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The scheme applies to employees who have been furloughed meaning that they have been put on a period of leave during which they are not required to work. The employer must agree with the employee that they will be placed on temporary leave (furlough leave) and this then allows the employer to recover 80% of the employee’s wage costs or £2,500 per calendar month whichever is lower. This is to enable to employer to pay the employee that guaranteed payment. Employers can choose whether to top that up to 100% of wages. The scheme is backdated to 1 March 2020 and will be open for at least three months.
Who is covered?
All employees on PAYE, including those on zero/variable hour contracts and employees on agency contracts are covered. The self employed are not covered under this scheme and details of their scheme will be summarised in a separate article.
The scheme is intended to place employees on furlough leave therefore retaining the employees rather than make them redundant. If you have already been made redundant, the best thing you can do is appeal that decision, seek to be re-engaged and ask to be furloughed. The scheme also covers employees who made redundant after 28 February 2020 and were subsequently rehired.
Businesses, charities, recruitment agencies (where agency workers are paid through PAYE) and public authorities with an operational PAYE payroll as at 28 February 2020 are all eligible to claim.
Steps to take to put employees on furlough leave
- Decide which employees to designate as furloughed employees being mindful of the risk of discrimination if selection is linked to a protected characteristic such as race, age or disability. Seek volunteers initially. Thereafter devise a basic matrix for selection ensuring the criteria you use are objective, transparent, reasonable and justifiable.
- Notify those employees of the intended change.
- Agree the change with the furloughed employees (if you can’t agree, you should start looking at redundancy)
- Confirm the employee’s new status in writing.
- Submit the information to HMRC about the employees that have been furloughed and their earnings through the new online portal, when it is up and running.
- Ensure that the employees do not carry out any further work whilst they are furloughed (HMRC will recoup monies from employees who work for someone else as they will be aware through PAYE). Make it clear that if they work for someone else whilst furloughed, this will be treated as gross misconduct.
The Employee does not have the right to require their employer to place them on furlough leave as an alternative to redundancy however it is hoped that both employees and employers will see the new scheme as preferable to business closure and making redundancies. The benefit to the employee is having up to 80% of their salary paid for the next three months and possibly beyond and the opportunity to go back to work after the pandemic has ended. It is unclear at present whether refusing to place an employee and making them redundant instead could amount to an unfair dismissal.
One way of avoiding designation of employees for furlough leave is to seek volunteers in the first instance.
Statutory annual leave will continue to accrue whilst employees are on furlough leave.
Employers may choose to fund the difference between the furlough pay and actual salary but does not have to do so. Withholding 20% of the employee’s salary however constitutes a breach of contract and unlawful deduction from wages unless the employee gives consent. It is expected that the majority of employees will consent since furlough leave and pay is a better alternative to unpaid leave and redundancy.
What can the employer claim under the scheme?
Employers can claim a grant of up to 80% of an employee’s wages up to £2,500 per month. In addition the Employer can also recover employer’s National Insurance contributions and minimum auto enrolment pension contributions. Fees, commission and bonuses are not included. The employee’s pay whilst on furlough leave will be subject to deductions for income tax, employee’s National Insurance contributions and employee’s auto enrolment pension contributions where applicable.
For those with variable hours the 80% grant will be calculated based on either (a) the employee’s earnings in the same month last year; or (b) their average monthly earnings over the 2019 – 2020 tax year, whichever is higher.
Those on the National Minimum Wage will receive 80% of the National Minimum Wage. This will not fall foul of NMW legislation because they are not performing work whilst furloughed.
Claims will be made via an online portal but it is likely to take 4 – 6 weeks before it goes live. Claims may only be submitted once every 3 weeks. Employers should consider whether they have the cashflow to sustain payment of the 80% until such time as it is reimbursed by HMRC.
It is not thought that furlough leave will reduce or change any other employment rights such as the right to receive maternity leave and pay or the right to receive paternity leave and pay save for the fact that some individuals may find themselves financially better off on furloughed leave and pay than they would be on statutory paternity pay. Pregnant employees will have to take the two week compulsory maternity leave period and are most likely to elect to take at least the first six weeks leave as maternity leave given that those are paid at 90% of normal earnings in the statutory scheme. Thereafter in the short term they may be financially better off being on furlough leave thereafter.
There are a lot of rumours out there, we can’t stress enough how important it is to seek specialist legal advice on this difficult area. If you have a quick query that you would like us to address in Robert’s next podcast; please submit it by email to admin@samuelphillips.co.uk. If you would like a free 10 – 15 min telephone consultation with either myself or Robert on bespoke matters; please email alisonwhitfield@samuelphillips.co.uk to arrange a mutually convenient time.
Written by Robert Gibson, Senior Consultant - Employment Law
Robert is a Senior Consultant at Samuel Phillips and specialises in employment and business matters. He advises in relation to employment and shareholder disputes, including pensions and related issues.
