Constantine Law’s Fact Sheet on Furloughing by John Hayes

John Hayes, Managing Partner at Constantine Law, gives us a Factsheet on Furloughing: What it means and How to Implement it.

You can connect with John on LinkedIn here

The Government has updated guidance for employers (on 4 April 2020) which can be found here.   We summarise the main practical considerations below.

1. WHAT IS THE SCHEME? The Coronavirus Job Retention Scheme is intended to help employers to maintain their current workforces where operations are severely affected by coronavirus. The scheme allows employers to place employees on ‘furlough leave’ and provides access to a grant towards employment costs. The scheme was announced on 20 March 2020 and has been backdated to 1 March 2020.  Guidance is being provided incrementally by the government and we will continue to update this summary document.

2. WHO IS ELIGIBLE?
   1. The scheme is applicable to all PAYE employees who were on payroll on 28 February 2020 (including part-time, agency, flexible and zero hours contracts) and all UK businesses are eligible.
   2. The scheme also applies to PAYE office holders (including company directors), salaried LLP members, agency workers, apprentices and “workers” who fall under s.230(3)(b) of the Employment Rights Act.
   3. An employee must be furloughed for a minimum period of 3 weeks for a claim for wages to be valid.

3. WHAT ABOUT NEW STARTERS AFTER 28 FEBRUARY 2020? The scheme does not apply to them.

 

4. WHAT HAPPENS DURING FURLOUGH LEAVE?  The employee remains employed by the employer, but they cannot work for the employer. They should not attend the workplace or work remotely. If employees continue to answer emails and telephone calls (for example) then HMRC may see this as abuse of the scheme and could well seek repayment from the employer of part or all of the funding.                                The employee can, however, volunteer or train provided that “the employee does not provide services to, or generate revenue for, or on behalf of their organisation”. The employer can require employees to undertake training from home. Where training is undertaken by furloughed employees, at the request of their employer, they are entitled to be paid at least their appropriate national minimum wage for this time.

5. CAN FURLOUGHED EMPLOYEES WORK FOR ANOTHER EMPLOYER?
   1. Employees already have more than one job can be furloughed by one employer and continue to work for the other.
   2. The scheme does not prevent furloughed workers from taking on new employment while furloughed provided that this is by agreement. If the contract prohibits additional employment, employers may be asked to vary this provision. Employers may wish to take steps to warn employees about working for competitors and remind employees of their contractual duties.

6. HOW LONG WILL THE SCHEME LAST? The scheme is open for initial period of 3 months (from 1 March 2020) after which it may be extended. It is good practice to inform employees the scheme will be kept under review.

 

7. HOW IS IT IMPLEMENTED? Furlough leave must be seen as a change of status and will therefore require consent or a contractual right.  The guidance requires that employers agree the leave with the employee and confirm their new status in writing (and keep a record for 5 years).  Once the new portal is open (see 10, below), the employer will report this status to HMRC.  When deciding who should be furloughed, wider employment rights and obligations continue to apply, including equality considerations.

 

8. IS THERE A REQUIREMENT TO CONSULT WITH EMPLOYEES? If the employee is proposing to furlough 20 or more employees in circumstances where they would have otherwise made redundancies, then the requirement to collectively consult seems likely to have been triggered. The special circumstances defence may be available to employers if there is insufficient scope to consult properly with employees, given these extraordinary times.    

 

9. WHAT ABOUT THOSE WHO ALREADY LEFT EMPLOYMENT OR ON NOTICE? The scheme was backdated in order to provide for those who had been put on notice of redundancy or who stopped working on or after 28 February 2020. It also allows employers to rehire and furlough employees and extend or renew expired fixed term contracts. Employers can also claim for those employees who agreed to take unpaid leave on or after 28 February 2020.

 

10. CAN EMPLOYEES REQUEST FURLOUGH LEAVE AS AN ALTERNATIVE TO REDUNDANCY? An employee can ask to be placed on furlough leave but the employer does not have to agree. However, we expect that many employers will see the scheme as preferable because, in the short term, it will avoid payments of notice, accrued holiday and any statutory redundancy entitlement payable and allow access to a grant.

 

11. WHAT CAN THE EMPLOYER CLAIM BACK AND HOW?
    1. The employer will be able to claim a grant of up to 80%, of an employee’s regular wage (before tax) up to a cap of £2,500 per month. This includes wages, past overtime, fees and compulsory commission payments.
    2. Discretionary bonus (including tips) and commission payments and non-cash payments should be excluded. The cost of non-monetary benefits, including taxable Benefits in Kind and benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also be excluded.
    3. In addition, the employer will be able to claim the associated Employer NICs and minimum (3%) automatic enrolment employer pension contributions on that subsidised wage. Employees will be required to pay tax and NIC on payments received.
    4. Claims will be made via a HMRC portal which is being implemented and it is expected to be some weeks before this is up and running. Claims should only be made in relation to the period after the employee finishes work, not when the decision to furlough is made, or the date of any correspondence.

 

12. CAN THE EMPLOYER “TOP-UP?” The employer may seek to pay only at the rate recoverable from HMRC. The employer may opt to top up the employee’s salary if the grant does not cover it in full, but this is not a requirement.

 

13. HOW IS THE 80% OF EMPLOYMENT COSTS CALCULATED FOR THOSE WITH IRREGULAR EARNINGS? The 80% grant will be applied to the higher of: (1) earnings in the same month in the previous year; or (2) average monthly earnings in the 2019/2020 tax year. If the employee has worked for less than a year, the employer can claim for an average of their monthly earnings for the time that they have worked. If the employee only started work in February 2020, a pro rata of their earnings so far should be taken to support the claim.

 

14. WHAT IF 80% OF SALARY IS AN AMOUNT WHICH FALLS BELOW NATIONAL LIVING WAGE/NATIONAL MINIMUM WAGE? Furloughed employees are not working therefore NLW and NMW do not apply.

 

15. CAN EMPLOYEES BE MOVED ON AND OFF FURLOUGH LEAVE (OR ROTATED)? Yes, but an employee must be furloughed for a minimum of 3 weeks on each rotation.

 

16. WHAT HAPPENS WITH ANNUAL LEAVE AND CONTINUITY OF SERVICE? We have no confirmation, but we anticipate that this will continue to accrue. We are advising clients to hold the status quo on any leave which is already booked until we have clarity as to how this should be paid. Equally, employees coming up to two years’ service are likely now to accrue this length of service.

 

17. WHAT HAPPENS WITH FAMILY LEAVE? Employees already on or due to go on any form of family leave (e.g. maternity leave) will remain on such leave and cannot be furloughed. Employees who are unable to work because they have caring responsibilities resulting from coronavirus can be furloughed.

 

18. WHAT HAPPENS WITH SICK LEAVE? Those already on sick leave or self-isolating remain on sick leave until they are fit to work or out of isolation and paid at the relevant rate (SSP or contractual sick pay). Once they return to work, they may then be furloughed. Employees who are shielding in line with public health guidance can be placed on furlough if they would otherwise be at risk of redundancy. If employees do report as sick during furlough leave employers are required to pay them at the relevant SSP rate.  However, we would expect some employees are unlikely to report as sick so as to avoid payment at a lower rate. 

 

19. WHAT ABOUT SPONSORED WORKERS UNDER TIERS 2 OR 5 OF THE POINTS BASED SYSTEM? On this point guidance will also be needed from both the Home Office. The Home Office have strict rules as to minimum pay requirements for sponsored employees. If an employer elects to furlough sponsored employees, it should not reduce salaries below the minimum requirements unless the Home Office expressly permits this.