‘Furlough’ leave – what employers should know
During these difficult times, many businesses are struggling financially. As the crisis has continued, some are no longer in a position to pay their staff. To avoid mass job losses, the government has introduced the Coronavirus Job Retention Scheme (CJRS). Open to all UK businesses (save for public authority organisations at the time of writing), the scheme provides ‘furloughed’ employees (i.e. those who would otherwise be laid off due to lack of work) with 80% of their monthly salary up to a cap of £2,500 per month.
In order to be eligible for furlough leave, employees must be on PAYE as of 28 February 2020. This includes full-time employees, part-time employees, employees on agency contracts and employees on flexible zero-hours contracts.
Employees taken on after 1 March 2020 will not be eligible. The government is hoping to get the scheme up and running before the end of April. It is anticipated that the CJRS will run for at least three months. Given latest government announcements, however, the scheme may even be extended past three months at a later date.
CJRS: A summary
• The 80% government contribution is based on whichever is higher of the following options: a) the employee’s earnings in the same month last year or b) their average earnings over the last 12 months. Any further payments (such as commissions, bonuses, etc.) are unfortunately not included. National Insurance contributions, Income Tax, and other contributions such as auto-enrolment pension payments, however, shall continue to apply as normal.
• Employees on furlough leave can undertake voluntary work and training, but cannot earn any money for the employer. This is very important. If an employee works for you during this period, they will lose their entitlement.
• You can re-employ people who have been made redundant since 1 March 2020 and then place them on furlough leave.
• You can only submit one claim at least every three weeks, which is the minimum length an employee can be furloughed for. Furlough leave can, however, be rotated between employees providing that each employee is furloughed for a minimum of three weeks.
• Employees currently on sick leave or self-isolating cannot be placed on furlough leave, but can be when they return to work. These employees should be on sick pay, but can be furloughed once this stops. Employees who are shielding in line with public health guidance can also be placed on furlough leave.
• If an employee has more than one job, then the employee can still be furloughed for each job.
• Individuals who are on, or plan to take, maternity leave must take at least two weeks off work (four weeks if they work in a factory or workshop) immediately following the birth of their baby. This is a health and safety requirement. In practice, most women start their maternity leave before they give birth. If your employee is eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance.
• Employees who qualify for SMP, will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is currently £148.68 a week, rising to £151.20 a week from April 2020.
• If you offer enhanced (earnings related) contractual pay to women on maternity leave, this is included in the wage costs that you can claim through the scheme.
• Individuals are only entitled to the National Living Wage (NLW) or National Minimum Wage (NMW) for the hours they are working. Therefore, furloughed workers must be paid 80% of their salary or £2,500 (whichever is lowest) even if, based on their usual working hours, this would be below NLW or NMW.
• When the scheme ends, you must make a decision as to whether a furloughed employee can return to their duties, depending on the business’s circumstances. If not, it may be necessary to consider termination of employment.
• Payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles. Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.
Weathering the storm
As mentioned, the CJRS is designed to help employers weather the financial impact of COVID-19, allowing them to retain employees and thus resume normal service quickly once the crisis has passed. Remember: an employee is only furloughed if they are not working at all – the Scheme does not apply to those working reduced hours for less pay.
Speak to professionals
It is important to speak to Employment Law Solicitors before placing employees on furlough leave. Most employment contracts will state that employees are entitled to full pay if they are willing and able to work. As such you could face a breach of contract or unlawful deduction of wages claim if you don’t pay an employee, or the remainder of their pay is not topped up (i.e the remaining 20%).
Furthermore, you must also avoid discrimination when selecting employees to place on furlough, to avoid claims of this nature. You could also face unfair dismissal claims if an employee refuses to be furloughed and is subsequently made redundant or even dismissed.
If you are unsure of your rights and responsibilities as an employer, or wish to discuss furloughing with an Employment Law solicitor, please contact firstname.lastname@example.org or call 0330 221 8855.