The Government has now released more detailed guidance on the Job Retention Scheme accessible at https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme. In this update we provide a comprehensive guide and answer the questions our clients have been asking us since the Chancellor announced the scheme.
Readers should note that the Government has still not published the actual legislation. Whilst the new guidance is helpful, there is still much uncertainty. The legislation should provide the fine details and we will produce a further update when the legislation is available. That could impact on the contents of this guide.
Your Questions Answered
- Do we need to be able to prove that furloughed employees would have been made redundant if they were not furloughed to access the grant?
The updated guidance says the scheme “is designed to support employers whose operations have been severely affected by coronavirus”. The updated guidance says nothing about any evidential threshold. The scheme is intended to cover all those for whom no work is available by reason of the current crisis. Accordingly, the guidance suggests furlough is available for any employee for whom there is no work available to undertake because of the impact of the Covid-19 crisis on the employer’s business. The legislation when published may provide more definitive language around this point.
- Will an employee need to have any period of minimum service in order to qualify as within the scheme?
No (but they do need to have been on the payroll on 28 February 2020).
- Could the employer ask for volunteers to go on furlough leave?
- Can an employee on unpaid leave be furloughed
Yes if the period of unpaid leave started after 28 February. Otherwise, no.
- Can an employee on sick leave or who is self-isolating be furloughed?
The guidance states that employees on sick leave or self-isolating should get SSP, but can be furloughed after this. This suggests the Government grant will not be available if an employer moves someone from sick or self-isolating to furlough when the employee remains sick or in the period of self-isolation and their SSP entitlement has not expired.
- Can employees who are shielding in line with public health guidance can be placed on furlough.
The guidance confirms that furlough can apply to employees in this category. Our assumption is that this is only the case where there is no work available for them to do, but the guidance does not address this explicitly.
- What about agency workers?
The guidance says the scheme applies to recruitment agencies where agency workers are paid through PAYE. The guidance uses the term “employee” throughout which has led to some doubts as to whether “workers” will be included. However the importance of the distinction between the two types of engagement for employment law purposes does not generally apply when considering issues relating to pay and tax. As a result HMRC generally only uses the terms employed or self-employed, and we believe the scheme will be available for PAYE agency workers on the employer’s payroll as at 28 February 2020, even if they are not “employees”.
- Could employers select working parents to go on furlough leave as they will find it more difficult to attend work?This may be possible, certainly if working parents volunteered for furlough, although it would again be subject to the employees being in agreement and would be subject to the overall requirement to demonstrate that there is no work for them to do. You cannot furlough an employee just because they are finding it difficult to attend work or work from home effectively due to childcare. You have to be able to show that you as the employer currently have no need for them to work. You would also need to be careful to avoid any discrimination claims, particularly that this impacted on women more than men.
- Does an employer have to show a fair selection process where only part of the workforce will be asked to agree a period of furlough leave?
The employer should have a clear reason for deciding that furlough should apply to particular groups of employees. If decisions need to be made between employees doing the same role, remember furlough will have to be agreed with each employee. If an employee is asked and agrees to furlough, the scope for them to raise any legitimate grievance is limited. They could refuse if they felt it was unfair on them. The greater concern is likely to come if, after furlough ends, redundancies are needed and those selected for furlough become those selected for redundancy. That is when they may assert that the decision on redundancy was pre-determined and unfair. Employers should ensure that as far as possible they adopt a normal redundancy process with proper pooling, criteria and selection when it comes to actual redundancies after furlough.
If the employer has the time and resources to undertake such a process before choosing employees to approach for furlough that would be a sensible step, but we doubt that is likely to be realistic for many employers in the current circumstances. Employers should not discriminate on the grounds of a protected characteristic in making their selection.
- Are the employer NICS, pension contributions and other benefits covered by the words “workers wage costs” which appeared in the initial guidance to describe what the Government will cover?
The scheme provides a grant to the employer for 80% of the employee’s normal wages (to a cap of £2,500). Fees, commission and bonuses are excluded from the calculation of 80%. Employers will also receive a grant covering employer’s national insurance and auto enrolment pension contributions on the 80%. Employees will be liable to pay employee’s national insurance on the 80%, along with any employee auto enrolment contributions.
