To say that the COVID-19 pandemic with current restrictions has had a significant impact on businesses would be nothing less than an understatement. We have spent the last couple of weeks responding while familiarising ourselves with legislation that would, in ordinary times, take months to pass through Parliament.
We understand this is an uncertain time for all who are reading this and we will continue to provide support and guidance where we can. In response to this crisis we have put together answers to some frequently asked questions (FAQs).
For further detail, please contact a member of Furley Page Employment Team or telephone 01227 763939.
What is the Government’s ‘Coronavirus Job Retention Scheme’ and when does it come into effect?
The Government has announced a radical job retention scheme that will cover 80% of the wage costs of employees who are ‘furloughed’ by their employer – up to a maximum of £2,500 per month. We now have some detailed guidance of how the system will operate but it is not yet up and running. The Government plans to have it in place in time for the April payroll (although we think that is optimistic), and it will be backdated to cover the period from 1 March 2020.
What does furlough mean and how is it different from being laid off?
Furlough leave means ‘temporary leave of absence’ and it is not a term that has been used in UK employment law – until now. It seems that an employer will be asked to designate an employee as being ‘furloughed’ meaning that they are being kept on the payroll, but not being given any work to do. This is in reality no different from a ‘lay-off’ but the Government seems keen not to refer to it in that way. This may be because the term ‘lay-off’ is sometimes used (inaccurately) as though it is interchangeable with ‘redundancy’ – even though they have distinct and separate meanings in employment legislation.
Which employees are covered by the scheme?
Potentially, any employee who was on the employer’s PAYE system by 28 February 2020 is covered. This does leave any employees who were in the process of changing jobs and who joined their new employer at the beginning of March 2020 in some difficulty.
Does the scheme apply to zero-hours contracts?
It seems clear that the scheme will apply to anyone who is on the employer’s payroll. This means that zero-hour staff will be included provided they are paid through PAYE. Those who are not on the payroll will not qualify under the furlough scheme, but could benefit from a separate scheme aimed at the self-employed. This is something that they will need to pursue directly with HMRC.
Does the scheme apply to agency workers?
It appears that it does. An agency worker who is on the PAYE system of the agency will qualify for furlough leave provided that he or she is not working. That would seem to mean that the end user can terminate the assignment of a particular agency worker and the agency would then be able to place that worker on furlough leave. Importantly the pay that the agency worker would qualify for would be calculated based on the either the earnings in the corresponding month of 2019 or on the basis of average earnings in the last tax year. It would not be dependent on the pay the worker was receiving in the most recent assignment.
Can we choose which employees to place on furlough and which to ask to come into work?
The guidance published so far suggests that it will be for the employer to designate an employee as furloughed in which case the choice of who to place on furlough leave will be essentially one for the employer to make. The employer should make its decision based on the needs of the business ensuring that it retains access to the skills and experience that it needs to continue operating as best it can.
What wages will it cover? How will pay be calculated?
The scheme covers the lower of 80 per cent of wage costs or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Commission and bonuses are not recoverable and it seems likely – although the guidance does not address the point – that tips and gratuities will also be excluded.
The amount payable will be based on the employee’s normal salary. Where the pay is variable then the employer can claim for the higher of either the same month’s earnings from the previous year or the average monthly earnings from the 2019-2020 tax year. Where the employee has been employed for less than a year, the employer should take an average of their earnings since they started work.
Does it only apply if we don’t pay the wages – or will we be able to recover wages that we have already paid?
The scheme is intended to help those employers who have chosen to keep employees on the books rather than make them redundant. We can certainly expect that it will refund employers who have already been paying employees from 1 March 2020 provided that the employees have not been doing any work in that period.
Can I bring back employees who have already been made redundant?
The Government is encouraging employers to reemploy staff that were dismissed for redundancy after 1 March 2020 but before the scheme was announced. It seems that the employer will be able to claim in respect of such employees even in respect of the time they were unemployed. There will, however, be no obligation to take this step.
Do I have to place all of my employees on furlough, or can I be selective?
It is clear that the Treasury does not envisage an all or nothing approach. Some employers will need to maintain a skeleton staff even if the majority of their operations are shutting down. Some will only need to send a relatively small proportion of their employees home while other parts of the business carry on almost as normal. It is clear that employers and employees will be able to benefit from the scheme in either scenario.
Can we change which employees are furloughed at any one time – can an employee be furloughed, brought back to work and then furloughed again?
