Update: ‘Furloughed Workers’ – the Government’s COVID-19 job retention scheme
Since the Government’s announcement of the Coronavirus Job Retention Scheme on 20th March (which introduced the concept of ‘furloughed workers’), employers have been waiting for further information about how the scheme will operate/apply in practice. As with all Government announcements, the devil is usually in the detail.
The HMRC have finally provided that guidance, which addresses some key unanswered questions. The guidance can be found here.
A summary of the additional details of the HMRC’s guidance is as follows:
- The scheme is open to all UK employers that had a PAYE scheme in place on 28 February 2020.
- Any organisation with employees can apply, including charities, recruitment agencies and public authorities; however, the government does not expect public sector employers to use it as long as central government continues funding wage costs in the normal way. With agency employees, the scheme is only available for those agency employees who are not working.
- Employers can reclaim up to 80% of wage costs up to a cap of £2,500 per employee per month, plus (not including) the associated employer NICs and minimum auto enrolment pension contributions on that wage.
- 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%. Fees, commissions and bonuses are not.
- An employer can choose to top up to 100%, but does not have to (subject to employment law and renegotiating any contractual entitlements).
- Furloughed employees can be on any type of contract, including: full-time employees, part-time employees, employees on agency contracts or employees on flexible or zero-hour contracts.
- For employees whose pay varies, the employer can claim for the higher of (i) the same month’s earning from the previous year (e.g. earnings from March 2019); or (ii) average monthly earnings in the 2019-20 tax year.
- Individuals are only entitled to the national minimum wage for the hours they work. So if they are furloughed and do not work, and 80% of their normal earnings would take them below the national minimum wage based on their normal working hours, they still only receive 80% as they are not working. However, they are entitled to be paid NMW for any time spent training.
- To be eligible, the employee must have been on the payroll on 28 February 2020. If they were hired later, they are not eligible. Anybody who was on the payroll on 28 February and has since been made redundant can be rehired and put on the scheme.
- To be eligible for the subsidy, employers should write to their employee confirming that they have been furloughed and keep a record of this communication.
- While on furlough, the employee’s wage will be subject to usual income tax and other deductions.
- Furlough leave must be taken in minimum blocks of three weeks to be eligible for funding.
- There is nothing in the guidance which prohibits rotating furlough leave amongst employees, provided each employee is off for a period of at least three weeks.
- The employee must not be working at all. If they work for even an hour (presumably during their entire three week furlough period), they are not eligible. However, they are able to undertake training and do separate volunteer work, provided they do not provide services to or make any money for their employer.
- When deciding ‘furlough’ leave (and acceptance of 80% pay), assuming the contract does not already allow for that, normal employment law applies. In our view, this means that, in the majority of cases, any pay reduction (even to the 80%) must be expressly agreed with the ‘furloughed’ employee, as it would for any variation of an employment contract. The employer must be careful not to discriminate in deciding who to offer furlough to.
- Employees on sick pay or self-isolating cannot be furloughed, but they can be furloughed afterwards. Employees who are shielding can be placed on furlough.
- Employees on maternity (or similar) leave can continue to draw Statutory Maternity Pay (or similar) payments. The guidance does not prohibit women on maternity leave agreeing to return to work early and then being furloughed, or electing to change to shared parental leave and then being furloughed.
- Employers can only claim once every three weeks i.e. they cannot get weekly reimbursement. Claims can be backdated to 1 March 2020.
The Government will issue more guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, before the scheme becomes live.
We are actively working with clients to assist their workforce planning during this difficult time (including preparing communications with ‘Furloughed workers’). If you require any assistance with that or any other employment issue, then please do not hesitate to contact Jonathan Bruck.