As the nation continues to respond and deal with the impact of the Coronavirus, the UK Government has further updated the Job Retention Scheme, known as ‘Furlough leave’. With each update come questions from employers and employees alike.
In this insight article, we answer some of those key questions and take account of the most recent developments, including the extension of the Scheme, part time Furlough (flexible Furlough), payments required from employers from 1 August and holiday leave. We’ll continue to update this page as developments are announced.
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What is the scheme?
We’ve become familiar with this temporary scheme which is open to employers from 1 March until the end of October 2020 and allows employers to obtain some reimbursement from the UK Government for wages paid to employees in relation to any periods where their employees are not working.
Between 10 June and 31 October 2020, the scheme will operate differently from the way it has originally. This will include employers contributing from 1 August and Furloughed employees able to return on a part-time basis from 1 July. A further Treasury Direction will be needed for the terms that will apply from August 2020. This article outlines the provisions of the scheme based upon the available information on 15 June 2020.
Changes after 10 June
After 10 June, no new employees can be allowed onto the scheme, unless they are returning from a period of statutory leave e.g. maternity leave.
Those who have already completed a full 21 days of Furlough before 30 June can be put back on Furlough again later, even if they are not on Furlough on 30 June.
Reimbursements available until the end of July 2020
Employers can make a claim for wage costs through the Job Retention Scheme. Employers will then receive a grant from HMRC to cover the lower of:
- 80% of an employee’s regular wage, or
- £2,500 per month.
The associated Employer National Insurance contributions and minimum automatic enrolment pension contributions (as discussed below) can also be claimed.
Flexible Furlough from 1 July
Employers can bring staff back part time as much or as little as they want (although it will be necessary to agree the revised arrangements with the employee – failing which employers might be able to stop the employee’s Furlough leave entirely).
Previously Furloughed employees who have returned to work and are to be Furloughed again before the first of July must return to full time Furlough for a minimum of three consecutive weeks before they can be placed on part time Furlough.
What can be claimed / what must be paid?
Employers will be required to pay the employee’s wages for the time spent working. They can claim the grant for the remaining period.
Other than for the time the employee spends working, there is no requirement for employers to contribute (until 1 August – see below regarding employer’s contributions to the scheme from 1 August).
Where there is a part time Furlough arrangement, the grant will relate to ‘the usual hours worked in a claim period’. The calculation of the employee's usual hours will differ between those who have fixed hours and those who have variable hours:
- Where an employee has fixed hours or pay normal working hours should be based on the number of hours worked in the period before 19th March 2020.
- Where an employee has variable hours or pay, the calculation of hours should be based on the higher of either the average number of hours worked in tax year 2019/20, or the amount they were paid in the same month of the tax year 2019/20.
The caps will apply to the proportion of an individual’s normal working hours spent on Furlough. So if an individual is Furloughed for 50% of the week, the Government’s contribution will be capped at £1,250 (i.e. 50% of £2,500.) or, if lower, 80% of the Furloughed hours. (As discussed below, the Government’s contributions will reduce from 1 August and employers will be required to make up that reduction.)
As long as the employee has agreed to the reduction in pay and the revised arrangements, employers can still pay the employee the reduced wage even for the time they spend working. As long as they meet their obligations in terms of the national minimum wage for the time spent working and the employee agrees, there is no requirement under the scheme to pay the employees 100% of their previous wage.
Agreements and record keeping
Employees must be consulted about the change to their hours of work and this must be confirmed with them in writing. This is the case even where a written agreement in respect of Furlough is already in place. It is necessary for employers to have something in writing to detail and confirm the new arrangement. Any subsequent changes should also be confirmed in writing and the employer should keep a copy of this for a period of five years.
Records must also be kept by employers of the hours spent by employees on Furlough, the hours spent working, the amount claimed from HMRC, the claim reference number and the calculations made. This information must be retained for six years to allow for review by HMRC.
Mechanics of reimbursement applications
31 July is the final day on which claims can be submitted for periods ending on or before 30 June.
The first time employers will be able to make claims for days in July will be 1 July.
