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Many businesses have been forced to close at least temporarily due to coronavirus
This weekend, the government updated its guidance on the Coronavirus Job Retention Scheme or furlough. How will the scheme work in practice?
It’s one of the most commonly used words in our expanding coronavirus lexicon, but perhaps also one of the more confusing. Furlough, the term used to describe the government’s Coronavirus Job Retention Scheme, now attracts more than 23 million results in a Google search and makes a daily appearance in the business headlines.
This weekend (4 April), the government announced updated guidance to the scheme, clarifying that organisations can re-employ people who were made redundant after 28 February 2020 so they will be eligible to receive 80% of their former salary. This also means that those who left to start a new job after this date can ask their previous employer to re-employ them so they can qualify for furlough support.
But despite some clarification, many employers remain confused about how the scheme will work in practice – from the situations in which furlough is appropriate to how the money will be reclaimed from HMRC. Below we outline some of the key elements of the scheme and what is known so far:
What is the Coronavirus Job Retention Scheme?
Announced on 20 March by chancellor Rishi Sunak, the scheme offers a grant from HMRC to cover 80% of salaries, up to £2,500 a month. The scheme is scheduled to last for three months backdated from 1 March 2020, but may well be extended.
Sunak said the grants would be available from 1 April, and the scheme aims to ensure that businesses impacted by the virus can furlough employees with financial support from the government rather than making redundancies. Furlough must be for a minimum of three weeks.
There is nothing to stop employers “topping up” the difference between the amount they are reimbursed by the government and full salary, but this will not be funded through this scheme.
The online service employers can use to claim furlough is not ready yet, but the government estimates this will be up and running by the end of April.
Who has used it so far?
Thousands of staff have been placed on furlough since the scheme was announced: British Airways announced it would furlough 80% of its staff (equivalent to around 36,000 employees) last week, while construction company Sir Robert McAlpine said it was preparing to do the same with around 50% of staff. Among the latest employers to announce it would be using the scheme is newspaper publisher Reach.
Diane Gilhooley, global head of employment, labour and pensions at law firm Eversheds Sutherland, has described the amended scheme as more like an “income protection scheme” rather than something to avoid redundancy, as its remit seems to be widening.
What if someone left after 28 February?
“The initial guidance on the scheme suggested that only employees made redundant since 28 February 2020 could be re-engaged by the employer and put on furlough,” explains Charles Wynn-Evans, a partner at law firm Dechert. “On this basis the scheme would not cover those who had resigned in the normal course – who of course could not be furloughed for the purposes of the scheme by their new employer as they would not have been on the new employer’s PAYE payroll as at 28 February 2020.”
The updated guidance from the government means that workers can be re-engaged and put on furlough even if they had not been made redundant, provided that they were still on PAYE on 28 February.
Can someone still work while on furlough?
If someone has more than one employer, they can be furloughed separately by each one. This also means that they can continue to work for another employer and receive usual wages if they have been furloughed by a different employer.
Employees can also sign up to volunteer while on furlough, as long as the organisation they’re working with does not generate revenue for that business.
What about employees who have caring responsibilities or who are sick or ‘shielding’?
Anyone who needs to stay at home because they are following public health guidance to self-isolate can still be furloughed if they are unable to work from home and “would otherwise have been made redundant”, says Wynn-Evans. The same applies for employees who cannot work because they have caring responsibilities (as children are no longer attending school and nurseries have closed).
Employees who are receiving sick pay while self-isolating cannot be furloughed, but can be furloughed once their isolation period is over, according to government guidance.
Does there need to be a consultation process?
Emma Ahmed, a professional support lawyer at Hill Dickinson, says that because most UK employment contracts will not contain provisions where an employer can force an employee to take a period of furlough leave, placing an employee on furlough will generally involve a temporary change of contract. If the organisation intends to pay less than full pay (ie 80% from the government grant and a top up from its own payroll), it’s recommended to get express agreement for the change.
She advises: “Employers should make sure any process followed is fair and involves consultation with employees; furlough leave should not be unilaterally imposed without consent.” Where a trade union is recognised, she adds, it should be consulted about the proposals.
Julian Cox, head of employment at iLaw, agrees that employees’ agreement must be sought as it involves a change in employment status. However, whether the typical collective consultation arrangements apply is unclear. He adds: “The guidance says that this process may be bound by the usual rules of collective consultation, which require an employer to consult with their team if more than 20 workers are affected,” he says.
“Unfortunately, the language used in the government guidance is far too ambiguous and it is leaving some employers uncertain of their responsibilities, which prevents them from taking the action they need. Companies want to take action on this now, but if they do not undergo the necessary process for consultation they may risk being found in breach of the regulations at a later date.”
Which aspects of pay are covered?
