Coronavirus Job Retention Scheme and Furloughed Workers

Howes Percival LLP

30th March 2020

The UK Government announced a plan to avoid mass redundancies through the impact of the Covid-19 pandemic by offering to cover 80 per cent of workers’ wages for three months starting (retrospectively) from March 1, 2020. Many questions remain unanswered in regards to what is covered by the Coronavirus Job Retention Scheme (“Scheme”), and it is hoped that the Government will answer many of these questions in the coming days.  

The guidance on the Scheme contained in this article has not yet been updated to take account of guidance provided by the Government on Thursday 26th March 2020.

What is the Coronavirus Job Retention Scheme?

A government scheme providing financial support for employers to pay part of their employees’ salaries through the Coronavirus crisis where they might otherwise have to make redundancies or layoffs. The Government have stated that there is no limit on the total amount of money available under the Scheme. All UK businesses who are employers with a PAYE scheme are eligible.

How long will the Scheme last?

Reimbursement under the Scheme will be backdated to 1 March 2020 (to cover any lay off that has already been implemented) and will run until 31 May 2020. The Government have stated that this will be extended if necessary.

How do employers access the Scheme?

Step one: Designate affected employees as ‘furloughed workers’ (see below) and notify your employees of this change. If an employer has a contractual right to lay off an employee their consent is not necessarily needed although it would be prudent, where possible, to seek consent in writing so that the terms of the ‘furlough leave’ are clearly agreed. The current Scheme guidance states that “changing the status of employees remains subject to existing employment law and depending on the employment contract, may also be subject to negotiation”. Therefore, if any employee’s employment contract does not contain a right of lay off/short time working then it is anticipated that their consent will be needed to change their status to ‘furloughed worker’ (see more on this below).

Step two: Submit information about the employees that have been furloughed and their earnings to HMRC through a new online portal, which has not yet been set up. HMRC will set out further details on the information required in due course.

What is a ‘furloughed worker’?

The concept of a ‘furloughed worker’ is new to UK Employment law, having never previously been used or defined. In essence, it’s intended to be a form of paid temporary layoff. Government guidance states that a ‘furloughed worker’ will remain employed but must not be carrying out any work. Furloughing workers is an alternative to laying them off with only statutory guarantees payments (£29 per day for a maximum of 5 days) or making them redundant. It only applies to employees, not self-employed persons.

Do employees have to agree to be furloughed?

Consent is unlikely to be required when an employee’s contract of employment contains a ‘lay off’ provision allowing the employer to send an employee home with no work and no pay (other than statutory guarantee payments). Such clauses are most common for hourly paid employees who work in production or manufacturing businesses. Even if there is a layoff clause, it would still be prudent to obtain written consent where possible, particularly if the employer is looking to agree changes to other terms, such as the right to terminate ‘furloughed worker’ status. An employer should make it clear that any payment to the employee will be strictly subject to the terms of the Scheme (or the terms of any ‘top up’ being made).

Where there is no right to layoff, the change of status to ‘furloughed worker’ will need to be agreed upon by both parties. Such agreement may well be given by an employee if the alternative is facing dismissal by reason of redundancy, although this may depend on the terms of the redundancy scheme (see further below).

What happens if an employee does not agree to be a ‘furloughed worker’?

If an employer imposes furlough status without the contractual right to lay off or without consent, this will be a fundamental change to the contract of employment. This means that an employee could either resign and claim constructive unfair dismissal and/or claim breach of contract or make a claim for an ‘unlawful deduction from wages’ (after each payment is made which is below their full pay).

Can employees work when furloughed?

No – the government has stated that a ‘furloughed worker’ will remain employed but must not carry out any work. It is unclear if employees can work for alternative employers to supplement their income, where their employer is not ‘topping up’ their pay above the 80% offered under the Scheme. An employee’s contract of employment may also restrict an employee’s ability to work elsewhere.

This means that if an employer wants any ‘furloughed worker’ to carry out any work they will have to end the furloughed status.

Can an employer select which employees to furlough?

Yes – employers can select which employees to furlough and should consider using objective selection processes similar to redundancy processes to minimise the risk of discrimination claims or constructive dismissal (due to breach of trust and confidence). Employers could start by seeking ‘volunteers’.

Can an employer simply lay off employees instead?

Yes – where there is a contractual right to lay off but as the Scheme pays for the wages costs up to the maximum level it would be sensible for any employer to use the Scheme. In addition, employees can apply for redundancy and claim redundancy pay if a layoff continues for four continuous weeks but there is no suggestion that this will be the case with the Scheme.

What amounts will be reimbursed under the Scheme?

The guidance refers to reimbursing 80 per cent of workers ‘wage costs’ (up to a cap of £2,500 per month). It is unclear whether this includes costs such as employer’s NI or employer pension contributions. A system for reimbursement is still to be established.

Is an employer required to supplement its employees’ salary over the 80%?

No – companies do not have to ‘top up’ workers’ wages. If companies do want to top up pay, they can, but they will not be able to claim for more than 80 per cent of an employee’s salary subject to the limit of £2,500 per month.

Are employees entitled to other benefits during furloughing?

Employees who are furloughed are entitled to their normal benefits, such as health insurance or company cars. They would also be entitled to holiday, although it is unclear if this can be taken during furlough periods and if so, whether this would be payable at their full or reduced salary. It is expected that it will be the former.

What about zero hour contracts?

It is unclear how pay will be calculated for workers on zero hours. The Chancellor has indicated that he intends for the Scheme to apply to them as well. It may be a case of taking the average pay over say a 12 week reference period.

What if furloughed workers are sick?

It is not clear whether a period of sick leave will temporarily end furloughed status, but it seems unlikely as employees are not being required to work in the first place. If an employer’s sick pay is less than the payments under the Scheme, an employee is unlikely to report their sickness anyway.

Should employers keep records?

The Government has indicated that it will retain the right to retrospectively audit all aspects of the Scheme, with the scope to claw back amounts claimed fraudulently or in error. It is vital that employers keep records of payments made and correspondence sent to employees both in relation to any HMRC audit and to ensure the changes to employment status are properly recorded particularly where consent was required.

Guidance from the Government on the Scheme can be accessed here.

If you have any questions regarding ‘furloughed workers’, and the Coronavirus Job Retention Scheme and the implications for your organisation, please do not hesitate to contact a member of the employment team.

The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.   

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