Nothing is said about the costs of any benefits (save for statutory pension contributions) so it appears the contribution does not extend to the value of other benefits. If these are to be discontinued during the period of furlough that will need to be agreed with the employees as part of the agreement to move to furlough.The updated guidance also says nothing about the apprenticeship levy. Clarification on this employer cost is needed from the Government.
- How is the value of the wage costs calculated to work out the 80%? A furloughed employee will have an entitlement to 80% of their normal wage. This will usually be clearly identified in their contract of employment if they have normal hours of work. For full time and part time salaried employees with normal hours, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. However, where the employee has variable hours or their pay varies from week to week the amount payable will be calculated by taking either the earnings from the same pay period the previous year or, if higher, an average from the 2019-2020 tax year. If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work. If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
- How will salary sacrifice be treated for the purposes of calculating the amounts due?
The guidance is silent on this but our view is that the 80% will be based on the salary after sacrifice as this will be regarded as the amount due rather than the pre-salary sacrifice.
- Can we pay less than the Government’s 80% contribution under a furlough agreement?
No. The guidance is clear that employers must pay the full value of the available Government grant as a minimum.
- Can an employee be on intermittent furlough leave?
Yes, to an extent. A worker must be furloughed for a minimum period of 3 weeks in order to be eligible for the Government scheme. Provided this minimum period is adhered to and there is provision in the furlough agreement reached with the employee allowing for it, there is nothing to prevent an employer from requiring an employee to return to work after three weeks (and then sending them back on furlough leave at a later date for a further period which it appears would also need to be for a minimum of 3 weeks). The scheme is aimed at reducing redundancy and lay off. If the employer has work to offer this should be done and the furlough status ended even if it is for a short period of time. It will enable the employee to get full pay for that period and will break up what may be a long period of inactivity.
- Can an employee be placed on furlough leave during a period of notice of dismissal?
We need the legislation before definitive advice can be given on this. The latest guidance suggests that provided work is not available to be done, then furlough is available, even if the employee is being dismissed in any event during the furlough period. The position, however, remains uncertain.
In addition, the change of status would have to be agreed with the employee. During the period when the employee is serving their notice prior to dismissal there may be little to encourage an employee to agree to furlough and reduced pay. This is because an employee is generally entitled to be paid in full if they are ready and willing to work but no work is available to them.
The larger the salary, the less likely it may be that someone will agree furlough. Where statutory notice applies, legislation requires an employer to pay full pay during that notice period. This may well be the case during a furlough period.
- What notice do I have to give to bring a period of furlough to an end?
This will depend on the terms that you agree with your employee when furlough leave commences. The guidance is silent on this. It is advised that employers require their furloughed employees to sign a furlough agreement setting out the terms of their absence and making express provision for return to work and flexibility around furlough.
- Will it be an unfair dismissal to make an employee redundant if they could have been placed on furlough leave as an alternative?
Remember employees generally need to have accrued two years’ service at the effective date of termination to have the right to claim unfair dismissal. It would be a factor that the Employment Tribunal would take into account as an employer should always look at all alternatives to dismissal before dismissing for redundancy. The dismissal may still be fair if the employer is able to explain why it decided not to furlough the employee. The key is to document why furlough was not pursued. If the employer can offer a sensible explanation an Employment Tribunal should not interfere.
- Will the employee still need to receive national minimum wage for the hours they would have been in work had they not agreed to a period of furlough leave?
No. This will not be working time for the purpose of national minimum wage calculations.
However, the guidance does not address the increase in national minimum wage rates on 1 April 2020. The guidance does say that to be eligible, “At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month”. Regular wage will be national minimum wage for many employees. The information which the Government then provides about calculation of the 80% (see question 11) would undoubtedly result in a value below 80% of an employee’s minimum statutory entitlement from 1 April 2020 and so their “regular wage”. The final legislation will need to be considered, to clearly understand the interplay between the Government’s formula, the national minimum wage and the wording in the guidance that employers must pay 80% of “regular wage” to qualify for the grant.