“What is and what is not going to be paid must be made clear at the time that furlough is offered to staff so that there is clear consent as to the terms of furlough and to avoid arguments about deductions from wages at a later date,” advises Linky Trott, head of employment at Edwin Coe. Employers can claim (up to the £2,500 cap) salary, past overtime where it is compulsory or “forms part of usual remuneration”, and compulsory commission payments, she says.
Not included are discretionary bonuses, tips, commission payments and benefits in kind such as company cars or health insurance. “Fees” have also been excluded from the scope of the scheme, although the government does not provide detail on what this term means. Furthermore, while many employers will choose to top up the 80% government grant to full salary, this is not compulsory. Ahmed adds: “It may also be possible to justify [topping up] for only part of your workforce, such as critical workers, but care should be taken to ensure selective top-ups are not discriminatory.”
What if an employee refuses to go on furlough?
Acas’s advice if an employer cannot reach an agreement on furlough is that they may consider changing the written terms in employees’ contracts. “If there are more than 20 employees affected, employers will need to consult staff representatives (‘collectively consult’),” the conciliation service says.
Ahmed at Hill Dickinson explains: “If more than 20 employees are involved, and a dismissal and re-engagement process might be followed if voluntary consent to the change is not forthcoming (to force the change through without agreement), then the employer will have a duty to inform and consult appropriate representatives (which may require an election to select representatives).” Because time is of the essence at the moment, it would be reasonable to shorten the typical consultation period of 30 or 45 days.
What about non-employees such as agency workers?
If agency workers are paid through PAYE, furlough arrangements should be agreed with the agency, who is the “deemed employer”. The updated guidance says that agency workers should not perform any work through that agency (including for other clients) while they are on furlough.
Workers operating through umbrella companies should contact their umbrella company for further guidance. The Freelance & Contractor Services Association is lobbying for the government to treat contractors who operate through umbrellas as “employees whose pay varies” (the same way as agency workers are categorised).
The government has now also clarified that those with the legal employment status of “worker” rather than employee are eligible for furlough support. This does not include self-employed independent contractors, who are instead able to apply for the chancellor’s self-employment support package.
Company directors can take furlough and continue to undertake their statutory duties “provided they do no more than this would reasonably be judged necessary for that purpose”, according to the updated guidance.
What about annual leave?
According to Acas, if an employee is furloughed, they can still request to take their holiday in the usual way. For those who are still working, the government recently announced that they could carry over up to four weeks’ paid holiday over a two-year period, providing they were not able to take holiday due to the coronavirus (they were sick, on furlough or had to continue working as they were a key worker).
When it comes to holiday that has already been booked by employees on furlough, the guidance is less clear, according to Simon deMaid at law firm Howes Percival. He says: “The current government guidance on the scheme states employee rights are not affected by being on furlough leave, suggesting holiday entitlement would continue to accrue as normal. However, the guidance is silent on whether holiday can be taken during a period of furlough leave and if so, what rate of pay the employee is entitled to receive while on holiday: their normal salary or the 80% furloughed rate.”
With Easter coming up this weekend, employers may well be wondering about how bank holiday pay arrangements will apply. Acas says that employees may still be required to use a day’s paid holiday if they are on furlough over the bank holiday. Those who are still employed, meanwhile, should get their usual pay for bank holidays.
Can we rotate furlough?
The updated guidance confirms that employees can be rotated on and off furlough, for example for a period of annual leave, to help employers avoid an accumulation of untaken leave. Wynn-Evans at Dechert says: “It is now clear that furloughing can be rotated across a group of employees.
“The updated guidance confirms that employees must return to work at the end of a furlough period and can be furloughed multiple times provided that each period of furlough is for a minimum period of three consecutive weeks.”
“It is now clear that furloughing can be rotated across a group of employees.” – Charles Wynn-Evans, Dechert
What about apprentices?
Apprentices are eligible for furlough in the same way as other employees. The updated guidance says that employers “must pay apprentices at least the Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage as appropriate for all the time they spend training”.
This means employers must cover any shortfall between the amount they can claim for their wages through this scheme and the appropriate minimum wage.
What is still unclear?
As with any legislation or policy put together in such fast-changing circumstances, it is likely that some finer details remain unclear. Employment lawyers have pointed to the following remaining questions:
- HMRC is yet to clarify what happens to staff that have been transferred to another business under TUPE after 28 February 2020. Can a new employer claim for reimbursement under the scheme for an employee who was furloughed at point of transfer?
- It is not clear what happens to someone who becomes ill while on furlough (particularly if this is before the required three-week minimum): do they come off furlough and apply for sick leave?
- What happens if employers decide to wait and see if they really need to place staff on furlough? Cox at iLaw argues that the legislation needs to be clearer on when the scheme can start and end. He says: “Businesses may wish to keep this scheme in reserve as a last option, but the rules are clear, the [scheme] is only currently open for three months, starting from 1 March. This may mean that those who wait may be penalised for trying to continue on as usual, while those businesses that decide to furlough earlier could be better off. This area of guidance could do with clarification and possible amendment to make it fairer for all.”
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