I’m sure the Chancellor’s announcement on Friday that the Government will reimburse 80% of the wages of those who would be otherwise laid off by their employers because of the impact of COVID-19, will come as a great relief to many. The affected employees will be put on “Furlough Leave”. But what does this mean and how will it operate in practice?
Understandably, at this stage, details around the scheme, are scant. However, I’ve jotted down a few pointers of what we know (or think will happen).
- All UK employers can access the scheme (e.g. limited companies, sole traders, LLPs, charities etc).
- The scheme is designed to help employers retain those employees who would be otherwise “laid off”, by which we understand to mean made redundant or put on a period of “lay off” (an employment law term meaning a temporary period when employees are required to take unpaid leave because of a downturn in work).
- Employees will have to be designated by their employers as “furloughed” and notified of this designation.
- It would seem that the Furlough Leave has to be agreed between employer and employee. In other words, the employee cannot simply choose to be furloughed and the employer cannot furlough an employee without their agreement.
- However, if employers ask employees to agree to Furlough Leave, if faced with the choice of being furloughed (and receiving 80% of pay up to a specified cap) or being laid off without pay or made redundant, employees are likely to choose the furlough option.
- The vast majority of contracts of employment will not contain the right of employers to put employees on Furlough Leave. Therefore, employers wanting to make use of the scheme will have to obtain employee consent to vary their contracts of employment to allow the Furlough Leave. This is likely to be achieved by asking employees to sign Letters of Variation of Contract containing the right to put them on Furlough Leave.
- Whilst on Furlough Leave, employees can be paid 80% or 100% of salary. The Government will reimburse the employer 80% of salary up to £2,500 per month for each employee.
- The employer can choose to make up the remaining 20% of salary themselves. If they decide not to do this or are not in a position to do this, the Letter of Variation of Contract should make it clear that the employee also consents to a deduction to their salary of 20%.
- In order to participate in the scheme, the employer should submit information to HMRC about the employees in question and details of their earnings via a new online Portal (still to be set up).
- HMRC will reimburse 80% of employment costs (thought to include employer pension contributions and employer national insurance contributions) up to £2,500 per employee per month.
- To qualify the employee must not carry out any work for the employer for the furlough period.
- This could cause some employee relations issues if some employees are not working and are receiving 80% of salary and others are having to work as normal. This will require careful and sensitive management by the employer.
- The scheme could also be open to abuse by unscrupulous employers claiming that staff are furloughed when they are, in fact, still working.
- The scheme will run for three months from 1 March 2020 but the Government has said it will be extended if necessary.
- The Government has also introduced changes to statutory sick pay to help those sick and self-isolating, and various measures to help businesses. See the links below.
- So far, assistance for the self-employed is limited. It may be that the Government takes further measures to help this group.
If you’re an employer requiring advice on staff during this difficult time, do get in touch with me at Hannah.firstname.lastname@example.org. We’re experiencing high demand just now but will get back to you just as soon as we can. Please also see MBM’s coronavirus hubpage for guidance on legal issues stemming from the impact of the virus https://info.mbmcommercial.co.uk/coronavirus. We will do our best to help.