News & Views

What the new measurements introduced by the Government mean for businesses in financial difficulty

Coronavirus gov measures

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On Friday 20th March, the Government announced new measures to support businesses finding themselves in financial difficulty as a result of the impact of the Covid-19 pandemic. Below, Joanne Perry, Partner in the Employment team, summarises the announcement and what it means for you and your business.

Please bear in mind that the announcement is lacking in some important detail, we endeavour to provide this to you in the coming days.

There are, therefore, a number of questions that remain unanswered.

The Government’s website for support for employers states:

  • Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employee’s salary for those employees that would otherwise have been laid off during this crisis.
  • To access the scheme, employers need to designate affected employees as ‘furloughed workers’ and notify their employees of this change. The guidance states that “changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation”.
  • Employers must submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal.
  • HMRC will reimburse 80% of furloughed workers’ wage costs, up to a cap of £2,500 per month.

The Government’s website providing support to employees states:

  • If an employer intends to access the Coronavirus Job Retention Scheme, they will discuss with you becoming classified as a furloughed worker. This would mean that you are kept on your employer’s payroll, rather than being laid off.
  • To qualify for this scheme, you should not undertake work for them while you are furloughed. This will allow your employer to claim a grant of up to 80% of your wage for all employment costs, up to a cap of £2,500 per month.
  • You will remain employed while furloughed. Your employer could choose to fund the differences between this payment and your salary, but does not have to.
  • The Government intend for the Job Retention Scheme to last at least 3 months from 1 March 2020 but will extend if necessary.

Joanne highlights key areas which are worthy of further discussion:

In order to benefit from this scheme, employers would have to notify the employees of the change to them being furloughed workers. Since there will be no contractual right to do this – as it seems to be a completely new concept – employers would, in effect, need the employees’ agreement to the change. On the basis that the alternative is redundancy, then I would assume that most employees would accept the change.“One particular challenge is that the guidance is using terminology unfamiliar in an employment law context – despite saying that “changing the status of employees remains subject to existing employment law”. The guidance also repeatedly refers to employees who would have “otherwise been laid off”. Laying off, in an employment law context, has a very specific legal meaning – which is to provide employees with no work (and no pay) for a period while retaining them as employees. This seems to be exactly what they are now referring to as “furloughed workers”. The Government presumably mean “laid off” in the vernacular sense, which is to be made redundant (i.e. have their employment brought to an end).

So, once the employer has agreed with an affected employee that they will be reclassified as a “furloughed employee”, then the employer can reclaim 80% of the employees’ wage costs up to £,2,500 a month. However, what we are not clear about is:

  • What classifies as “wage costs”. The employee guidance talks about “all employment costs”. This might include the cost of benefits, pension, employer’s NI etc.
  • Whether the cap of £2,500 refers to the 80% value or the 100% value – likely the 80% value.
  • What happens when employers have already reduced employees’ salaries – can they claim the full 80% or only 80% of the reduced salary?
  • What happens to employees who have already been made redundant? Can they be reinstated in order to benefit from this scheme?
  • Whether there are any minimum service requirements. What happens if an employer has a new employee joining – can they immediately be furloughed?
  • How long the wait will be for reimbursement – if there is a significant wait, it doesn’t help with the immediate cash flow issue.
  • Whether furloughed employees continue to accrue holiday, what happens when they are on sick leave, and are they still entitled to pension contributions?

Employers need to think very carefully about whether to use this and for whom. One particular issue that jumps to mind is how non-furloughed employees will feel about still working – and probably picking up more of the workload to cover for their furloughed colleagues – and potentially receiving the same pay (80%) as those who are not working.

Employers will also need to consider what their approach will be to topping up the salary costs (or not) – particularly for those employees earning over £30K, for whom the cap will not fully cover their 80% salary.

Some of these questions may be answered in the next few days, but some of them are likely to remain unclear. I aim to update you as soon as the Government provide further guidance.”

As you will appreciate, whilst we have outlined options and some of the legal implications, this note does not constitute legal advice as each situation will be different and commercial considerations will no doubt dictate what you as a business ultimately decide to do.

Sherrards is here to support you should you need specific assistance.

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