The practicalities of furloughing employees

Furloughed employees and how to make a claim through the Coronavirus Job Retention Scheme

The Government has now released further details in respect of the Job Retention Scheme and the practicalities of making a claim. They have confirmed that:

The scheme is expected to be up and running by the end of April;

  • Employers can use a portal to claim for 80% of furloughed employees’ usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrollment employer pension contributions on that wage;
  • The scheme is open to all UK employers that had created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account;
  • Employers can use this scheme anytime during the three months starting from 1 March 2020 however the minimum length of time that an employee may be furloughed is 3 weeks.

What can you claim?

Previous guidance advised employers that they could claim for “wage costs” through the scheme however it was unclear exactly what this covered. The Government has now confirmed that, in addition to the grant to cover the lower of 80% of an employee’s regular wage or £2,500 per month, employers can also claim for the associated Employer National Insurance contributions and minimum automatic enrollment employer pension contributions on that subsidised wage. The Government have also clarified that any fees, commission and bonuses should not be included in calculating an employee’s regular wage.

The practicalities of ‘furloughing’ employees:

In order to make a claim, employers will need the following information: 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 3 weeks), bank account number and sort code, contact name and phone number;

Employers need to calculate the amount they are claiming themselves and HMRC have said that they will retain the right to retrospectively audit all aspects of any claims made;

Employers can only submit one claim every 3 weeks, which is the minimum length an employee may be furloughed for. Claims can be backdated until the 1 March if applicable;

Once HMRC have accepted an employer’s ‘claim, they will pay the grant via BACS payment;

Employers should make claims in accordance with actual payroll amounts at the point at which payroll is run or in advance of an imminent payroll;

Employers must pay the employee all the grant they receive, no fees can be charged or deducted from the money that is granted;

Wages of furloughed employees will be subject to Income Tax and National Insurance as usual. Employees will also pay automatic pension enrolment contributions on qualifying earnings;

The Government has also confirmed that furloughed workers, who are not working, must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below National Living Wage (NLW)/National Minimum Wage (NMW).

Points to note:

It would appear that it is likely that employers will be claiming for payments which have already been made to their employees (subject to the usual deductions for tax and employee National Insurance contributions). Accordingly, it looks as though employers will be claiming for the net payment made to employees. This means that what employees will actually receive in their bank account will be less than the lower of 80% of their earnings or the cap of £2,500;

We presume that the Government has chosen a three-week period for making claims under the scheme in order to reduce the risk of fraud, however administratively this could become quite burdensome for employers;

The Government have said that they will issue more guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrollment employer pension contributions, before the scheme becomes live.

Who can you claim for?

  • Furloughed employees must have been on an employer’s PAYE payroll on or before 28 February 2020. Employees hired after 28 February 2020 cannot be furloughed;
  • The scheme covers full-time employees, part-time employees, employees on agency contracts and employees on flexible or zero-hour contracts;
  • The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.

For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%.

For employees whose pay varies, if the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, employers can claim for the higher of either the same month’s earning from the previous year or the average monthly earnings from the 2019-20 tax year. If the employee has been employed for less than a year, employers can claim for an average of an employee’s monthly earnings since they started work. If the employee only started in February 2020, employers should use a pro-rata of their earnings so far to claim.

The Government guidance also states the following:

  • If your employee is on unpaid leave – Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February 2020.
  • If your employee is on Statutory Sick Pay – Employees on sick leave or self-isolating should get Statutory Sick Pay but can be furloughed after this. Employees who are shielding in line with public health guidance can be placed on furlough.
  • If your employee has more than one job – Employee’s with more than one employer can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
  • If your employee does volunteer work or training – A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of an employer’s business. However, if workers are required to complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
  • If your employee is on maternity leave, contractual adoption pay, paternity pay or shared parental pay – If an employee is eligible for Statutory Maternity Pay or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance. If you offer enhanced contractual pay to women on Maternity Leave, this is included as wage costs that an employer can claim through the scheme. The same principles apply where an employee qualifies for contractual adoption, paternity or shared parental pay.

Topping up the employee’s earnings

It is open to an employer to top up an employee’s salary beyond the grant but they are not obliged to under the scheme. It is worth noting that if employers decide to do this, the following will not be funded through the scheme:

Employer National Insurance Contributions and automatic enrollment contribution on any additional top-up salary; or

Any voluntary automatic enrollment pension contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards).

