Late on 26 March 2020, the Government published further, much needed, guidance on its Job Retention Scheme through which employers can place eligible employees on furlough and claim back 80% of their wages up to a maximum of £2500 from HMRC.
The guidance brings some welcome clarifications, although a number of questions remain unanswered. The guidance confirms that the Scheme will be backdated to 1 March 2020 where employers have laid off employees from that date due to the affects of Coronavirus. It will initially be open for a period of 3 months. In terms of when employers will be able to claim, it is expected that the Scheme will be up and running by the end of April 2020.
Which organisations are eligible to apply to the Scheme?
All UK employers who have a PAYE payroll and a UK bank account as at 28 February 2020, other than those receiving ongoing public sector funding towards their staff costs, are eligible. Organisations who continue to receive public sector funding will continue to use it to pay staff wages in the normal way, and there will be no need to furlough them under the Scheme. Employers will need to provide their ePAYE reference number in order to apply.
The guidance specifically states that non-public sector employers who receive public funding for staff costs will not be eligible if that funding is continuing e.g. some charities, and organisations which receive grant funding for employee costs.
Which employees can I place on furlough?
Current employees on any type of contract who were on PAYE on or before 28 February 2020. This means that full time, part-time, zero hours and agency contract employees could all be eligible provided they started working for you no later than 28 February 2020. A separate scheme is being introduced for self-employed workers.
Employees who have been made redundant since 29 February 2020 are eligible provided their employer re-engages them and then places them on furlough with immediate effect. However employers may face claims for unfair dismissal if they did not follow a fair redundancy process before dismissing them.
What about staff who are self-isolating or looking after dependants?
Previous guidance indicated that the Scheme would be designed specifically for staff who would otherwise be being laid off as a result of the crisis. This suggested that it would not cover staff who needed time off for other reasons, such as to look after children or other dependants. The new guidance is silent on this point and surprisingly makes no mention of the “otherwise being laid off” condition.
Employees who are shielding following public health guidance (i.e. the most vulnerable category who are being written to and their household) can be placed on furlough, but again the guidance is silent on what the position is if their work is otherwise available.
Employers seeking to furlough staff whose jobs are still available, but which they cannot do for other reasons, would need to be clear with those employees that their eligibility is not certain. Any application to the Scheme would be on the off-chance they are eligible.
Does it cover employees who have reduced their hours and/or wages?
No. The new guidance makes clear that the Scheme will only apply where the employee is not working or generating any revenue for the employer. This means that staff working reduced hours or for a reduced salary will not be eligible.
Can I rotate furlough between employees?
Employers who still require some staff presence may consider that the fairest way to handle this is to rotate furlough between employees. Again, this is not expressly dealt with in the new guidance, and some might question whether rotating furlough is in keeping with the principle objective of these measures, which is to socially-distance people and avoid the spread of infection.
However, while the guidance does not expressly allow rotating furlough, it does not prohibit it either. It does specify that employers can only submit one claim (presumably per employee) every 3 weeks and that 3 weeks is the minimum period for which an employee can be furloughed. Whilst this allows the possibility of rotating which employees are on furlough at any one time, there is the chance that the employer would not receive the wages reimbursement.
Can employees carry out any work while on furlough?
No. This was made clear in the earlier guidance but the new guidance has further clarified what “work” means. Employees cannot undertake work or training which provides services to or -generates revenue for their employer.
What about training or volunteer work?
The guidance expressly allows employees to do volunteer work or training. Any time spent training would need to be paid at National Minimum Wage. This means employers would need to top up the 80% received from the government for any time the employee spends on training activities.
Do employees accrue holiday while they are on furlough?
No guidance has been provided on this question so far. Holidays accrue under other types of leave, such as maternity and sick leave, so it is assumed that furlough leave will not be treated differently. That would be a sensible approach but it is subject to clarification from the Government. At the moment no legislation has been passed to say that workers would not be entitled to accrue their entitlement to 5.6 weeks under the Working Time Regulations, and therefore we think these will continue to accrue.
Can I ask employees to take holidays when they are on furlough?
Again the guidance is silent on this, but as with other types of leave such as maternity, shared parental leave or sick leave, an employee can’t be on two types of leave at the same time. Any employer seeking to require an employee to take part of their Working Time Regulations holidays (5.6 weeks) must serve sufficient notice before the first day of annual leave. Employers, as an alternative, could consider asking employees to take a minimum number of annual leave days before a certain date.
If you want to avoid employees taking a large number of holidays once they are taken off furlough, it may be safer to ask them to take holidays (which they will be entitled to be paid for normally) before you place them on furlough, although you wouldn’t benefit from reimbursement under the scheme.
What if someone already has annual leave booked before they were placed on furlough?
The position is less clear for employees who already have annual leave booked during a period they will now be placed on furlough. So far, the guidance does not specifically prohibit employees from taking annual leave days during furlough, but further clarity on this would be welcomed.
Can employees who are maternity or other types of parental leave be furloughed?
The guidance expressly states that employees have the same rights as they did before being placed on furlough.