Employers cannot have claims which straddle different months, because of changes to the scheme applying each month.
Flexible Furlough arrangements can last for any amount of time however the minimum period for which a claim can be made is for one week.
Contributions from employers:
From 1 August
Employers will pay employer National Insurance contributions and pension contributions. The HMRC guidance says: ‘for the average claim, this represents 5% of the gross employment costs the employer would have incurred had the employee not been Furloughed’. However, that is because many of the employees involved do not meet the thresholds for National Insurance and pension contributions. For some employers, the costs from 1 August will be upwards of 16%.
(Some small businesses qualify for an Employment Allowance – an allowance of up to £4k per annum against National Insurance costs.)
From 1 September
Payments will essentially comprise three elements:
- Employers will pay employees for when they are working
- Employers will be required to pay at least 10% of the employee’s normal pay for any Furloughed hours (subject to the caps mentioned below).
- The Government will pay up to 70% of the normal pay for the Furloughed hours (subject to the caps mentioned below).
Employers will continue to pay the employer’s NI contributions and pension contributions.
Caps on Government and employer contributions
The maximum the Government will pay is to be capped at £2,187.50 based upon an employee being on Furlough 100% of the time. If the employee is working 50% of the time then the cap on the Government contribution is reduced by 50% and so on.
The employer’s contribution is also capped at £312.50 based upon the employee being on Furlough 100% of the time or a pro rata amount if the employee is working part time.
From 1 October
Payments will essentially comprise three elements:
- Employers will pay employees for when they are working
- Employers will be required to pay at least 20% of the employee’s normal pay for any Furloughed hours, subject to the caps mentioned below.
- The Government will pay up to 60% of the normal pay for the Furloughed hours.
Employers will continue to pay the employer’s NI contributions and pension contributions.
Caps on Government and employer contributions
The maximum the Government will pay is to be capped at £1,875 per month based upon an employee being on Furlough 100% of the time. If the employee is working 50% of the time then the cap on the Government contribution is reduced by 50% and so on.
The employer’s contribution is also capped at £625 based upon the employee being on Furlough 100% of the time or a pro rata amount if the employee is working part time.
After Furlough - from 31 October
Employers who continue to face difficulties in over staffing will have to identify alternative solutions, as discussed below. This could include:
- Reaching agreement about pay reductions
- Reaching agreement about part time working
- Unpaid leave
- If necessary, redundancies
How is the payment for employees calculated?
How you calculate the claim will depend on what category the staff fall under. For instance, there are different methods for those whose pay varies, those who have been employed for less than a year, those who only started in February 2020, and potentially for those who are on different kinds of leave. The claim reference period can also be weekly or monthly.
Non-monetary benefits, such as the value of health insurance or a car, cannot be claimed. Future fees, commission and bonuses should also not be included. Benefits provided through salary sacrifice schemes should also not be taken into consideration when calculating the employee’s regular wage.
However, when calculating the employee’s regular wage, the employer should include overtime, fees and contractual commission payments that had been paid to the employee over the relevant period.
Employees who have multiple employers can be Furloughed for each job. The cap applies to each employer separately. And so that means that an employee could be paid £5,000 per month if they are a high earner with more than one employer.
Do employers have to top up pay?
Employers may elect to top up salaries but there is no obligation to do so if the employee is receiving 80% of normal pay (subject to the caps referred to above) in relation to the Furloughed hours. However, agreement must be reached with the employee where employers are not topping up salaries.
How do you claim?
It is for the employer to make payment to the employees and then claim under the scheme. The online portal went live on 20 April 2020. The employer must provide:
- Its ePAYE reference number
- The number of employees being Furloughed
- The claim period (start and end date)
- Amount claimed (per the minimum length of Furloughing of three weeks)
- Its bank account number and sort code
- Its contact name
- Its phone number
It is up to the employer to calculate the amount claimed. But HMRC has the right to retrospectively check the claims.