When the scheme ends

When the government ends the scheme, employers will have to decide, depending on their circumstances, whether employees can return to their duties. If not, it may be necessary to consider redundancies;

Once the scheme has been closed by the government, HMRC have confirmed that they will continue to process remaining claims before terminating the scheme.

Other Points to Note

To be eligible for the subsidy, when on furlough, an employee cannot undertake any work for or on behalf of an employer’s business. This includes providing services or generating revenue.

Employers should discuss with their staff and make any changes to their employment contract by agreement. To be eligible for the subsidy employers should write to their employees confirming that they have been furloughed and keep a record of this communication.

When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.

Employees that have been furloughed have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.

In our experience, a key issue in respect of the above is regularly communicating with your employees and being open about the reason for the measures you are introducing.

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.

Furlough and annual leave

As of 4 April, the Government issued some further guidance regarding the Job Retention Scheme and whilst it has provided welcome clarification on a number of matters, it has still not addressed the issue of how annual leave will be treated in respect of those employees on furlough leave. As we approach Easter, where holiday is regularly taken (including 2 bank holidays), the need for confirmation is becoming more pressing.

We consider the main queries being raised below.

Does annual leave entitlement continue to accrue during furlough leave?

Furlough leave is an entirely new concept to UK employment law. However, the prevailing view appears to be that it is highly likely that annual leave will continue to accrue during any period of furlough leave. This makes a lot of sense, since the Government guidance is that an employee on furlough leave remains employed and the contract of employment remains in force.

Can an employee actually be on annual leave during a period of furlough?

Currently it is unclear from Government guidance whether an employee can be on both annual leave and furlough leave simultaneously. If furlough leave was viewed in the same way as statutory maternity leave, for example, then the answer would be no! However, whilst the Government have clarified certain other matters relating to the correlation between furlough leave and other statutory leave, they have not explicitly indicated that annual leave cannot be taken during a period of furlough.

If employees can be both furloughed and on annual leave at the same time, the next question for employers will be, what rate of pay will apply during this period of leave? Is it 80% of an employee’s earnings (subject to the cap applicable under the furlough scheme) or is the employer required to top this up to 100%? Further, can the employer still claim 80% under the retention scheme for any period of annual leave taken during furlough leave, or does it have to account for the full amount?

The answer is that we just don’t know, but we do expect the Government to confirm this shortly.

If an employee can be on annual leave during a period of furlough, can an employer force an employee to take annual leave during this period?

Technically, it is open to an employer to give notice to an employee requiring them to take statutory holiday on specified dates under the Working Time Regulations 1998. However, an employer should be aware that any such notice must be at least twice the length of the period of leave that the employee is being ordered to take i.e. if an employer would like their employee to take 2 weeks annual leave, they would need to give them at least 4 weeks’ notice.

Despite the above, there is also the ethical issue associated with forcing an employee to take annual leave during a period of furlough. Furloughed employees are prohibited from working anyway, and given the current lockdown restrictions, few employees will be enamoured about being forced to take annual leave from their entitlement and this may cause unrest.

What happens if the employee asks to take annual leave during a period of furlough leave?

It is difficult to imagine why a furloughed employee would want to take annual leave during the furlough given they are not working anyway and cannot travel. However, it is possible that some employees will seek to use annual leave as a basis to increase their income for the period of annual leave, on the assumption that they would be entitled to full pay for this period.

Interestingly, Acas guidance published on 2 April 2020 suggests that furloughed employees can still request and take holiday in the usual way but does not state whether they should be paid their normal remuneration or the furlough rate.

Recent legislative developments

The Government have clearly recognised the practical impact that annual leave accrual will have on a business once we come through this crisis. If an employee continues to accrue their annual leave entitlement during any period of furlough leave, and annual leave is not being taken during a period of furlough (or by employees who are still working for their employer),  the likelihood is that employers will be inundated with holiday requests from employees who are all seeking to take their unused holiday entitlement before the end of the holiday year. In these circumstances, it is easy to see how this could cause serious concerns for an employer, who is trying to kick-start its operations post the COVID-19 pandemic.

The Government has attempted to deal with some of these concerns already by passing emergency legislation, which relaxes the current restriction on carrying over annual leave into the next leave year, with immediate effect.

