The new Coronavirus Job Retention Scheme will provide UK employers with support for paying the wages of staff who would otherwise have been laid off as a result of Coronavirus. We’re still awaiting the details, but the scheme involves “furloughing” employees instead of dismissing them. Below we answer the key questions from what we know so far.

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When will the scheme be ready?

The Chancellor has said that his aim is to build the new scheme so that it is operational by the end of April, but claims can be backdated to 1 March (see further below). The government’s intention is to have the scheme up and running so that the April payroll can be reimbursed through the scheme.

Which employers is the scheme open to?

The scheme will be available to all UK businesses, charities and similar organisations of any size and in any sector.

How much will the government pay?

HM Revenue & Customs (HMRC) will reimburse 80% of furloughed workers’ wage costs, up to a cap of £2,500 per worker per month.

We’re currently assuming that the cap is £2,500 rather than 80% of £2,500, but this is not totally clear. We also assume that £2,500 is a gross figure, not net.

The government has published mixed messages about whether the £2,500 grant is to cover just salary or wages or whether it could include other employment costs, such as benefits, pension contributions or even employer’s National Insurance contributions (NICs).

Do we have to top-up the payment?

No. You can top-up the 80% payment if you wish, but you do not have to do so. For employers that are topping up, a key question is how to maintain a fair differential between furloughed employees, and any employees who are still working.

Is it a grant or a loan?

The government is saying that it will be a grant, not a loan, so it will not need to be repaid.

What about benefits such as health insurance, gym membership etc?

These will need to be maintained, unless you agree something different with furloughed employees.

It is possible that the cost of providing benefits will be included in the employment costs that can be claimed as part of the grant, but we await details. In any case, many employers will opt to maintain benefits as the simpler option, particularly if they have already paid for the cost of them.

Employers that offer permanent health insurance or death in service benefits should check with their scheme provider about what salary would be used in the event of a claim – would it be normal annual salary or pay during furlough?

Will the payment be taxable?

Yes, we expect it will be subject to PAYE and NICs.

How do we put someone in the furlough scheme?

You will need to designate them as furloughed. This will involve keeping them employed and on the payroll. You must not make them redundant and they cannot do any work for you.

Can we only put people in the furlough scheme if redundancy was the alternative?

The government has said that the furlough scheme is an alternative to being “laid off”. It is not yet clear what “laid off” means in this context – it probably means redundancy, but we await clarification.

It is possible that employers could be required to show evidence that redundancy was the alternative, for example by showing that they had started or at least discussed a redundancy process. It is also possible, however, that the simple fact that furloughed employees are not doing any work for you will be accepted as evidence that they would otherwise be made redundant. The government has indicated that it will retain the right to retrospectively audit employers, with scope to claw back fraudulent or erroneous claims 

Can we rotate employees on furlough?

This is a key unanswered question. Some employers have work for some employees, but not enough work for all. Can they rotate employees on furlough or must they select some employees for furlough and keep others at work? We don’t know the answer to this question.

Can employees do the odd bit of work for us while furloughed?

Definitely not. Employees cannot do any work for an employer that has furloughed them. If they do any work for you then you may have to repay the grant. We recommend drawing this to the attention of any furloughed employee who could otherwise be doing some work from home. It is important that they don’t do anything that could jeopardise your ability to claim the grant.

Can someone in the furlough scheme do work for other employers?

Possibly. We await details.

You should be able to impose restrictions on employees working elsewhere, even if this is allowed under the scheme, but you should think carefully about whether you want to do so. You will obviously want to stop furloughed employees from working for a competitor, and we presume there will be no need to say this explicitly because the employee’s underlying contract of employment will stay in place throughout the furlough. You might want to allow furloughed employees to take on extra work in, for example, the health and social care sector or essential services.

We don’t yet know if furloughed employees will be able to take advantage of the emergency volunteering leave scheme and, if so, how this would work in practice.

Do employees have to agree to being furloughed?

It depends on the circumstances. Generally, if you are planning to maintain an employee’s full pay during furlough (i.e. topping up the difference between the grant and the employee’s normal pay), you will not need any kind of agreement to designate the employee as furloughed. The same applies if the employee currently has no right to continue being paid (because, for example, they are already laid off on no pay).

In other cases, the employee will need to agree, but this does not necessarily need to entail a protracted procedure. In our view, most employees will be willing to accept furlough on basis that the other options are worse and to ensure they still have a job to return to when the crisis is over.

