The Coronavirus Job Retention Scheme will provide a cushion to employees, workers and employers over the coming months, but how will it operate, what does ’furlough’ really mean and who is included and excluded? Helen Farr investigates
With many organisations being forced to cease trading to protect public health and others being forced to scale back operations dramatically, the impact on employers and employees of the coronavirus outbreak has been immense.
To provide security for those employees who find themselves unable to work, UK chancellor Rishi Sunak announced on 20 March 2020 that it would introduce a Coronavirus Job Retention Scheme. This introduced a legal mechanism that allows businesses to retain employees without the need to work but to still receive a minimum level of salary. The purpose is to reduce redundancies and to avoid people being laid off without pay. Lay off (without pay) is the usual vehicle open to employers when they wish to retain employees but have no work for them to do. Under the job retention scheme, all UK employers will be able to access support from the government to continue paying part of the salary of those employees who are on the PAYE payroll on 28 February but would otherwise have been laid off. These employees will be on “furlough”.
During the period when employees are on furlough the government has committed to repaying 80% of all employment costs – to a cap of £2,500 per month. Government guidance has confirmed that it will also reimburse employer national insurance contributions and minimum automatic enrolment employer pension contributions made on the reduced salary; which is welcome news for employers.
There is nothing to stop employers “topping up” the difference between the amount they are reimbursed by the government and full salary but this will not funded through this scheme.
Employers are committed to pay salary pending reimbursement from the government and this may have an impact for those businesses who are struggling with cash flow during the current crisis. An online portal is being created to enable employers to reclaim this money from HMRC and the government has committed to the scheme being operational by the end of April. The initial scheme will apply for a 12-week period but may be extended depending on how the crisis develops.
Employers cannot force employees to be furloughed. The government is clear that changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation. Therefore employers cannot simply impose this change.
Negotiation is important. Some employees may prefer to be made redundant – especially if they have long service and hope to receive a significant redundancy payment. Equally, other employees may prefer to be furloughed rather than working reduced hours with the effect they are paid less than those colleagues who are being paid to “do nothing”. Another reason why it is important to negotiate the change in terms is that if a change is not agreed an employee could bring a claim for either breach of contract or unlawful deduction of wages if employers fail to pay full salary without the employee’s agreement to receive reduced salary.
There are a number of practical points that have arisen in relation to the operation of furlough including, how to choose those who are going to be placed on furlough and whether employees can be placed on furlough intermittently between periods of work? Employers must ensure that those who are selected to be placed on “furlough” are chosen in a non-discriminatory manner. The minimum period of furlough is three weeks and so it may be possible to have periods when employees are working and then placed on furlough.
On 19 March the government announced it would introduce a new scheme allowing employees to act as volunteers to assist with health and social care. Employees can give notice to their employer that they want to act as a volunteer for a period of up to one month and salary costs during this period will be reimbursed by the government. Ministers have clarified that furloughed employees can act as volunteers but only if it does not generate revenue for the organisation.
Job retention scheme links
Although the purpose of the Job Retention Scheme is to avoid redundancies, sadly things may change. There is nothing to prevent furloughed employees from being made redundant but businesses must follow a proper redundancy process including consultation. Any notice period should be paid at full salary as opposed to the reduced salary paid when on furlough.
The Job Retention Scheme only applies to those who are employed. Responding to public pressure on 26 March the chancellor introduced a similar scheme allowing those who are self-employed to make a claim for lost income for a similar three-month period.
Again the self-employed can apply to HMRC for a grant worth up to 80% of profits (calculated over a three-year trading period) up to £2,500 per month. The government has been keen to emphasise that the amounts available to the employed and the self-employed are the same.
This scheme is open to any self-employed worker with a trading profit of less than £50,000 in 2018-19 (or an average of £50,000 over the past three years of trading). For those trading for less than one year there is no help available under the scheme. Funds will not be available until early June but, once paid, funds will be backdated to 1 March 2020. The reason for the delay in payment has been attributed to the fact that the government has extended the period whereby the self-employed can file a self-assessment tax form to the end of April to ensure that the largest number of self-employed individuals can benefit from this scheme.
Each business is unique and will have its own complexities but the guidance on how to claim for wage costs through the Coronavirus Job Retention Scheme provides much needed clarity for businesses. The scheme should also enable businesses now to take the steps needed to implement the best strategy to meet the needs of employers and employees during a time where uncertainty is rife for everyone.