(updated on 5.4.2020 by government). Find out what the update was about by reading our blog ” Furlough Scheme – Updated guidance”
On Friday 20 March 2020, the government announced the unprecedented introduction of an employee support scheme, which is operating immediately to offer grants to UK employers. The aim of the scheme is to preserve as many jobs as possible over the coming months and mitigate the financial loss to employees impacted by the current economic climate.
Curiously, the announcement also introduced the new concept of a “furloughed worker,” a term which all employment lawyers (and indeed the rest of the UK) will be quickly adding to their vocabulary! It is an unfamiliar term to many and one which is not currently defined within UK employment legislation. In fact, the term has historic military origins and was used during WW1 to refer to a period of leave known as furlough given to soldiers that had suffered injuries during the war.
Across the pond, in the USA “furlough” is widely used to refer to a period of temporary unpaid leave which is often caused due to the economic difficulties of the company. In the UK, the concept is intended to be slightly different as, under the new scheme, a “furloughed worker” will remain financially remunerated during their period of temporary leave.
Whilst there is limited guidance on the scheme and how it will operate in practice at present, we have put together a summary based on the information that is known at present. This information is up to date at the time of this blog being published, and remains subject to further guidance from HMRC.
Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis. The scheme has been backdated to 1 March 2020 and is currently anticipated to run until the end of May, albeit the government has said they will extend the scheme if necessary.
The reimbursement is 80% of a worker’s wage costs up to a maximum cap of £2,500 per month. It is currently unclear whether this cap relates to the employee’s salary, and so it applies to salaries up to £30,000 per annum, or whether it relates to the maximum monthly payment by the government. The brief employee guidance so far suggests the latter and that the support on offer is up to £2,500 per month per employee in total.
We also await further guidance on what the term “wage costs” will encompass. It remains to be seen whether other aspects of an employee’s income such as commission, bonuses, etc will be included. Also, does this include deductions to be made by the employer for NI and pension?
Yes, all UK businesses are eligible to participate. The government has specified that the scheme will apply to any employer in the UK, irrespective of whether it is small or large, charitable or not for profit.
The employer will need to designate affected employees as “furloughed workers,” and notify employees of this change. We anticipate that the employer will then need to provide certain details to HMRC through a new online portal (the details of which are yet to be released).
HMRC will administer the scheme and will make the reimbursement payments to employers. They are setting up an online portal and new systems to do so, of which we await details. It is currently anticipated that the grants will be made within weeks and before the end of April although the timing remains to be confirmed.
If the business needs short term cash flow support, they may be eligible for a Coronavirus Business Interruption Loan.
The crucial point here is that the employee will not be able to undertake any work for their employer during the period in which they are on furlough. The aim of the scheme is to support workers who would otherwise be facing redundancy or unpaid layoff. This means that furloughed workers must stop working immediately. If an employer still wants an employee to perform certain aspects of their role or some of their duties, the scheme will not be suitable.
This is a good question and the terminology being used can be confusing. Many people assume that being “laid off” means that the employment has been terminated and the employee has lost their job permanently. However, under UK employment law the term “lay off” actually indicates a temporary period of not working. This is generally unpaid (subject to the right to guarantee payments) and the employee remains employed throughout the period of lay off.
In reality, lay off and being a “furloughed worker” appear to be the same concepts. In both cases the employee will not be undertaking any work for the employer for a period of time, but their employment will be continuing. The crucial difference is that, under the new government scheme a furloughed worker will remain paid during this period. Laid off workers are usually not paid.
The answer is that it depends on a number of factors including:
Advice should be sought on your specific situation. However, in broad terms, a payment of less than 100% of wages will normally represent a unilateral change to an employee’s contractual terms. Such a change would need consent unless the employer was going to follow a longer route for trying to force a contractual change.
In practice, we think employees are likely to accept furloughed status. For most, it will be a more desirable outcome than a redundancy situation.
The situation may be more straightforward if the employer is topping up the employee’s wages to 100%. In this case, there often won’t be a breach of contract by reason of a unilateral reduction of wages (unless there is a right to work).
Employees have a legal right to be paid but only a limited number of employees have a right to work, and it’s generally limited to those employees whose earnings are dependent upon them working, for example those who need to work in order to earn commission. However provided that your employees don’t fall within the category of employees who have a right to work, then sending an employee home on full pay won’t generally be a breach of contract. Therefore for these employees you should be able to impose furlough leave.
Yes. Employers are not obliged to do so but they could, of course, opt to top up the scheme for an employee. The government and trade unions will encourage employers to pay 100% of wages wherever possible, albeit this is not compulsory.
There are aspects of the scheme about which we await more clarification and we anticipate that HMRC will be publishing further guidance in the coming days. Some burning questions include:
We have a model furlough letter ready and this can be adapted for your situation.
Please read the current government guidance –‘Covid-19 – Support for businesses’
Please contact a member of the Employment Department if you have any questions and we would be happy to help.
This is a general guidance note based on what we know as at 22 March 2020 and specific advice should be sought on your situation.
We have now created a frequently asked questions page on the Coronavirus Job Retention Scheme which will be updated as new questions come in to us.
We have a website page dedicated to ‘Coronavirus – Legal advice and guidance’. Check back in to this page every now and then for updates.