Our guide to your options regarding the Coronavirus Job Retention Scheme that allows you to claim a grant for 80% of a PAYE employee’s salary (capped at £2,500) so you can continue to pay them rather than making them redundant.
Furlough (noun) a temporary leave of absence granted to a worker.
Also: to furlough (verb); furloughs; furloughed; furloughing
This was a hot topic in our recent live briefing and Q&A session. Please find a list of common questions and our responses below.
Remember: An employee who is furloughed can do no work. For the avoidance of doubt, just think zero, meaning that they can’t even look at or respond to a work email.
What is this scheme for?
In the current environment, many employers are considering laying-off employees in preference to making them redundant. Placing staff on furlough will allow businesses a bit of breathing space.
In such situations, employers will be explaining that roles that would be subject to laying-off which is why they are seeking to implement furloughs. If an employer intends to access the scheme, they will need to discuss with employees about becoming classified as furloughed workers.
This means that individuals are kept on the employer’s payroll, rather than being laid off. The Government makes clear that changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.
What does this mean?
To qualify for this scheme the employee should not undertake work for the business while they are furloughed. The employee will remain employed while furloughed. The employees must have been employed prior to 19th February 2020.
You may choose to top up any differences between this payment and the employee’s normal salary, but you do not have to. If an employee’s salary is reduced as a result of these changes, they may be eligible for support through the welfare system, including Universal Credit.
Can directors be furloughed?
It seems clear that directors who draw a PAYE salary are eligible for the scheme. Only income via PAYE is included, dividend income is not eligible and will have to be considered separately.
Advice seems to be that Company Directors can complete their statutory duties, even if furloughed. However, it is still unclear as to how much administrative work is permitted and certainly no substantive work can be performed if you wish to claim the grant.
Firstly, you are allowed to furlough yourself from your business and still do basic administrative tasks. But I’m afraid that the support is only based on the PAYE salary that you have paid yourself. […]
The expectation at the Treasury has been that those who – perfectly legally – chose this route to reduce their tax and National Insurance bills would have put in place alternative protections for themselves.Chris Grayling MP, in correspondence shared with Davis Grant
When can I access the scheme?
The scheme will cover the cost of wages backdated to March 1st if applicable and is initially open for 3 months, but will be extended if necessary.
HMRC are working urgently to set up a system to pay these grants. We expect the first grants to be paid within weeks, and we’re aiming to get it done before the end of April.businesssupport.gov.uk
What are the pensions implications?
Auto enrolment pension obligations will continue, which will involve a minimum employer pension contribution having to be paid for furloughed workers. This is based on the pay they actually receive during the period.
HMRC will pay employers a grant worth 80% of an employee’s usual wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wagebusinesssupport.gov.uk
It might be possible to negotiate about any amount of employer pension contributions that are usually paid over and above the automatic enrolment minimum, although that is subject to matters including The Pensions Regulator being flexible about compliance with the usual 60-day consultation period.
What issues are currently unclear?
The Government has not yet produced clear guidance of whether the “wage costs” which will be reimbursed include just salary or other benefits, and whether the £2,500 figure is gross.
It seems likely that holiday (at least statutory) entitlement will continue to accrue during this period but we are waiting for clarification.
We await further details but in the meantime, it is important to remember that the usual employment processes and procedures continue to be necessary. If redundancies are necessary, then fair individual or collective consultation should be followed.
It is also likely that employers should seek employees’ consent when placing them on furlough, though this will depend on the terms of an individual contract of employment.
While the Government’s announcement is welcome across the UK, many questions remain. Our advice is that you shouldn’t rush into implementing an employee furlough policy without taking legal advice or speaking to a HR advisor. You should have a document to notify and confirm the employee’s acceptance of the furlough status.
Job Retention Scheme – Step-by-Step for Employers (PDF gov.uk)
Guidance: Claim for your employees’ wages through the Coronavirus Job Retention Scheme – gov.uk (Retrieved 4 April 2020)
Coronavirus Job Retention Scheme – businesssupport.gov.uk