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Covid-19: Understanding furlough

We look at the government's Coronavirus Job Retention Scheme to help cover employee wages with the concept of furlough temporary leave.

Coronavirus

This article has been updated.

The government has introduced a Coronavirus Job Retention Scheme to support employers in paying wages, introducing the concept of ‘furlough’ – temporary leave – for employees. We look at what this is and how it will work.

Things to know:

  • The scheme covers all employees who were on the PAYE payroll on 28 February 2020. They can be employed under different types of contract – full time, part time, zero hours etc. Also covered are employees who were made redundant after 28 February. They can now be re-engaged and put on furlough. It can cover employees whose jobs are completely redundant, or those who have less work available.
  • The government will cover 80% of furloughed employees’ wage costs, up to a maximum of £2500 per month (plus Employer National Insurance and minimum automatic employer pension contributions). Employers don’t have to top up the wages (unless not doing so would bring an employee doing training below the national minimum wage). Rules provide for how the £2500 is calculated. It’s a grant, not a loan and doesn’t need to be repaid. Payments made to furloughed employees are taxable.
  • Employees can’t do any sort of work for their employer whilst on furlough, even for free. What they can do is training or volunteer work
  • Furlough leave is for a minimum of three weeks. After that, employees can be put on a fresh period of furlough leave. Or staff can be rotated round, taking it in turns to be on three week furlough leave.

Which employers can apply?

The scheme applies to large and small businesses, charities, recruitment agencies and public authorities. All that is needed is to have a PAYE scheme up and running on or before 28 February and have a UK bank account.

What if an employee usually earns more than £2500 per month?

Employers will only be given a grant of 80% of wages, capped at £2500 per month. Many employees will earn more than this. Employers are under no obligation to top up the wages over and above the government grant. If they don’t want to, the contract of employment will need to be changed to provide for a wage reduction. It is expected that most employees, faced with the option of losing their jobs, will agree. If not, a proper procedure has to be followed for changing the contract. The usual employment law framework still applies.

How do you put someone on furlough?

Employees need to agree to be placed on furlough. This should be confirmed in writing to them. When choosing who to place on furlough, employers don’t need to show that redundancy was the only alternative. But employers should remember that HMRC will be able to retrospectively carry out audits, to check for abuses of the scheme. Usual employment law rules apply, so employers can’t select those to go on furlough for a discriminatory reason.  Employers could consider a version of a redundancy selection exercise – ask for volunteers and then have a pooling and selection process. A fair procedure needs to be used, or run the risk of claims. If more than 20 are to be put on furlough, the employer will need to carry out collective consultation, unless it can show a ‘special circumstances’ defence. Make sure the employees don’t carry out any work for the employer, once on furlough.

Who can or can’t be furloughed?

Employees who are off sick probably can’t be put on furlough until they are better. Women on maternity leave can be put on furlough. Holiday continues to accrue during furlough but it’s not clear if employers can require employees to take holiday during furlough and it’s not yet clear how employees would be paid for holiday.  If someone has two jobs, they can be furloughed from one and continue working for the other.

This is a summary and you should take legal advice on any matters affecting you. Contact our employment team for more information.

This article was written by Sue Fairbairn

Please note the contents contained in this article are for general guidance only. Legal advice should be sought before taking action in relation to specific matters.

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