The Working Time (Coronavirus) Amendment Regulations 2020 permit the carry-over of up to four weeks untaken statutory leave where it was not reasonably practicable to take it in the leave year “as a result of the effects of the coronavirus (including on the worker, the employer or the wider economy or society)”. Such leave may now be carried over into the next two leave years.

This legislative change should provide reassurance to employers that they will not be inundated with holiday requests once any period of furlough leave comes to an end. It should also allow employers to feel slightly more relaxed about employees continuing to accrue holiday entitlement during furlough leave, as employees will now be able to spread this entitlement over the next two leave years.

However, some uncertainty remains and further clarity from the Government is currently awaited in respect of whether employees can be both furloughed and on leave at the same time and if so, what rate of pay will apply.

Furloughing Employees: Latest Updates

Until a few weeks ago, the concept of “furloughing” staff was a foreign one for UK employers. Now, however, it’s the hot topic on everyone’s lips. As you are probably aware, the furlough provisions are part of a range of measures introduced by the Government to help businesses cope with the impact of the COVID-19 pandemic, and allow employers to temporarily suspend staff and reclaim some of their pay from HMRC.

Unfortunately, employers and lawyers alike are having to deal with an ever-changing playing field, as they attempt to digest and interpret various iterations of guidance from the Government and HMRC – some of which even appears to directly contradict itself.

We are now in mid-April and the Guidance on the furlough scheme has had its fifth update. We also now have a Treasury Direction which sets out the legal basis of the scheme. Many of us are not used to interpreting legislation in this format – however, this is likely to be the only legislative provision we have.

There are a couple of key points arising from the Directive and latest Guidance:

  • The furlough scheme (known as the Coronavirus Job Retention Scheme, or CJRS) has been extended to the end of June. The scheme was initially due to run until the end of May (with the possibility of an extension) but it is likely that the early extension has come about because of concerns that, if the scheme ended on 31 May as indicated, employers who are proposing to make more than 100 redundancies after the protection of the scheme had been removed would need to start a 45 day collective consultation period no later than 18 April. This extension buys everybody a little bit more time before such decisions have to be made.
  • The CJRS scheme has also been extended so that employees who were on an employer’s payroll on 19 March 2020 (previously 28 February) can be considered for the furlough scheme. This might, however, not be quite the good news that it appears to be as the Guidance also talks about the fact that the employer must have notified HMRC of their payroll on an “RTI” (real time information system) on or before 19 March. For employers who run a monthly payroll towards the end of the month, employees who were not in the February payroll would likely not be on the RTI report until after the 19 March cut off point.
  • HMRC have announced that the portal to lodge claims for reimbursement will be opened on Monday, 20 April 2020. They have produced a step-by-step guide for claiming on the portal, including all the information employers will need to have to hand, (www.gov.uk/government/publications/coronavirus-job-retention-scheme-step-by-step-guide-for-employers), as well as a guide on how to work out 80% of an employee’s wages (www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme).
  • Some confusion has arisen following the publication of the Directive, which states that, in order to be furloughed, the employer and employee must “have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment”. This seems to be at odds with the previous Guidance which stated that the employer merely needed to write to the employee “notifying them” that they had been furloughed. The concept of “agreement” is therefore a new one. This confusion has been further compounded by the most recent iteration of the Government’s Guidance, which post-dates the publication of the Direction, which states: “employers must confirm in writing to their employee confirming that they have been furloughed… There needs to be a written record, but the employee does not have to provide a written response.” Employers who have relied on implied consent may, therefore, need to consider whether they now seek express agreement in light of the Direction. We will consider this further in a separate Q&A article, and set out the employer’s options in this scenario.
  • The vexed question of annual leave while on furlough has also been addressed in the Employees’ Guidance (but not in either the Employers’ Guidance or the Directive). The Guidance confirms (unsurprisingly) that furloughed employees will continue to accrue annual leave. It also states that holiday can be taken while on furlough, although it goes on to say that the employer should pay the employee their usual holiday pay in accordance with the Working Time Regulations. This means that employers are obliged to “top up” the 80%/£2,500 furlough pay in order that the employee receives their proper holiday pay. The Guidance also confirms that employers are able to restrict when leave can be taken (or, presumably, by extension that they can insist on leave being taken). Interestingly, the section of the Guidance concludes by saying that, “During this unprecedented time, we are keeping the policy on holiday pay during furlough under review,” meaning that the position could change yet again (and more uncertainty may arise from employers/employees relying on guidance which is subsequently changed).