- Can employees laid off/on unpaid leave after 28 February agree that they have been on furlough leave since 1 March 2020?
- Can ex-employees made redundant after 28 February 2020 be reinstated and designated as furloughed?
Yes the guidance provides for this, with furlough applying from date of deemed reinstatement with 1 March being the earliest applicable date.
- Will an employee continue to accrue paid holiday entitlement based on their normal wage during the furlough leave?
- Can an employee be on holiday whilst also furloughed?
This is not clear from the guidance.
This may be possible, but the danger if it isn’t permitted is that employees who take “holiday” are not deemed to be furloughed. This could potentially render an entire block of furlough period ineffective. To mitigate the potential risk, employers may choose to designate a period as holiday only after an initial three weeks of furlough has elapsed, and thereafter ensure there are always at least three week blocks of furlough in which none are designated as holiday
- What about holiday pay during furlough
The guidance is silent on holiday and holiday pay. With effect from 6 April 2020 the new 52 week reference period for calculating holiday pay comes into force so that may well apply for employees with no normal hours.
For salaried employees it is not clear whether an employer could limit holiday pay to the reduced furloughed salary if holiday is taken during furlough, and if such was set out in the furlough agreement with the employee. We believe most employers will pay any holiday pay based on the normal pre-furlough salary.
- Will an employee on furlough leave be able to take a second job during the hours that they would have been at work?
Subject to any restrictions in the employment contract there would not appear to be any restrictions on the employee undertaking work for another employer during the period of furlough.
- Would furlough leave be available where an employee has multiple jobs?
The employee would be entitled to furlough leave in respect of any of these jobs if they are with different employers.
- Will an employee on maternity leave or other statutory family leave be able to agree a period of furlough leave?The guidance says that if an employer offers enhanced (earnings related) contractual pay to women on maternity leave, this is included as wage costs that the employer can claim through the scheme.
This suggests that an employee may not need to bring maternity leave to an end to be in a furlough arrangement with their employer.
The position, however, is unclear from the guidance.
- Will a period of furlough leave before maternity leave be taken into account for calculating the amount of statutory maternity pay due?
The usual rules regarding calculation of maternity pay will apply. The pay received in the “relevant period” will be taken into account whether or not the employee was on furlough leave.
- Can employees volunteer or train whilst furloughed?
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” the employer.
They could not, therefore, offer to work free of charge or on a voluntary basis for their employer.
Note the guidance confirms that if workers are required to for example, 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% Government grant.
They are also able to provide voluntary services elsewhere whilst furloughed.
- Will an apprentice on furlough leave be able to continue to carry out their college studies?
The guidance doesn’t cover this expressly. However, by analogy with employees who undertake training it would appear that these employees may be entitled to minimum apprenticeship pay for periods when they are undertaking training. The position remains unclear.
- How often can we submit a claim to HMRC for furlough pay?
Employers can submit one claim every three weeks. This is aligned with the minimum period of furlough leave covered by the scheme.
- Must we submit form HR1 form before we furlough employees?
Employers are required to submit form HR1 once it is proposed to dismiss at least 20 employees at one establishment in the next 90 days. Some commentators have suggested this means that form HR 1 must be filed and collective consultation commenced before any discussions with employees about agreeing to furlough.
Taking a pragmatic approach, if the intention is that employees move to furlough and there will not be 20 or more dismissals at one site in the next 90 days, we do not regard it as essential to file HR1 before seeking to agree furlough.
However, if 20 or more employees at one establishment will not agree to accept furlough and with it reduced pay then employers may well find themselves needing to start a collective process at that point. Similarly, if it becomes apparent that 20 or more redundancies at one establishment will be needed after furlough it may be necessary to file the HR 1 and commence consultation to ensure that redundancies can be implemented quickly at the end of the furlough period. Whilst it is conceivable that a “special circumstances” defence may be available, under legislation at least 30/45 days must expire from the date of the first meeting with employee representatives/unions before any dismissal can take effect, so valuable time and money could be lost if collective consultation is only commenced after furlough has ended.
We are producing a separate guide to collective consultation and furlough.