Employers claiming for 100 or more Furloughed employees can upload a file with the information rather than input the data for each employee. Employers with fewer than 100 Furloughed employees will be asked to enter details of each employee being claimed for directly into the system.
Does the scheme cover all employers?
The scheme is open to all UK employers who had a pay-as-you-earn (PAYE) payroll scheme and Real Time Information (RTI) payroll data was submitted for the relevant employees by 19 March 2020.
This includes businesses, charities, recruitment agencies, public authorities etc. Even public sector organisations are included – although the UK Government doesn’t expect many of them will utilise the scheme. This is because many of their operations are deemed essential and/or they receive public funding for staff costs.
The UK Government has said that the payment is to support ‘employers whose operations have been severely affected by coronavirus’. That is different from the UK Government’s initial statement which said that it is to support those who ‘would otherwise have been [made redundant]’ although that wording can still be found in some parts of the guidance.
And what if HMRC does not accept that the operations have been ‘seriously affected’ by coronavirus? On reading the guidance we have, so far, it could mean that Furlough pay ultimately wouldn’t apply. Indeed the UK Government has recently suggested that employers who have not been affected by coronavirus but who have used the scheme might be guilty of fraud.
Which employees are covered?
The scheme will cover staff who are on the PAYE system on or before 19 March 2020. Therefore, it will not cover new starts who are due to join or did join after 19 March 2020.
The scheme will cover the wages for:
- Full time and part time employees (including those on any category of visa)
- Apprentices and trainees
- Workers who are not working (including seasonal workers) providing they are not on 'unpaid leave' (see below)
- Some of those on zero hour contracts
- Some agency workers
The self-employed are not included and will receive support through a separate system (the Coronavirus Self-employment Income Support Scheme). (For the self-employed who qualify, a taxable grant will be paid from June 2020 which is a top up to reach 80% of their average monthly profits over the last three years – up to a cap of £2,500 per month).
How do employers get agreement?
The scheme makes it clear that ordinary rules of employment law apply. You cannot ‘put’ an employee on Furlough leave, especially if you are going to reduce their wages. You need their agreement, even if they will not be financially disadvantaged.
The Treasury Direction published on 22 May removed the requirement for a written agreement between the employee and employer. However, it does require that the agreement be confirmed in writing by the employer. Nonetheless it is prudent to seek written agreement to reduce the risk of dispute about the terms of the leave.
The Treasury Direction published on 22 May provides that the required instruction to cease work is satisfied if:
- the employer and employee have agreed that the employee will cease all work in relation to their employment (this agreement can be made by means of a collective agreement between employer and trade union);
- the agreement / collective agreement specifies ‘the main terms and conditions upon which the employee will cease all work’;
- the instruction to cease work is incorporated expressly or impliedly in the employee’s contract;
- the agreement is in writing or is confirmed in writing by the employer (which can be in an electronic form, such as an email); and
- the employer keeps the agreement or collective agreement until at least 30 June 2025.
The UK Government suggests that employers take legal advice, noting that certain ‘collective consultation’ obligations might apply – which involves having a body of staff representatives elected or consulting with a recognised trade union.
While the UK Government suggests that collective consultation might apply ‘if sufficient numbers of staff are involved’ that isn’t the end of the story. Where there is a recognised trade union involved, bypassing the union and going straight to the employees with an offer of Furlough or part time Furlough could expose the employer to punitive Tribunal awards of up to £4,917 per trade union member.
How do employers select employees for Furlough leave or part time Furlough leave?
Selecting employees for Furlough leave may not be particularly easy. It’s possible that some employees, including those with children for example, might want to take Furlough leave. Equally, those with caring responsibilities might also want to take Furlough leave. In such a situation, an employer may need to select one over the other. Issues could arise in relation to indirect sex discrimination as compared to indirect age discrimination in cases such as that.
Equally, employers may have employees who do not want to take Furlough leave. This will likely apply to those who are in higher paid jobs and/or those whose domestic outgoings might not easily allow for such a drop in salary. If the alternative is potentially redundancy however, Furlough leave might be more attractive. But they might well, now or later, ask “why me?” and bring a claim for discrimination.
