On Friday 20th March 2020, the Chancellor Rishi Sunak announced unprecedented financial measures to support UK businesses affected by Covid-19. The concept of the Coronavirus Job Retention Scheme was introduced to reimburse employers for up to 80% of the wages of employees where there is no work for them as a result of the coronavirus crisis.
The scheme refers to the concept of ‘furlough’ which means “give a leave of absence to.” Until now, this term has not any specific meaning in UK employment law.
Limited information is currently available as to how the scheme will operate and more detail is expected from the government and HMRC in the next days and weeks. The key points of what we now know are below:
- All UK employers are eligible to claim this (unlike the latest Statutory Sick Pay changes, which only apply to employers with fewer than 250 employees).
- The government will fund 80% of an employee’s wages paid through PAYE capped at £2,500 per month (of total employment costs) for any employee who was on the payroll on 1 March 2020.
- The Government’s guidance for Employees states that the scheme will apply for a period of 3 months from 1 March 2020, with the potential for it to be extended if necessary.
- It is not yet clear whether the maximum capped payment per month is going to be up to £2,000 (i.e. 80% of £2,500, where a salary is £30,000 pa) or £2,500 (i.e. 80% of £3,125, where a salary is £37,500 pa). It is also unclear as to whether the total cap covers additional employer costs like National Insurance and pension contributions.
- The process will be logged and facilitated via a new online HMRC portal, the details of which should be issued imminently.
- The scheme enables employers to designate affected employees as ‘furloughed’ and notify those employees of this, although it is important to note that the employee may need to agree to this where their contract of employment does not already provide for short term working/layoff.
- During the period of furlough, the employment contract will continue, meaning that the employee will continue to accrue service and holidays, and the employee will receive 80% of their wages. The employer could agree to top this up to 100%, but is not obliged to do so. Again this is likely to be a subject of negotiation with the employee.
- For an employee to be eligible for the scheme they “should not undertake work” while furloughed. It’s very much an all or nothing arrangement.
Whilst the scheme says changing the status of employees to designate them to be on furlough leave still remains subject to existing employment law and as above, will depend upon the terms of the employment contract, it may be subject to negotiation with the employee. In practice, we think it very likely that an employee facing potential redundancy, or possibly a notable reduction in hours or a period of unpaid leave, will prefer to be placed on furlough leave.
In general, it seems that the scheme will give much needed support to employers. We hope that further information will become available in the coming days, and we will continue to keep our clients and contacts up to date on developments.
For advice and consultation on furlough leave and how to tackle employee and employer issues, please contact our employment team via email at firstname.lastname@example.org or email@example.com or by telephone on 020 7408 8888.
Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will depend upon the specific circumstances and facts and you are therefore advised to seek comprehensive advice.