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Employment

Covid-19 – Job Retention Scheme or “Furlough”

Furlough Scheme

Monday, April 6, 2020

The UK Government’s response to support both business and the employed has been an unprecedented move to help shore up the economy amidst the unfolding crisis of the Coronavirus pandemic.

One primary initiative is the very American sounding “Furlough” as part of a job retention scheme. Furlough is indeed a US term used to describe a leave of absence. In terms of the UK’s response to Covid-19 it aims to offer employers a practical option to retain staff whilst the country enters and works through its “lockdown” phase of social distancing to limit the spread of the virus.

The primary concern for the UK economy was the impact on thousands of businesses working in areas where trade suddenly stopped due to Government restrictions on movement. With a sudden loss of income and continuing overhead, not least salaries, many businesses faced the prospect of making staff redundant on a mass scale. The answer, comes in the form of the Coronavirus Job Retention Scheme (CJRS). This is a scheme that offers employers the opportunity to place staff on a “leave of absence” retained as an employee but on reduced income, 80% of their normal income (up to a maximum of £2,500). This salary along with National Insurance and statutory pension contributions will be paid by a Government grant. The business is under no obligation to make up the salary by paying the missing 20% and it is expected most employers will simply put the proposal forward as a measure to retain staff as opposed to being forced to make them redundant.

As with any change in employment terms there needs to be a discussion between employee and employer and agreement to accept the furlough proposal.

As an employer you should ensure that you have written confirmation (copy e-mail) documentation supporting this agreement. It would be advisable to have a formally prepared furlough agreement in place to confirm what is and is not acceptable during this change in status.

Here are the main facts you’ll need to be aware of:

The employer is responsible for initiating the scheme on behalf of employees by applying for reimbursement of 80% of staff salaries (up to a maximum of £2,500) for those noted to be on the scheme. The CJRS is administered by HMRC NB it’s not down to the employee to claim.

Eligibility

To qualify the employer organisation must operate with a UK based bank account

The employees that can agree to being furloughed are those working for businesses that would otherwise have to dismiss as redundant or lay off part or all of their workforce.

To qualify for the scheme furloughed employees must have been on the PAYE payroll on 28th February 2020, (if employees joined after that date they would not qualify) Qualifying roles include:

  • full-time employees
  • part-time employees
  • agency employees on agency contracts provided they are not working on behalf of the agency during the furlough
  • zero-hour contract workers provided that they are employees albeit on flexible contracts.

It’s likely many public sector organisations will be continuing as a large number of employees will be regarded as “key workers”. If however that is not the case they are also able to apply for furlough grants and discuss these terms with staff.

If you made staff redundant after 28 February 2020, you can still agree to re-employ and place employees on furlough. This will not affect the potential earnings of the employee who can still obtain 80% of their monthly earnings, up to a monthly cap of £2,500.

If staff have more than one employer, they can be put on furlough by one employer and continue to work for another but be sure to check their employment contract. NB> They should not seek to increase their hours with the second employer for hours when they would ordinarily be working for the first employer, but for furlough. Those employees put on furlough by more than one employer will receive separate payments from each employer. In these cases, the 80% of the normal wage up to a £2,500 monthly cap applies to each job.

If any of your members of staff are on Universal Credit prior to going onto a furlough arrangement it is possible their UC payment may change – find out how staff earnings are affected.

Maternity Leave, contractual adoption pay, paternity pay or shared parental pay

If you have any employees who are currently pregnant and due to start Maternity Leave they must take at least 2 weeks Maternity Leave (4 weeks if they work in a factory or workshop) immediately following the birth of the baby in line with health and safety requirements.

Existing rules still apply if staff are eligible for Statutory Maternity Pay (SMP) or Maternity Allowance. Staff will be entitled to claim up to 39 weeks of statutory pay or allowance.

If staff qualify for SMP, they will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is £151.20 a week as at 6 April 2020 a rise from the previous rate of £148.68.

If you are an employer who ‘tops up’ Statutory Maternity Pay your employees will be eligible for an enhanced, earnings related rate of pay. If the member of staff is eligible for enhanced (contractual) maternity pay this is included within the wage costs that you can claim through the CJRS for the employee. The same principles apply if they qualify for contractual adoption pay, paternity pay or shared parental pay.

If a member of staff is currently pregnant and due to start Maternity Leave

Staff members in this position should start Maternity Leave as usual. If their earnings have reduced due to a period on furlough or statutory sick pay prior to Maternity Leave this may affect their Statutory Maternity Pay. The same principle applies to contractual adoption pay, paternity pay and shared parental pay.

How much can staff expect to be paid

As the employer you are entitled to receive a grant to cover 80% of staff monthly earnings, up to a maximum of £2,500. Organisations will be eligible for the grant once employees have been furloughed. From 1 March (or the date you place staff on furlough leave) you as the employer:

  • will pay at least 80% of furloughed staff’s usual monthly earnings, up to a maximum of £2,500, as their wage
  • can claim for a minimum of 3 weeks and for up to 3 months – but this may be extended
  • can choose to pay you more than the grant – but you are not obliged to do so

Income Tax, National Insurance contributions and any other deductions will continue to be deducted from staff wages. If an employee is unhappy and concerned that you as the employer are not paying what they are entitled to then they should be encouraged to raise this with you, employer in the first instance, then if this dispute remains unresolved, they should be directed to ACAS (Advisory, Conciliation and Arbitration Service).

How your employees’ monthly earnings are calculated on furlough for those with irregular hours

If the employee has been employed for a full year, you can claim for the higher of either:

  • the amount the employee earned in the same month last year
  • an average of their monthly earnings from the last year

If the employee has been employed for less than a year, you as the employer, will claim for an average of their monthly earnings since they started work. The same arrangements apply if the monthly pay varies such as if they are on a zero-hour contract.

If the employee started work in February 2020, you should pro-rata their earnings from that month.

NB Bonuses, commissions and fees are not included as part of the monthly earnings calculation.

While staff are on furlough

First things first, you will need to contact employees to notify all impacted staff of the proposals and confirm their agreement (preferably in writing) before putting them on furlough.

Once staff are on furlough, they will not be able to work for you, but they can undertake training or volunteer subject to public health guidance, as long as they’re not:

  • making money for your business
  • providing services on behalf of your organisation

If workers are required to for example, complete training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

Any voluntary activities undertaken while on furlough must be in line with the latest Public Health guidance during the COVID-19 outbreak.

Employee rights are not affected by being on furlough, including redundancy rights; noting a member of staff could still be made redundant whilst on furlough.

Duration – If placed on furlough staff will need to remain there for a minimum of three weeks and if this arrangement is to continue it will do so in 3 week periods in line with the Governments stated review timetable. At this time the furlough scheme is available for 3 months but this period may be extended.

Refusal to accept the furlough option. If a member of staff refuses to accept the furlough proposal and there is no work for them, they will potentially be at risk of redundancy. As the employer you are required to follow the established procedures regarding consultation, consideration of suitable alternative employment and payment of a contractual or statutory redundancy payment and we advise taking professional guidance if in any doubt when approaching such decisions.

Guidance to Employers

Given the urgency of measures required to tackle this pandemic and daily information releases we suggest you consult both the very latest Government guidelines and your legal advisers before making any decisions with regards to your redundancy policy as it relates to the job retention scheme.

At the time of publishing this update the above information is correct and in line with Government direction.

Whilst this move to support workers income and support their roles for future employment is welcome it needs to be handled in an appropriate and reasonable way for all parties concerned. There are many “grey areas” that will no doubt be tested in time.

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