23 Mar Furlough – what does it all mean?
The truth is none of us know exactly what furlough is as this isn’t a UK legal term…yet! However, it’s now on the tips of everyone’s tongues. This is because on 20th March 2020 the Government announced measures to help employers and their teams in the wake of the Covid-19 pandemic we’re all facing, and thus ‘furlough’ was born.
This is an evolving situation but we do know that the measure below can be backdated to 1st March 2020.
But, what is ‘furlough’?
‘Furlough’ is an American word that really means “leave” or “sabbatical” so basically ‘furlough’ is a fancy new way to say an employee who is away from the workplace i.e. on leave. I know right, because we haven’t got enough of those sorts of words to confuse things enough!?
Under the new Scheme, as a UK employer you will be able to access financial support from the Government in order to continue paying part of your employees’ salaries. However, I’m afraid I have to tell you that this will only relate to the salaries of those employees that will otherwise be laid off (or are identified as likely to be made redundant) in light of the COVID-19 pandemic. So, the scheme says you can’t squirrel some working employees away in the warehouse or under your desk, pay them for that worker but then also report them as ‘furloughed workers’…sorry! To be considered as being on ‘furlough’, an employee must be sent home and NOT be working.
How do my employees get ‘furloughed’
If you are a sole trader, partnership, Limited Company or LLP you are eligible for the scheme. The only criteria are that you must have employees, and you must send them home and they must not do any work for you.
In order to access the scheme, you will need to designate affected employees, labelled under the scheme as “furloughed workers”. You must then notify any affected employees that they have been designated a “furloughed worker”. The good news is, that’s where we come in and we can definitely help with comms and letters to your hearts content!
It is not compulsory to use this scheme, however it can serve as an alternative to a layoff situation while helping both employees and workers to cover the many costs that are arising as a result of the pandemic.
So I might as well just tell everyone they’re a ‘furloughed worker’…
Hang on, not so fast there Skippy…firstly, take a look at your employment contract(s), make sure there’s a clause in there which states that you can either introduce a temporary layoff, or a period of short time working (if we wrote your contracts it’ll be in there, obviously!). If you’ve checked and it’s there, well done, pass GO! and proceed to the next question.
If it’s a no, we’ll need to add a little step in here and get consent from the employees. We have a letter for this too (holla if you need us to hook you up with one) and on the bright side it is going to be very unlikely your employees will not snap your hand off. The reality is that if an employee refuses to consent to be sent home on ‘furlough’, then they risk being made redundant and let’s face it receiving 80% of earnings and retaining employment, is a much more attractive option when we could be faced with a unstable job market after all of this.
If you have a very stubborn employee, (we’ve all got one!), then you can revert to redundancy.
Ok, so how do I decide who I should designate as a ‘furloughed worker’?
It’s best to look at your whole business firstly and see where in the coming months you will need workers working, then use an objective criteria to select. We suggest this be based on things like productivity records, previous appraisals, qualifications and skills.
This is a good approach, as if an employee refuses ‘furlough’, then the selection for redundancy would already have a foundation based on fairness and objectivity.
Can my staff tell me that they consider themselves ‘furloughed’?
We are expecting, in the light of little guidance, particularly employees who are vulnerable at this stage or are obliged to stay at home with children while schools remain closed, may find the ‘furloughed worker’ option under the scheme very attractive. However, an employee is unable to designate himself or herself as a ‘furloughed worker’.
You, the employer, must select the ‘furloughed worker’ and then gain agreement (see above).
I’ve got my list, what now?
Although the exact details of the mechanism for how the Government will pay you so you can then pay your ‘furloughed workers’ are yet to be finalised, but the expectation is that this will be via a new HMRC online portal. The word on the street is that this will take until April to complete as it requires a brand new system to do something that isn’t done at the moment.
Once live, you will need to submit information (also yet to be detailed) to HMRC about your “furloughed workers” and their earnings via the portal. Under the scheme, HMRC will then reimburse up to 80% of the employee’s earnings up to a maximum of £2,500.
Am I stuck having to stump up 20% to top-up salaries to 100%?
In short, no. Basically, if you want to (and can afford to) then you can top-up to 100%, but there is no obligation to top-up. There is one sticking point though, there’s a small risk of claims for unlawful deduction of wages if you do not gain employees’ consent to not top-up, as legally you must have the contractual right to do so.
As we said, we do think it’s extremely unlikely that an employee will decline the option of becoming a “furloughed worker” so if this is also part of the agreement, happy days. Also it’s important to remember that this is a grant to employers and unlike loans, grants do not have to be repaid later- whoop!
Questions yet to be answered…
Can we put people on part time Furlough, and have them work part time?
We think unlikely, but no guidance on this yet. We will expect to see some anti-fraud measures put in place to ensure that the scheme is not exploited by employers, although there is insufficient detail available at the moment to ascertain what kind of controls will be in place to monitor abuse of the system. What we do know is that heavy penalties would apply for profiteering from a National crisis.
What pay is used for those with irregular earnings/0 hour contracts?
Presumably based on an average over a period (we are thinking 12 weeks pre-1st March 2020 maybe), but no doubt instructions will follow shortly on this one.
What about employees that have already left?
As it stands, it appears that it will be possible to re-engage workers that were employed at 28th February 2020, providing they are genuinely being retained. Having said that, you will not be obligated to do this. Although you may get a lot of queries form those you ‘let-go’ a month or so ago.
If I’ve already temporarily reduced my employees’ working hours, what would they get paid if I was to then put them on Furlough?
There isn’t yet any firm answer on this, but it is our understanding that the HMRC would base their reimbursement calculation on whatever the employee’s earning where at the end of February, as the Coronavirus Job Retention Scheme is being backdated to be effective from 1st March 2020. So, if you have a full timer who got paid as normal in the February payroll, but you reduced their working hours on Monday 16th March, then they would get paid 80% of the salary they were getting paid before 1st March 2020.
What about employees who are self-isolating and currently getting SSP (statutory sick pay)?
This is different category to ‘furloughed workers’ and the Government have not yet said that they will cover 80% of the pay for these workers. The Government are still going to reimburse SSP costs to employers for the first 14 days of SSP. This shows that there is clearly a mismatch between ‘furloughed’ and sick employees, and it seems odd that sick employees will be worse off than those who are simply not working. We think this is a watch this space situation…
Will I still be liable to pay Employers NIC (National Insurance contributions) and pension contributions?
There is no indication on these yet however it looks like this will remain your responsibility for now. We are hopeful that the government are considering this and maybe a further announcement will be made to exempt ‘furloughed’ wages for employers NIC and pension contributions.
Can directors and shareholders of owner managed companies put themselves ‘on furlough’?
There is no guidance on this yet.
This factsheet has been created on Monday 23rd March 2020. Please note that details are subject to change. Updates will be created and issued as and when available.