Some employers might wish to take into account what an employee intends to do with their Furlough time when deciding who to pick. Will they be undertaking some charitable work to help us all through this? But, again, those with caring responsibilities might struggle more than others to do that. And there are certain restrictions on what employees can do during Furlough leave (see below).
It might be that different protected characteristics of employees effectively compete with one another. In such situations, employers have to be clear about why they are making the decisions they are and ensure that they are behaving proportionately.
Can employers swap employees during Furlough leave?
It is possible for employers to rotate periods of Furlough leave. Employees can be Furloughed multiple times. From 1 July, the 21 day minimum Furlough period will not apply (other than in a small minority of cases where the Furlough period started before 1 July).
What can be done during Furlough leave?
Employers will need to be careful that any requirement does not amount to the employee 'working' for their employer. The question could arise: is the employee undertaking activities which would otherwise be performed by the employer under the banner of 'corporate social responsibility'?
The employee cannot provide services to or generate revenue for, or on behalf of the employer.
There are some careful nuances here.
Director duties? Trustee duties?
Company directors can still perform their statutory duties while on Furlough leave. They are also permitted to do what is necessary to pay wages to an employee or make a claim under the Scheme.
Carrying out of duties as a trustee or manager of an occupational pension scheme is also permitted with some exceptions.
Directors are not permitted to carry out any other work for the company while on Furlough leave.
Some employers may request that their employees undertake some training while Furloughed, e.g. completing online training courses. While HMRC recommends that Furloughed employees should be encouraged to undertake training, there will be risks associated with putting too much pressure on staff.
Furloughed employees can study or undertake training if it is to improve an employee’s effectiveness in the employer’s business or the performance of the employer’s business so long as such training does not provide a service to the employer or the business activities or contribute to business activities, generate income or profit, or significantly contribute to the production of goods or services for sale for the employer or ‘a person connected with the employer’.
Staff must be paid at least the National Living Wage or National Minimum Wage, even if this is more than the 80% of their wage that will be subsidised during any period of training.
Apprentices on Furlough leave can continue their training as long as it does not provide services or generate revenue for their employer. Employers still need to pay the apprenticeship levy in the usual way.
Employees can get another paid job during Furlough leave as long as the new employer is not a ‘linked’ or associated organisation. This will mean that many employees might be better off than they were previously.
Redundancy consultation? Disciplinary or grievance processes?
There’s something of a misapprehension that employers can’t speak to individuals who are on leave. It’s true that some might choose not to participate, but the pressure on everyone is such that many employers would be able to persuade an employment tribunal that, if it came to it, they had acted reasonably in making decisions on the basis of the information they had available where an employee refuses to participate.
And it’s our view that consultations taking place during Furlough leave would not amount to 'work'. The HMRC guidance notes as updated on 12th June 2020 note that “normal redundancy rules apply to Furloughed employees.”
Can annual leave be taken during Furlough leave?
In terms of the Working Time Regulations 1998, employees are entitled to 5.6 weeks’ paid leave per year. This even applies, generally speaking, to those who only work part of the year – providing they remain employed throughout. Payment for a week’s leave is calculated based upon an average of pay received previously. So employers will potentially still be faced with an accruing obligation to provide paid annual leave at some point in the future.
The UK Government guidance (published on 13 May 2020) states that workers on Furlough can take holiday without disrupting their Furlough. Such holiday pay should be calculated in line with current legislation based on usual earnings. Where this calculated rate is above the pay the worker receives while on Furlough, the employer must pay the difference. In other words, where the employee has agreed to 80% pay during the Furlough period, the employer must pay them at 100% during any period of holiday. That being said, employers can still only claim 80% from HMRC, not 100%.
There are various obvious advantages to employers of requiring employees to take annual leave during Furlough. However, there are also advantages to the employee, as some employers were put off the scheme, and opting for redundancy, when they were concerned about the accruing holiday pay costs.