Employees who are already on or due to take maternity leave must take the minimum period of leave (2 weeks or, for factory and workshop employees, 4 weeks) after childbirth. The guidance provides that enhanced, contractual maternity pay can be claimed through the Scheme (subject to the limits). Employees who are eligible for Statutory Maternity Pay or Maternity Allowance remain entitled to it under the normal rules. This means that such employees will be eligible for 90% of average weekly earnings for the first 6 weeks, followed by 33 weeks of 90% average weekly pay or the statutory flat rate (£151.20 per week from 6 April 2020). The guidance does not specify whether employees can cut their maternity leave short in order to be placed on furlough, but they would have to give notice to end their maternity leave early by giving their employer. 8 weeks’ notice.
What is the position of employees who are on sick leave?
It is important to remember that this Scheme is to protect employees who would otherwise be laid off/made redundant. If an employee say on long-term sickness would not be at risk of that then they would remain on sick leave. However once that period of sick leave ends then they can be furloughed.
Employees who are in mandatory self-isolation in line with public health guidance can continue to receive company or Statutory Sick Pay (14 days) and be furloughed once they recover. It is not yet clear how this would work if an employee becomes ill during the first 3 weeks of furlough.
My employee has another job. Can I claim for them through the Scheme?
Yes, this has been confirmed by the latest guidance. Employees can be furloughed for each job they have and the financial caps apply to each employer individually.
How much will employers get reimbursed and how much should they pay employees?
The new guidance provides that employers can reclaim 80% of wage costs to a maximum of £2500 per month, PLUS employer National Insurance and the minimum employer auto-enrolment pension contributions. Further guidance on how employers should claim these contributions will be issued before the scheme comes live. This would suggest that the Scheme will reimburse 80% of wages, to be paid to the employee, and employer NI and pension contributions over and above this. Wages will be subject to income tax and national insurance as usual. Bonuses and commissions will not be included in the reimbursement. Given that the employer will be reimbursed for the minimum auto-enrolment pension contributions this indicates that employee minimum pension contributions should be deducted from the wages paid to them. Again it would be useful to have further guidance on this.
Subject to the contract of employment saying otherwise, employers can also choose to top up their employees wages to 100%. This will be discretionary. National insurance and pension contributions on any topped up salary will not be reimbursed through the Scheme.
How are wage costs calculated?
For employees with fixed-hours, whether full time or part-time, wage costs mean the employees actual salary before tax as of 28 February 2020.
This means that if employees have agreed to reduced wages from 1 March 2020 and are then placed on furlough, they will be entitled to 80% of their February wage (capped at £2,500).
What about employees whose hours are variable or they are on a zero hours contract?
For employees on variable or zero hours, there is a difference of approach depending on whether the employee has been employed for more or less than 12 months before the claim. For those with more than 12 months service, wage costs will be the higher of:
- what the employee earned in the same month in 2019. If the claim is made in April 2020, employers should look at how much the employee earned in April 2019; or
- their average monthly earnings from the 2019-20 tax year.
For those with less than 12 months’ service, employers should calculate their average monthly earnings from when they started working. If the employee started in February 2020, the calculation will be based on a pro-rata for their earnings so far.
What if paying the employee 80% will bring their income below the National Minimum Wage?
The guidance clarifies that employers who pay National Minimum Wage are not obligated top up their employees wage to 100% during furlough, as minimum wage is only due on hours worked, and no hours are being worked when on furlough. The exception to this is any training undertaken by the employee during furlough must be paid at national minimum wage.
How can employers choose which employees to place on furlough?
The process of placing an employee on furlough remains subject to the normal rules of employment law. Any change of an employee’s contractual terms requires variation of their contract. Unless employers have a contractual right to lay staff off, they need to seek the employees’ agreement to being laid off. Our earlier blog sets out further guidance.
If employers are having to choose which employees to furlough and when, the normal rules of employment law and discrimination apply. Employers should consider implementing selection criteria and be wary of prioritising specific classes of employee, particularly those who have protected characteristics. For discrimination law purposes, age is a protected characteristic so it could be deemed discriminatory against younger staff to only furlough those over a certain age. That said, such discrimination can be justified if it is pursuing a legitimate aim and it could be argued that protecting more vulnerable employees is justified in the circumstances.
Employers could also consider asking for volunteers although it is likely that most employees will volunteer in the circumstances. Other options could include providing incentives to those who do not take furlough, such as an increase on their annual holiday allowance or an end of year bonus.
Do employers need to furlough employees or can they make them redundant or terminate their contracts?
MP Luke Evans provided some clarity on this point in a recently circulated email. While this is not official government guidance, he suggests that employers can still make staff redundant while on furlough or immediately after. Any redundancy process would need to be lawful and subject to the normal, legally prescribed procedures including consultancy and giving notice. However before deciding whether to make someone redundant, the ability to place them on furlough should be considered as a direct alternative to dismissal (and there is a risk that such dismissal may be unfair). This might also suggest that employers can still terminate employment contracts during furlough, provided it is fair, lawful and contractually possible to do so. Where an employee has been made redundant or termination, reimbursement under the Scheme would end.
Insight from Noele McClelland, Employment Law Partner. For more information contact Noele or any member of the Employment team on 03330 430350.
