by 28 February 2020 and therefore the scheme does not cover employees employed after 1 March 2020 who may be laid off. For those about to start new employment they may well fall through the cracks if their new employer cannot pay them in full.
- Funding can be claimed for the pay of full and part time employees, those employed by agencies and employees with variable pay (i.e. zero hours employees).
- The Scheme will pay 80% of a furloughed employee’s wages up to a maximum of £2,500 a month. The guidance specifically states it does not include bonus, fees or commission.
- Those employees who have been furloughed must not do any work for their employer.
- Furlough must last for a minimum of three weeks. This avoids employers chopping and changing or rotating furloughed employees.
- Employers are strongly advised confirm in writing that employees have been furloughed.
- It is the Government’s intention to have the scheme in place by the end of April.
- HMRC will set up a portal (not there yet) in which employers should provide the following information:
- ePAYE reference number;
- the number of employees being furloughed;
- the claim period (start and end date);
- amount claimed (per the minimum length of furloughing of 3 weeks);
- bank account number and sort code;
- contact name; and
- phone number
- The grant will cover 80% of employees pay together with the employer’s national insurance contributions and the minimum automatic enrolment employer pension contributions. The Government have specifically confirmed that more information on this will be provided.
- Employees will continue to pay tax and national insurance on the 80% of pay received.
- It is my understanding that an employee’s contribution to their pension will still apply and will be deducted on a % basis from the 80% of pay received.
- It is my understanding that employers will apply for the grant on a monthly basis.
This is merely a summary of the key elements of the scheme.
Zero hours employees or those employees who receive variable pay
Many employees in the UK work on a variable hours basis – be that zero hours or regular overtime. Reading the guidance, they are not to be disadvantaged and shall receive 80% of their pay whilst furloughed. The method of calculation is the higher of the following:
- Their average monthly pay based over 12 months; or
- Their pay for the corresponding month in 2019.
As such employers should calculate the 12 month average once the employee has been furloughed and then each month consider what the pay in corresponding month in 2019 was.
One interesting point I have picked up on is the comment in the guidance that the 80% of pay will not include commission. Some employees make a significant amount of their money via commission and therefore if they are only entitled to their basic pay then they may be disadvantaged by the scheme. It would be surprising if this is what the scheme intends and my advice would be for employers who pay in this manner to keep an eye on this point.
National Minimum Wage
There will be no breach of the National Minimum Wage by the payment of 80% of pay. This is because the National Minimum Wage is only due for work actually done. Whilst on furlough employees will not do any work and therefore will not be entitled to pay of at least the National Minimum Wage.
Steps from employers to take now
- If there is no lay off clause within employment contracts then written consent should be obtained from employees to (1) lay them off and (2) reduce their pay by 20%. My advice has been for employers to first speak with their employees and then ask them to sign a furlough agreement.
- Employers need to think carefully about how they choose which employees to furlough. A selection criteria should be fair and not be because of any protected characteristics (age, disability, gender, race and nationality, religious or philosophical belief, sexual orientation, transgender, pregnancy and maternity or marital status). If the selection criteria is based on any protected characteristics then there is the risk it will be discriminatory and could result in claims in the Employment Tribunal.
- Think about the future. None of us know how long the social distancing measures will be in place for or the long term impact on the economy. Whilst furlough leave helps employers (and employees) in the short and perhaps medium term it may be that employers do need to give thought to making redundancies in the future. Employees with more than 2 years continuous service are entitled to statutory redundancy pay and have the right to make a claim to the Employment Tribunal for unfair dismissal. My advice to employers is to be aware of this.
- Make sure that those employees who are furloughed do not do any work. They are able to do voluntary work and training provided the employee does not provide services that generate revenue. I would say that responding to emails on work matters would potentially contribute to revenue generation and therefore should be avoided. With this in mind employers need to plan a handover period with all furloughed employees.
These are uncertain times and developments to employment law and the workplace are moving at a pace I and other employment and HR professionals have not seen. My advice to all is to keep a close eye on all developments.
GA Solicitors remains open during this crisis and I and my colleagues can assist all with any employment and other legal issues that arise during this time. I am happy for people to call (01752 513 549 / 07584255816) or email me (Robert.email@example.com) to discuss any issues or concerns they may have or face.
To all that read this article please stay safe and look after yourselves and those close to you.