On 20th March 2020 the Government announced the introduction of a new Coronavirus Job Retention Scheme (furlough leave).
Under the scheme, all UK employers, regardless of size or sector, can claim a grant from HMRC to cover 80% of the wages costs of employees who are not working but kept on the payroll ("furloughed"), of up to £2,500 a calendar month for each employee. Employers can choose to top up the remaining 20% if they wish.
What employees are covered?
The scheme will apply in respect of all employees on PAYE, including those on zero-hours contracts.
The steps that employers need to take to put employees on furlough leave are as follows:
• 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. 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 furloughed employees. Most employment contracts will not permit an employer to make this change to an employee's 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.
Are employers obliged to top up theremaining 20%?
The COVID-19:guidance for employees states that "your employer could choose to fund thedifferences 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 andunlawful deduction of wages unless the employee gives their consent. It isexpected that the majority of employees will consent since furlough leave is abetter 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. Potentially redundant employees do not have a right to require their employer to place them on furlough leave as an alternative to redundancy. However, it is hoped that many employers will see the new scheme as preferable to business closure and making redundancies.
If you have any particular queries regarding the impact of coronavirus and your workforce please contact: Carmel Sunley E: firstname.lastname@example.org
Source of materials:
Thomson Reuters Practical Law;
*Please see below for a Furlough Letter Template
[On Employer’s headed paper]
PRIVATE & CONFIDENTIAL
[NAME OF EMPLOYEE]
Coronavirus Job Retention Scheme
As you are aware the operational running of our business has been/will be temporarily stopped due to the Covid-19 pandemic, in an effort to stop the spread of the virus.
Accordingly the work that you are assigned to has stopped and we are no longer able to provide you with work under your contract of employment.
Rather than laying off employees or commencing a programme of redundancies we would like to temporarily designate you as a “furlough worker” so that you will not be required to carry out any duties but you will be paid up to 80% of your basic wages for an initial period of up to three months. We will of course consult with you if this period is to be longer or there are any other changes that the Government advises as the correct response to this emergency situation.
Please can you confirm your agreement to being designated a furloughed worker by signing and returning this letter to your line manager or emailing your written consent to being designated as a furloughed worker in accordance with the terms set out in this letter to [employer’s email address].
Thank you for your understanding and we wish you and your family well during this difficult time. We will keep under review the initial period of three months and remain in email contact with you throughout.
I, [NAME] confirm my agreement to being designated a furloughed worker with immediate effect.