How the furlough scheme is changing

What is clear from the Government’s latest furlough announcement is that from August 2020 they will be asking employers to start to share the burden of paying furloughed employees on a staggered basis.

What this means in practice is:

  • Up until the end of the July 2020: The Government will continue to pay 80% of wages up to a cap of £2,500, as well as employer National Insurance and pension contributions.
  • From August 2020: The Government will pay 80% of wages up to a cap of £2,500. Employers will be required to pay employer National Insurance and pension contributions.
  • From September 2020: The Government will pay 70% of wages up to a cap of £2,187.50. Employers will pay employer National Insurance and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500.
  • From October 2020: The Government will pay 60% of wages up to a cap of £1,875. Employers will pay employer National Insurance and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500.

What is “flexible furloughing”

From 1 July 2020, businesses will be given the flexibility to bring furloughed employees back into the workplace on a part time basis.

Up until now, employees had to be furloughed for a minimum of 3 consecutive weeks. However, from 1 July, employers will only need to report and claim for a minimum period of one week. This is different to the previous position under the scheme, as whilst the minimum claim period is now 1 week, the employee does not appear to have to be furloughed for that entire week.

The aim is to help bring people back into the workplace on a flexible basis, with businesses able to decide the hours and shift patterns their employees will work on their return. Broadly, it appears that from 1 July, employers will be able to claim a pro rata’d amount of salary, based on the proportion of the employee’s normal working hours which are spent on furlough during that period.

Of course, employers will also be responsible for paying their employees’ wages while they are in work and not on furlough leave and so this strategy ultimately depends on whether the business has enough work for its employees to do, in order to justify bringing them back into the workplace.

Important dates and points to note:

  • The job retention scheme will close to new entrants from 30 June. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full 3 week period prior to 30 June.
  • What this means in practice is that the final date by which an employer can furlough an employee for the first time will be 10 June, in order for the current 3 week furlough period to be completed by 30 June.
  • Employers will have until 31 July to make any claims in respect of the period to 30 June.
  • Further guidance is said to be expected from the Government on the 12 June 2020.

The ‘F’ Word: A note on Furlough from Mark Fellows.

A business contact of mine recently posed the question what name they should give to a hamster they had recently purchased. Without any hesitation, I suggested ‘Furlough’.

As an employment lawyer, this tells you what word is at the forefront of my mind. I think I have used the word ‘furlough’ more times this year than any other word in my vocabulary. Okay, that’s an exaggeration but you will get the point I am trying to make, and this is a word that none of us had ever used (or heard of) before March 2020.

It has clearly been an incredibly challenging year and in the context of employment law, the Coronavirus Job Retention Scheme (furlough) has undoubtedly been the most talked about legal development since the Government decided to abolish Tribunal fees, and of course it will (as it stands) run to 31st March. We will shortly find out more about how it will operate from 1st January, and importantly what the revised cost will be to the employer to continue to utilise the scheme.

But what else does 2021 hold for employers from a legal perspective?

With the extended Coronavirus Job Retention Scheme, the Government decided to withdraw the Job Retention Bonus, the £1,000 paid to the employer for each employee who was retained by the employer after the closure of the job retention scheme.  The Government have since spoken about an alternative ‘retention incentive’ but further details are pending.

In April 2021, we will have the usual raft of increases to statutory payments (including an increase to the maximum weekly wage for redundancy payments) and also the cap for compensation in unfair dismissal claims, which currently rests at £88,519, will increase.

For those employers who engage freelancers (or operate in the recruitment sector), we have changes to the IR35 rules that come into force on 6th April 2021. These changes apply to the private sector (but with an exemption for small businesses as defined) and were actually changes postponed from April 2020 because of the pandemic. In essence, the effect of this change is to impose an obligation on the company who engages the contractor to account for income tax and national insurance on the payments made to the contractor, if they are inside IR35. It is worth making sure your contractor arrangements are in order before those changes take effect.

It will also be a busy year in the Employment Tribunals.

This year has seen an unprecedented number of employment claims submitted largely due to dismissals arising from the pandemic and many of those will go to trial in 2021. The Tribunals are certainly going to have to grapple with some difficult issues – employers who made redundancies instead of utilising the Coronavirus Job Retention Scheme, employers who dismissed those employees who refused to return to work after lockdown, claims where the employees will assert that they were dismissed for raising health and safety concerns arising from the pandemic. These issues will no doubt be the subject of much legal debate and the appeals will run for several years.

