The Furlough Scheme
Updated: Apr 24, 2020
Most of you are already following the advice provided by the Government and your trading and regulatory bodies, have carried out immediate cash flow forecasting, spoken to your landlords about rental holidays or revised lease terms, discussed how best to pay your suppliers and revise credit terms and are set to implement the Coronavirus Job Retention Scheme (CJRS) for some of your staff.
For those of you who have not yet done so there are several matters to consider if you are considering “furloughing” your staff or intend to “furlough” your staff in the future. This includes when to furlough your staff, how to make the necessary changes to your employment contracts, the period of time for which you should furlough staff, what you should do if the work picks up and how to resolve staff conflicts and ensure equity in the process. For those of you who have already “furloughed” your staff but need clarity on the process this article may also be relevant to you.
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if you have any queries on the furlough scheme and we will talk you through the decision-making process and its implementation.
In this article we would like to touch on furloughing and some practical points we recommend that employers should take.
Meaning of Furlough
The word “furlough” is not new. It is generally used to denote a “leave of absence” ie a temporary leave of absence granted to employees due to the special needs of an employer or organisation as a result of economic conditions in the organisation or in the economy as a whole, annual leave, long service leave, time-off based on a company planned timetable or as in the past to describe military personnel home on leave.
The word “Furlough” as used in employment is a term that has come into general use since the coronavirus epidemic. Until the outbreak of the coronavirus pandemic many people in the UK had never heard of the term “furlough”.
As used in the wake of the coronavirus pandemic the term “ furlough” refers to
employees who have been asked to stop working but remain on payroll, rather than being dismissed for reasons of redundancy.
The government advises that the Coronavirus Job Retention Scheme (CJRS) which introduced the concept of “furlough” as used today is to protect those that would have otherwise been “laid off” and is a safeguard against redundancy.
The words “laying off” an employee (in employment terms) refers to the situation where an employer has no work for an employee, the employee’s terms of contract provide that in that situation the employee is not entitled to any wages. Therefore, the employee is are sent home without pay until work becomes available but is not dismissed.
In the case of furloughed staff the CJRS provides that these employees should be sent home with the government undertaking to pay 80% of the employee’s salary and the employer has the option of whether or not to pay the employee the 20% salary balance. Where an employee is furloughed the employee must not carry out any work for the employer and must not be required to work for the employer during the period.
It is clear that the government intends the scheme to apply to employees who would have otherwise been made redundant (their contract terminated with no pay), as opposed to being laid off (ie their contract continuing with no work and no pay.
Key Practice Points
To use the Furlough scheme, you need to:
(1) Check your employees’ contracts of employment – most contracts of employment will contain a variation of contract clause however they will not generally allow an employer to not provide an employee with work, change their employment status or reduce their pay without the employee’s consent.
(2) Decide which employees should be designated as furloughed employees.
(3) Use appropriate non – discriminatory selection criteria to avoid any allegations of discrimination, unfairness or injustice.
(4) Assess whether the designated or non-designated employees are likely to consent or be happy with the proposed designations. If employees are likely to refuse to be furloughed or you believe that you may encounter resistance from non-furloughed employees who may feel aggrieved that some employees are being offered furlough with no work, we are able to assist you with drafting a letter to your employees explaining the situation and the implications for the business.
(5) Notify your employees of the decision.
(6) Agree the changes with furloughed and non-furloughed staff. This may require a meeting or meetings with all staff. Faced with the alternatives, which are likely to be reduced wages (in some cases below 80% - the government pay threshold), being laid-off, unpaid leave, or being made redundant, it is likely that most staff are likely to agree to being allowed to work or being placed on the furlough scheme.
(7) Write to the affected staff members to confirm their new status together with the length of time for which they will be on furlough. This will ensure there is clarity and will avoid any future disputes. The initial period given by the government is 3 months (ie till the end of June 2020). However, it is uncertain what the future holds so you may wish to make the initial period subject to review.
(8) Submit the affected employees’ details and their earnings to HMRC through their new online portal which went live on Monday 20 April 2020. Please see updated guidance on how to calculate your claim and a simple step-by-step guide at www.gov.uk on the HMRC website.
(9) Make sure that your staff do not do any work for your business whilst they are on furlough.
(10) Consider whether you can afford to top up your employees pay by paying them the outstanding 20%. The government will only pay 80% of your employee’s wages (even if your employee is on the National Minimum Wage) up to a maximum of £2500 per month. You may decide to pay the top-up of 20% if your business can afford to do so but there is no obligation to do so. You may find that your employees would understand if you are unable to do so given the current economic situation.
Additional issues to consider
There are additional issues for specific businesses to consider depending on the size of the business and the number of staff they have. If your business employs over 10 members of staff, you have a legal duty to collectively consult with your employees before changing the status of any of your employees.
Your staff may also be able to seek a mortgage , rental or bill payment holidays from their mortgage company, landlord or energy suppliers, mortgage relief , reimbursement or suspension of other expenses and childcare cost reductions.
We have been asked by some clients whether an employee who has been furloughed can work for other employers on a voluntary basis. The answer is not totally clear. We understand that there may be employees who may wish to continue to assist their employer with work or work for other employers on a strictly voluntary basis. If you as an employer provides voluntary or non-voluntary work to a member of your staff who is on “furlough” , the employee is not deemed to be on “furlough” and you will not be able to claim any wages from the government for the employee’s salary under the furlough scheme. The government will be able to retrospectively audit all claims and will be entitled to claim back all payments made in breach of the Scheme.
We are taking calls daily from clients in these uncertain times.
If you need advice on the “furlough” scheme, how this may affect your business or if you need assistance with reviewing your contracts of employment or preparing letters or other communications to your staff, call our Coronavirus Helpline on 01234 938089 or e-mail us at email@example.com and one of our Helpline team member will be in touch.
We are specialist Employment Solicitors based in Bedford and operate nationally.