While the new HMRC guidance sets out a summary of how employers might be able to require employees to take leave, some care is needed as there can be particular contractual obligations regarding the setting of holiday dates and regarding holiday pay.
There is new legislation now entitling employees to carry some leave over into the next two years where it has not been possible to take it in the holiday year.
Sick leave? Statutory Sick Pay (SSP)?
Employees who are not on Furlough leave are still entitled to SSP if they meet certain criteria. But, for most, this will pay them less than they would be paid if they were on Furlough leave.
Employees who are shielding or off sick can still be Furloughed despite the fact they would have been unable to come to work in any event.
There are risks for employers who put people on Furlough leave when they are unfit for work. The Treasury Direction dated 22 May indicates that the employee cannot be Furloughed until they are fit to work if they have been receiving SSP or were due to receive SSP, but that appears to conflict with other official guidance. Employers should exercise particular caution and seek advice when proposing to Furlough employees who are otherwise unable to attend work, whether or not they are in receipt of SSP.
What about those on unpaid leave?
Under the 15 April Treasury Direction, those who are on unpaid leave are not eligible for Furlough leave (unless placed on unpaid leave after 28 February). However, the rules are complex and have been changed by the Treasury Direction of 22 May, meaning that each case of unpaid leave needs to be considered separately to determine whether the individual can be placed on Furlough leave.
What about maternity leave and sick leave?
Excluding those on longer term sick leave or on maternity leave (for example) or who have not worked in February or March could give rise to discrimination claims, and the employer’s decision may or may not be justifiable. Those returning from leave (of any description) could be put on Furlough leave in the same way as others, and the 10 June cut off won’t apply to everyone returning from leave.
Employers might find that those who are on unpaid leave will say that they intend to return early. However, there are certain complex provisions which seek to limit the extent to which individuals can move from unpaid leave to Furlough leave.
Claims for employees returning from statutory leave (including maternity, paternity, shared parental, adoption, sick and parental bereavement leave) after 28 February 2020 should be calculated based upon their holiday pay entitlement (not the pay they received while on statutory leave).
What about those who have already been made redundant or dismissed?
Employers may be able to reinstate former employees. Prompt action may be required for this to work.
Where an employer wants to allow an employee to return, but only for a fixed period, in order to benefit from Furlough leave then it might be possible to enter into a settlement agreement preventing any future claims when the employee leaves again. This will be particularly attractive for employers if an employee will accrue two years’ service during Furlough leave and where there is likely to be a redundancy situation after Furlough leave.
Where a company is being taken under the management of an administrator, it is possible to access the Job Retention Scheme if there is a reasonable likelihood of rehiring the workers.
The Treasury Direction published on 22 May 2020 confirms that an employer is now able to claim under the Scheme for employees who transferred under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) after 28 February 2020, rather than the previously stated date of 19 March 2020.
For some employers Furlough leave is not suitable. For example:
- They might still need the employees, but for less hours
- They might still need the employees 100%, but cannot afford to pay them 100%
- They might not be able to afford to pay the employees if reimbursement is uncertain
The above two scenarios can perhaps be addressed using the ‘flexible Furlough’ after 1 July – but, as discussed above, subject to certain exceptions this won’t be open to employees who have not been on 21 days of Furlough leave by 30 June.
Negotiation of reduced pay and reduced hours remains possible. If necessary, redundancy is still possible. Again however, process and consultation will be important even where timescales are tight, and especially where there are 20 or more individuals involved.
Even after current restrictions are lifted and Furlough leave comes to an end, few businesses will return to normal immediately. And many employers will, understandably, not wish to operate on the hope or assumption that they will.
There’s a lot to think about. Employers will need to act very carefully at this stage to ensure that they and their employees can benefit from Furlough without storing up too many problems for the future.
Considering contracts will be crucial. Consultation will be crucial. Fair selection processes will be crucial. Trying to reach agreement will be crucial. Different employers will have different options here. Furlough agreements, settlement agreements and paper trails could become very important in the future. Of key importance is retaining as much flexibility as possible.