The introduction of a new Coronavirus Job Retention Scheme (furlough leave) was announced by the government on 20 March 2020. Under the scheme, all UK employers, regardless of size or sector, can claim a grant from HMRC to cover up to 80% of the wages costs of employees who are not working but kept on the payroll (“furloughed”), subject to a cap of £2,500 a calendar month for each employee. Employers can choose to top up the remaining 20% if they wish.
The Chancellor announced that the scheme will be backdated to 1 March 2020, be open for at least three months and may be extended if necessary. HMRC are urgently working to set up the new system of reimbursement, but the government hopes that the first grants should be paid within weeks.
What employees are covered?
The scheme will apply in respect of all employees on PAYE and may also include workers depending on their arrangements.
What steps must employers take to put employees on furlough leave?
Employers will need to:
- Decide which employees to designate as furloughed employees.
- Notify those employees of the intended change.
- Consider whether it needs to consult with employee representatives or trade unions. For example, where the employer intends to vary the contracts of 20 or more employees, and it intends to dismiss employees who do not consent to the change in their terms, for the purposes of section 188 of TULRCA, those employees will be classed as dismissed by reason of redundancy. The employer will therefore have a duty to inform and consult appropriate employee representatives and notify the Secretary of State using form HR1. It is unclear, however, at this stage, whether the government expects employers to follow this process before placing employees on furlough leave.
- Agree the change with the employees to be furloughed. Most employment contracts will not permit an employer to reduce an employee’s pay, provide them with no work, and change their employment status, without agreement. However, faced with the alternatives, which are likely to be unpaid leave, lay-off, or redundancy, the majority of affected employees are likely to agree to be placed on furlough leave.
- Confirm the employees’ new status in writing. Ideally, the employer should advise how long it expects furlough leave to continue, however, this may be difficult in the current climate. Employers may wish to put employees on furlough leave for an initial period, subject to review.
- Submit information to HMRC about the employees that have been furloughed and their earnings through the new online portal. The COVID-19: support for businesses guidance states that HMRC will set out further details on the information required.
- Ensure that the employees do not carry out any further work while they are furloughed.
What does the £2,500 cover?
The COVID-19: support for businesses guidance states employers will be reimbursed “80% of furloughed workers wage costs, up to a cap of £2,500 per month”. The COVID-19: guidance for employees states that the scheme will allow an “employer to claim a grant of up to 80% of your wage for all employment costs, up to a cap of £2,500 per month”.
It is unclear at this stage whether the £2,500 reimbursement is intended to cover anything other than the employee’s basic salary. However, the use of the words “all employment costs” in the guidance for employees suggests that this could include additional costs such as pension contributions or other benefits. It is however unclear whether the £2,500 cap will be gross or net and confirmation on this point is required from HMRC.
Are employers obliged to top up the remaining 20%?
The COVID-19: guidance for employees states that “your employer could choose to fund the differences between this payment and your salary, but does not have to”. Withholding 20% of an employee’s salary, will however, amount to breach of contract and unlawful deduction of wages unless the employee gives their consent which is why agreement is required before they are furloughed. It is expected that the majority of employees will consent since furlough leave is a better alternative than unpaid leave, lay-off, or redundancy.
Can an employee request their employer puts them onto furlough leave?
Yes, an employee can request this, but the employer does not have to agree. It is the employer’s decision which employees to place on furlough leave, if any. It seems that it is also the employer’s decision whether to place employees on furlough leave or make them redundant. However, it is hoped that many employers will see the new scheme as preferable to business closure and making redundancies.
The Government has not yet published much guidance on how this scheme will operate and the information currently provided may leave more questions than answers. However, it has updated the COVID-19: support for businesses guidance and COVID-19: guidance for employees to provide basic details. Therefore, it is likely that any further guidance will be communicated via these channels, so we suggest you follow these pages for any further updates. However, we will endeavour to keep you updated with any further developments.
We will continue to keep you up to date as the Government release more details through our employment law specialist Collingwood Legal.