Furlough Leave: What you need to know
To help you navigate the confusing changes in markets, we have assembled some key information surrounding Furlough Leave, how to access the government scheme and what it means for businesses.
What does Furlough mean?
Deriving from the Dutch origin, furlough is a leave of absence or temporary leave of employees due to special circumstances such as economic conditions.
We have precious few details on this new scheme at the moment except the official information released by the government:
(This link also sets out the wider range of government financial support on offer for businesses)
Support for businesses through the Coronavirus Job Retention Scheme
Under the Coronavirus Job Retention Scheme, once this comes into force, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.
Eligibility
All UK businesses are eligible i.e. sole traders employing staff, LLPs, Ltd companies etc. The Chancellor announced that the Coronavirus Job Retention Scheme will be open for three months initially, but will be extended if required.
How to access the scheme
You will need to:
· Designate affected employees as ‘furloughed workers,’ and notify your employees of this change - changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation
· Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required)
HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.
If your business needs short term cash flow support, you may be eligible for a Coronavirus Business Interruption Loan.
What this means in employment law terms (once the scheme is in place) is that:
- Employers should ask employees who are already on lay off, or for whom there is no work available, if they wish to become ‘furloughed workers’. Although employers may rely on existing lay off clauses to place them on leave and not provide them with work, if employers are not able to top up the 20% short-fall in salary by continuing to pay existing wages, they will need employees’ consent to a temporary variation of contract for the 20% reduced salary). Their terms and conditions of employment will remain the same whilst on leave (i.e. they continue to be employed and accrue statutory rights, such as annual leave). During this time, HMRC will pay 80% of the employee’s salary (up to a cap of £2,500 per month, which equates to the UK’s median salary of £30k per year) directly to the employer, who pays this in turn to the employee through the payroll. This amount will include pension contributions and other remuneration.
- Employers must designate employees as ‘furloughed workers’ by telling HMRC, which means that there is no entitlement for employees to be placed on this leave if the employer decides there is work for them to do and they wouldn’t otherwise be laid off. Naturally, this will lead to resentment between staff who are sat at home “doing nothing” whilst receiving 80% of their salary and those that are required to continue working through, but that’s just the luck of the draw. Employees on statutory leave, such as maternity leave, will continue on statutory leave (they would have no right to remuneration, except for maternity etc pay in those circumstances).
- Being placed on ‘furlough leave’ with a reduction in salary will require employees’ consent. It’s extremely unlikely given the 80% guarantee of wages that employees will disagree to this. It will, of course, be more difficult to obtain employees’ agreement to other measures such as short-time working (where employees receive less than 50% of their usual wage) or reduced hours/salaries against this backdrop.
At Activ8, we are dedicated to providing you with all the support you need at this time so we’ll continue to bring you updates as they become available.