How long can we keep workers on furlough?

The government has announced that it will be a three-month scheme (1 March to 31 May 2020) but could be extended. Employers are likely to want to reserve the right to call employees back from furlough if trading conditions improve.

How does backdating to 1 March work?

The scheme will be backdated to 1 March 2020, but we don’t yet have any details about how this will work. For example, we don’t know if the scheme can be used for employees who joined after 1 March.

Can we make some people redundant and furlough others?

We believe so. At this stage, we do not think it will be the case that if you have made any workers redundant you will be outside the scheme. We have not yet seen the scheme conditions, however.

How should we select which employees should be furloughed?

Workers who cannot work from home and who currently have no work to do will be obvious candidates for furloughing. Otherwise, employers may need to consider a process of calling for volunteers, pooling and selection – as with a redundancy process. There is a risk of claims (including discrimination claims) if the process is not handled correctly.

Can we do a partial furlough to put somebody on reduced hours? 

No. An individual cannot work for you at all if they are furloughed.

If you have some work for an individual, but not enough, you can still have a discussion with them about going down to a reduced working week. They will need to agree to this, except in the unlikely event you have reserved the right to put them on reduced pay for reduced work, and they will not be on the furlough scheme. 

What is the process for claiming the payment?

You will need to submit information to HMRC about workers who have been furloughed and their earnings, via a new HMRC online portal. HMRC may ask for more information. The portal will hopefully be open in April. If you need short-term cash flow support in the meantime, the government has said you may be eligible for a Coronavirus Business Interruption Loan.

What about casual workers or workers on zero-hours contracts?

The scheme will cover workers on the PAYE system, including any casual or zero-hours worker who are paid in that way. For workers with fluctuating hours, the scheme is likely to be based on average earnings over a reference period.

Can workers be in the furlough scheme if they are off sick?

We think you will be able to put workers in the furlough scheme even if they are off sick, assuming they would otherwise be facing redundancy. If they are on statutory sick pay (SSP), however, this could be at a lower rate than furlough pay.

Employees who become sick while on furlough are also potentially eligible for SSP, but if this is lower than their furlough pay they will have no incentive to declare themselves sick.

Employers will need to decide what to do about company sick pay. It may be best to agree that company sick pay is suspended.

Will workers continue to accrue holiday allowance while they are furloughed?

Yes, because they remain employed. You could agree that no contractual holiday (beyond the statutory minimum of 5.6 weeks per year) will accrue during furlough, but employees will retain their right to accrue annual leave under the Working Time Regulations.

Can people take their holiday allowance while furloughed?

You could refuse requests for holiday during furlough if you want to do so, but you might prefer employees to use up their holiday allowance rather than storing it up. To require employees to take holidays, you need to give twice as much notice as the length of the holiday you want them to take (e.g. one week’s notice for two weeks’ holiday) unless the contract says something else.

What should we pay staff who are take holiday during furlough? 

This is a complicated question on which we suggest you take advice. We expect that you will be able to claim for holiday pay through the grant, in the same way as wages or salary.

Will employees continue to accrue continuous service during furlough?

Yes, the underlying relationship will continue if a worker is furloughed, so their period of continuous employment will continue to accrue throughout and will be recognised in full once the furlough comes to an end.

What happens at the end of the furlough?

The idea is that employees will be able to come back to work. The scheme is designed so that employers don’t need to make redundancies and then recruit a new workforce once the crisis is over – their existing workforce will be ready and waiting in the wings to resume work.

There is a more difficult question over what happens if trading conditions have not improved sufficiently for you to take all the furloughed employees back when the scheme ends. If redundancies are necessary at that point, you are likely to be allowed to make them – but we have not yet seen the scheme conditions. Other European countries that have similar schemes in place are imposing restrictions on employers making redundancies. The government has not indicated that similar conditions will be imposed here, but we do not know for certain.

Are foreign nationals with visas eligible for the furlough scheme?

We have seen nothing to suggest otherwise.  We believe it will cover all workers so long as they are UK workers on UK contracts, working in the UK and paying UK PAYE. There are potential sponsor compliance issues to consider for Tier 2 workers, and while foreign nationals with limited leave are in most cases not entitled to receive public funds, accessing funds through the furlough scheme is not currently prohibited.

 

Related Item(s): Employment, Covid 19 – Coronavirus, Employer and employee relations

Author(s)/Speaker(s): Lucy Lewis, Richard Moore,