Update on Furlough and the Government’s coronavirus job retention scheme
On 20 March 2020, the UK government announced an unprecedented wage guarantee scheme in response to the Coronavirus pandemic.
Whilst we wait for the UK government to provide further detail, this briefing explains what we currently know (and what we don’t) about the scheme.
What we know
The Coronavirus Job Retention Scheme provides support to UK businesses by continuing to pay part of the salary for those employees who would otherwise be “laid off” during the Coronavirus crisis. The scheme will be available to all UK employers “small or large, charitable or non-profit” in any sector. We think it will also apply to private/individual employers.
The scheme involves identifying workers as “furlough” (which has the effect of temporarily laying them off). Such furlough workers will remain on the employer’s payroll and HMRC will reimburse an employer 80% of their wage costs, up to a cap of £2,500 per worker per month. The cap is most likely to be gross (as opposed to net) but we await confirmation.
Workers who are furlough can’t do any work for the employer during such period although there have been suggestions that they could work for others.
The employer can, at its discretion, top-up the 80% HMRC payment but it is not compelled to do so.
The scheme will be backdated from 1 March 2020 and it will run until 31 May 2020. It will be extended if necessary.
The system will be managed through an online portal by HMRC.
What we don’t know
There are a number of issues that are unclear and therefore more clarity is urgently needed:
What is meant by “laid off”? Lay-off (under UK employment law) involves sending workers home (but not dismissing them) with no pay during periods when there is no work for them. However, employers can only do this if the employment contract allows and very few contracts contain this provision. We think the application of the scheme is wider and so covers those who would otherwise have been made redundant.
Who is eligible? The government announced that it will cover workers on the PAYE system but it’s not clear if it is limited to employees or also includes those classed as “workers” (which is hybrid category between employee and self-employed). It may also include some zero- hours workers depending on their arrangements. It won’t cover the self-employed.
How does an employer identify workers? Those who can’t work from home or who currently have no work to do are likely to be obvious candidates but will a process need to be followed? And, if so, what will be required?
Are there any conditions? What will an employer need to provide to show that a worker would otherwise have been laid off? Will there be any eligibility requirements (other than a requirement that the worker is on the PAYE system)? Will employers need to commit to not making any redundancies for a period of time after the furlough period has ended before they can qualify for the scheme?
Do employees need to agree to be furloughed? Worker consent will be needed if an employer proposes to reduce pay to 80% (unless the employer can rely on a provision in the employment contract). However, worker consent won’t necessarily be needed if the employer proposes to top-up pay by 20% whilst claiming 80% from HMRC.
Can furloughed workers do work for others? Whilst they can’t work for the employer that has furloughed them, it may be possible that they can work for others. If so, can they work for another employer in the same group?
What happens to benefits and pension contributions? It is likely that the employer will need to maintain benefits for furlough employees, unless it agrees otherwise with them. On pensions, whilst there have been calls for a contributions holiday, we think the starting point is that employer’s and employee’s pension contributions under the auto-enrolment pension rules will need to continue (albeit based on reduced pay) unless and until the Pensions Regulator confirms otherwise.
How long will the furlough period last? Given the current uncertainty, we expect employers will want open-ended periods but with the ability to recall workers during the furlough period.
Should you require further information, please contact Simon Gorham, Employment Partner, or your usual contact at the firm.