The guidance makes it clear that the minimum period for which an employee may be furloughed and take advantage of the scheme is three weeks. However there is nothing to suggest that an employer cannot rotate staff in and out of the furlough scheme provided that each rotation is at least three weeks long. This not only allows the employer to focus on those areas of the business that need attention at any one time, but also allows a fair distribution of work and leave among employees.
Can we place sick employees on furlough or do we have to keep paying them SSP?
The guidance says that an employee on sick leave – or any other form of unpaid leave – will not qualify for furlough. However, once the leave ends the employer will be free to designate the employee as furloughed. Indeed the employer would also benefit from no longer having to pay sick pay. This is something of an anomaly because it means that someone who is actually off sick with coronavirus will actually be worse off financially than a healthy employee who is sent home on furlough. We may see employees declaring themselves fit for work in order to be placed on furlough by their employer. Obviously it is important in such cases that the employee in question does not attempt to actually come into the workplace.
What if a furloughed employee becomes sick?
It is unlikely that an employer would be obliged to notify HMRC if a furloughed employee becomes ill. Indeed as long as the furlough lasts there is unlikely to be any reason for the employee to even tell the employer that they have developed symptoms.
The furlough scheme does not pay all of an employee’s salary – do I have to top up their pay to the full amount?
The guidance says that this is voluntary – but it is in reality a matter for the contract of employment. For most employees on a salary, or with a guaranteed minimum number of hours the employer remains obliged to pay the employee in full if it is not in a position to offer work. To that extent the furlough scheme subsidises the employer’s wage cost but does not replace the obligation to pay wages.
If there is a clause in the contract allowing the employee to be laid off without pay then the payments made under the furlough scheme will be in addition to the employee’s contractual entitlement and there will be no obligation to top up the employee’s pay to the full amount.
We advise that employers write to employees to notify them of the scheme and agree a temporary reduction in salary so that the amount paid by the furlough scheme represents the full amount to which the employee is entitled. The employer could make the employee’s consent to such a change dependent on the employer designating them as furloughed rather than making them redundant.
Can I reduce the hours that employees work?
This depends on the terms of the contract. The more important question (see below) is likely to be whether an employer is able to reduce the pay of an employee who has been given fewer hours to work. Very few employees will actually have a contractual entitlement to work a full working week provided that the employer is prepared to pay them as normal. Where the employee’s reward package is dependent on commission or a bonus paid on output then there may be an argument that the employer is in breach of contract if they do not give the employee the chance to work a full week. In the circumstances of the current crisis however, there must be a strong argument that it would not have been possible to earn much commission anyway.
What does a reduction in hours mean for pay?
A salaried employee whose hours are reduced will still be entitled to be paid in full unless he or she agrees otherwise – perhaps as an alternative to redundancy.
Can I instruct employees to take annual leave if I cannot offer them work?
Under the Working Time Regulations an employer can instruct a worker to take annual leave by giving notice that is at least twice the duration of the leave that must be taken. So if the employer wants the employee to take two weeks’ of annual leave entitlement then it must give the employee four weeks’ notice of this. There is of course nothing to stop employers and employees from agreeing that any given period without work should be treated as annual leave – although the terms of the furlough scheme will reduce the incentive to reach agreements of this sort.
Can I instruct employees to take annual leave while they are on furlough?
Nothing the guidance so-far published by the Government would seem to prevent this. However an employee forced to take annual leave would arguably be entitled to be paid in full for that period rather than at the capped figure provided for in the job retention scheme.
Does the prospect of the furlough scheme make it unfair to make employees redundant?
It will certainly be a relevant consideration. There may well be circumstances in which any reasonable employer would conclude that the job retention scheme means that there is no need to make employees redundant. The extent to which the employer could recover its wage costs by placing employees on furlough will certainly affect the reasonableness of any decision to proceed with redundancies.
The job protection scheme does not in itself protect employees against redundancy. Nor does it cover all of the costs associated with employing somebody. In the absence of an agreement from an employee to accept the sum provided by the scheme for the duration of the furlough, and depending on the terms of the contract, the employer of furloughed employees could still be facing considerable costs.
It would seem likely however that an employment tribunal would take the view that a reasonable employer would at least explore the options presented by the scheme and whether an employee would accept the associated drop in pay for the duration of the furlough before concluding that employees should be made redundant. While the scheme itself does not require employers to take part, it is difficult to see why an employer would refuse to at least consider doing so and discuss the matter with employees who would otherwise be made redundant.
If you require help or more information, members of Furley Page Employment Team are working remotely. Andrew Masters, Amanda Okill and Tessa Robinson can be contacted by email or by telephone on 01227 763939.