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Furlough: What does it mean for you and your business?

March 2020

With businesses across the country forced to close at an alarming rate, the Government has introduced a number of emergency measures to help try to keep the UK economy afloat. 

The newly proposed Coronavirus Job Retention Scheme is one such measure.  As its name suggests, the scheme is intended to help employers pay the wages of staff who, in the current crisis, might otherwise have been made redundant.  In short, the scheme makes provision for the state to underwrite 80% of wages (subject to a cap of £2,500 per month) of staff who are ‘furloughed’ but remain employed.

Below, we outline who is eligible for the scheme, how it works and how business can apply for it. 

What is a furloughed worker?

A furloughed worker is an individual whose employer can no longer cover staff costs as a result of the impact of Coronavirus on their business, and are asked to stop working. These staff members are not made redundant, and remain employed by the business. 

As a result of such action, employers can access Government support to help them pay their staff’s wages.

Is my business eligible?

The scheme is available to all UK employers with a PAYE payroll scheme on 28 February 2020 and a UK bank account.  It is to be in force for three months initially (from 01 March 2020) but, depending on how long the crisis lasts, this could be extended.

Originally intended to apply to businesses most severely affected by Covid-19, such as those operating within the retail, leisure and hospitality sector, the scheme is expected to be taken up by any business experiencing financial difficulties as a consequence of the current crisis. 

At present, it is not clear whether businesses will have to provide evidence of their financial situation in order to qualify for the scheme.  

Which employees are eligible?

Provided that they were on the employer’s payroll on 28 February 2020, the scheme applies to the following:

  • Full-time employees
  • Part-time employees
  • Employees on agency contracts
  • Employees on flexible or zero-hour contracts

Businesses cannot claim furlough for employees hired after 28 February 2020 or for those employees who are already working reduced hours or receiving reduced pay. 

The scheme does however, cover employees who were made redundant after 28 February 2020, and rehired by their employer. For these individuals, pay can be backdated to 1 March 2020, the date the scheme came into effect. 

How should an employer select employees to put on furlough?

An employer may not wish to put all of its employees into furlough.  If it is continuing to trade, albeit with reduced capacity, the employer may need to choose which employees to put into furlough.  An employer can choose which employees are to be furloughed, so long as its decision is not discriminatory or unlawful. 

Putting an employee into furlough will involve changing that employee’s terms and conditions of employment.  This remains subject to existing employment law and must be done by agreement and properly documented.

We can help guide you through the process and, once you have selected those employees to be furloughed, can document the newly agreed terms for you. 

How will wages be calculated?

For employees receiving a regular salary, determining the 80% of wages paid would be determined by their salary before tax, as of 28 February 2020. Though for employees receiving an irregular wage, such as those paid by the hour or for commissioned work, this process may be more difficult. 

Usually, weekly pay is calculated by reference to a 12-week period, which takes any additional payments, such as bonuses and overtime, into account. For example, to calculate the wage of a hospitality worker, their takings (including hourly pay, tips and overtime) over the past 12-weeks would be averaged, and 80% would be paid through the scheme. 

Government guidance states that it is the employer’s decision on whether to pay the additional 20% to the employee. If they choose not to, this must be agreed with the employee. 

It should be noted that any employees who have had their salary reduced as a result of these changes may be eligible for support through the welfare system, including Universal Credit. This may particularly be the case for employees whose wage will be reduced to below the National Minimum Wage (NMW). 

What does this mean for employment rights?

Key employment rights continue to apply to employees throughout this period. These include parental rights, redundancy payments, annual leave and rights against unfair dismissal.

At present, the concept of furlough does not exist in UK employment law. This is imminently likely to change, and in the meantime it is imperative that employers have written consent to any changes to their employees’ contracts. Likewise, the wording on any documents relating to furlough must be carefully considered. 

Whilst many are likely to agree in order to avoid redundancy, there may be some employees entitled to large redundancy payments, and would prefer that alternative. It would therefore be wise for employers to take every employee’s situation into consideration before offering them furlough. 

Key employment rights continue to apply to employees throughout this period. These include parental rights, redundancy payments, annual leave and the right against unfair dismissal.

What else should be noted? 

The government has stated that the minimum length an employee can be furloughed is three weeks. Therefore, they will only be able to submit one claim per employee every three weeks. This may cause some issues for employers hoping to rotate the employees they have on furlough, especially if some are to fall sick or having to self-isolate. As long as employers wait the required three weeks, they are able to call back an employee from furlough and rotate them after 3 weeks. 

This also means that employees who are sick, or having to self-isolate, cannot be furloughed. In this case they should be paid statutory sick pay, or enhanced sick pay if this is stated within their contractual agreement. Once they are no longer sick or self-isolating, they can then be furloughed.

How can I apply?

The online application process for this scheme won’t be live until the end of April 2020.

To make a claim for reimbursement, the employer will need:

  • The employee’s PAYE reference number;
  • The number of employees who are being furloughed;
  • The amount claimed; and,
  • The period they want to claim for. 

Further guidance

For further guidance on the issues raised above, or on ways you could help support your employees throughout this process, please visit:

The Coronavirus Job Retention Scheme is of course a temporary measure, and what happens after this period is yet to be seen. What remains certain is that the Lawrence Stephens team is committed to ensuring that you are supported throughout.

If your business has been impacted by Covid-19 and you would like to discuss the Coronavirus Job Retention Scheme or any other measures to protect your business and its employees, please contact using the details below.