2021 will not therefore represent the end of the ‘F’ word, but let’s hope it represents the end of Covid19.

The Job Retention Scheme extended until December 2020.

The Government’s u-turn in respect of a national lockdown may have come as unwelcome news but for some it has come with the welcome side effect that the Government’s Coronavirus Job Retention Scheme (aka the Furlough scheme) has been extended until December.

The Government’s Job retention scheme (Furlough) was due to end on 31 October 2020 and to be replaced with the new (less generous) Job Support Scheme.

However, the Furlough scheme has now been extended until December 2020, to mirror the fact that we are now due to be in a national lockdown until at least 2 December 2020.

The Job Support Scheme, which was scheduled to come in to force on Sunday 1st November, has been postponed until the Furlough scheme ends.

What does this mean in practice?

The Furlough scheme has slowly become less generous for employers since it was first introduced in March 2020, with companies having to contribute 10% towards employee wages in September and 20% in October, however the Government has confirmed that the extension of the Furlough scheme, will revert back to the levels of contribution as they stood in August 2020.

This means that the Government will pay 80% of employees’ wages for hours not worked, up to a maximum of £2,500 per month and employers will only have to contribute pension and National Insurance.

This means that the extended Furlough scheme is more generous for employers than it was in October. Businesses will also still have the flexibility to bring furloughed employees back to work on a part-time basis or Furlough them full-time.

The Job Support Scheme, which was due to replace Furlough, has been postponed until the extended Furlough scheme ends.

Key points:

  • For hours not worked by the employee, the Government will pay 80% of wages up to a cap of £2,500 per month.
  • The grant must be paid to the employee in full.
  • Employers will pay employer NICs and pension contributions and should continue to pay the employee for hours worked in the normal way.
  • As with the current Furlough scheme, employers are still able to choose to top up employee wages above the scheme grant at their own expense if they wish.

We understand that further details, including how to claim this extended support through an updated claims service, will be provided by the Government shortly.

Back to School, Back to Work, Back to Normality?

With the Coronavirus Job Retention Scheme (the Furlough scheme to you and me) coming to an end on 30th September 2021 (*as it stands…Rishi, any update?), the vaccination program in full flow, the children happily returning to school (absent the dreaded ‘bubbles’) and staff going back to work, you would be forgiven for thinking that normality beckons.

Whilst this is all a positive step forward for the economy, and frankly much needed, it will inevitably open up a number of additional considerations for employers given what is still a challenging period. We outline below some things to consider:

  • The End of Furlough – decisions will need to be made about those employees on furlough. If the employer can bring them back, then those conversations should be happening imminently. If sadly there is a need to consider making redundancies, again the process should be instigated now to allow for the necessary period of consultation. A common misconception at the moment is that the redundancy is a given because the employee has been on furlough – that does not follow, and it is still necessary to meet the legal test that the role is no longer required.
  • Risk Assessment – for the workplace, it is hugely important that existing risk assessments are revisited, and new assessments undertaken considering the guidance, particularly in respect of social distancing and the new isolation rules. What the risk assessment should cover will vary depending on the nature of your work and work environment. The HSE have a handy template and guidance for Covid risk assessments, click here for the template. Employers can also use the Governments online tool, click here  for more information.
  • Don’t mention the…Vaccination – well, you can, because of course the new isolation rules take into account whether somebody has been vaccinated. However, just be wary that this is likely to be a sensitive and potentially controversial issue. There is already a challenge to new legislation making the vaccination compulsory for those who work in care homes and in other sectors, some employers are applying their own conditions and requirements about staff being double jabbed. For us employment lawyers this whole area makes us twitch, considering the potential for discrimination claims right through to GDPR compliance. It is an entire topic in itself and is one to discuss with your twitchy employment lawyer.
  • It is good to talk – the need for communication has never been more important, as we enter a new phase of safe working practices, hybrid working and that awkward moment when you don’t know if to shake a hand, fist pump, elbow bash or even go completely off piste and embrace. Keep staff in the loop not just about the changes being implemented within the workplace, but why they are being implemented.

There is no “one size fits all” solution to these matters and that is not us simply rolling out that old legal cliché. It is without doubt a matter for each employer to consider, in the context of their business and the staff they employ.