Update on Furlough Leave: key practical issues
Following the government’s recently announced Coronavirus Job Retention Scheme, further (and much needed) guidance has been published.
Whilst some issues still remain unclear, the guidance clarifies a number of important issues. We set out below some key practical considerations.
Can employers furlough employees who started on or after 29 February 2020?
Only employees who were on an employer’s payroll on 28 February 2020 can be placed on furlough leave. Therefore, an employee who started work on or after 29 February 2020 cannot be put on furlough leave. Additionally, employees on sick pay or who are self-isolating cannot be furloughed, but they can be furloughed afterwards. Employees who are shielding can be placed on furlough leave. “Workers” (which is a hybrid between employment and self-employment) paid through PAYE can also be placed on furlough leave.
What can employers claim? And when?
Under the Coronavirus Job Retention Scheme employers can reclaim:
- up to 80% of an employee’s wage costs, up to a maximum of £2,500 per month;
- the associated employer national insurance contributions on that wage;
- the minimum employer pension contributions under the automatic enrolment pension rules on that wage;
- 80% of compulsory (which we interpret to mean contractual) commission (we assume in so far as it relates only to the commission from past sales as employees cannot undertake any work for their employer during furlough leave); and
- 80% of fees (although it’s not clear what this means).
The 80% of an employee’s wage costs does not include non-monetary benefits (e.g. the value of health insurance or a company car).
Employers can only claim once every three weeks, i.e. they cannot get weekly reimbursement. It is anticipated that the Coronavirus Job Retention Scheme will be operational at the end of April.
Is there a minimum duration of furlough leave?
To be eligible for funding under the Coronavirus Job Retention Scheme, furlough leave must be taken in minimum blocks of three consecutive weeks.
Can employees made redundant after 28 February 2020 be rehired and placed on furlough leave?
Employees who were on the payroll on 28 February 2020 and who have since been made redundant can be rehired and placed on furlough leave.
Can employers backdate furlough leave to 1 March 2020?
If an employee was working until they were sent home on furlough leave, it will not be possible to backdate their furlough leave to 1 March 2020. In our view, backdating furlough leave to 1 March 2020 is likely only to apply to employees who were made redundant on or after 28 February 2020.
Can an employee undertake any work while on furlough leave?
An employee cannot undertake any work for their employer or any company linked or associated to their employer (i.e. a group company) while on furlough leave. During furlough leave, employees can undertake training or volunteer as long as they are not making money for their employer or any group company or providing services to their employer or any group company.
Employers can request employees to undertake training during furlough leave but they must pay employees for it and pay them at least the National Minimum Wage/National Living Wage for the hours they are training, even if this is more than the 80% of the wage that will be funded under the Coronavirus Job Retention Scheme.
Employees can start a new job for another employer when on furlough leave (without voiding their entitlement to furlough pay) provided this is permitted under their employment contract with the employer who placed them on furlough leave. Even if the employment contract did not permit it, we think that the employer can waive such a restriction.
Can an employer rotate employees on and off furlough leave?
Yes. Employees can be furloughed multiple times, e.g. they can be furloughed, brought back to work, then re-furloughed (subject to each furlough period being at least three consecutive weeks).
Can company directors be furloughed?
Yes. They can still perform their “statutory duties”, but they must not perform any other work for the company. However, it remains unclear what statutory duties actually cover.
Similarly, office holders who are paid through PAYE can also be furloughed.
Can LLP members be furloughed?
Only salaried members of a Limited Liability Partnership can be furloughed although the terms of the LLP Agreement (or any such agreement between the LLP and the member) may need to be varied by a formal decision of the LLP.
Do employers need to notify employees in writing that they are furloughed?
Yes. Employers must notify employees of their furlough status in writing and keep the record of that written notification for five years.
Are employees who automatically transfer under TUPE to a business after 28 February 2020 eligible for furlough leave?
Subject to further guidance on this point, we consider that such employees will not be eligible for furlough leave.
Do employees accrue holiday on furlough leave?
Yes. Employees on furlough leave accrue holiday in the usual way.
Can an employer require employees to take holiday during furlough leave?
Yes, so long as an employer provides an employee with twice as much notice as the number of days’ holiday they are being made to take, e.g. 14 days’ notice for 7 days’ holiday.
If an employee takes holiday during furlough leave, will they be paid 100% or 80%?
Unfortunately, the issue is unclear and further guidance is urgently needed. The safer view is that employers can recover 80% of an employee’s salary (up to a maximum of £2,500 per month) under the Coronavirus Job Retention Scheme when an employee is on holiday but will need to top that up to 100% of an employee’s normal remuneration. For holiday in excess of 5.6 weeks, our view is that an employer and employee can agree whatever they want, including that holiday will be paid at only 80% of basic salary during furlough leave.