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Coronavirus Job Retention scheme and furlough

On Friday evening the Chancellor Rishi Sunak announced the Job Retention Scheme under the Governments support during the Coronavirus update.

We have pulled together some further information on this. 

What does furlough mean?

The word furlough generally means temporary leave of absence from work. Furlough leave has been introduced to keep employees on the payroll without them working. As the furloughed staff are kept on the payroll, which is different from being laid off without pay or being made redundant.

If furloughed, employees must not work for the employer during the period of furlough but usually return to their job afterwards unless redundancies follow. 

Which employers does Job Retention scheme apply to?

Any employer in the country (whatever size) will be eligible for the scheme. Charitable and non-profit organisations are included. 

However, the scheme is intended to apply only to employers who cannot cover staff costs due to COVID-19. We do not yet know if there is room for a dispute with HMRC concerning whether the employer can cover staff costs or not? Or whether a large company with healthy profits, balance sheet and cash flows will be eligible, or whether there will need to be consideration of their accounts and a determination as to whether the employer qualifies.

How do employers access the scheme?

Employers access the scheme through an online portal. The employer provides details of the affected furloughed employees online and submits information to HMRC about their earnings and any other information required, which will presumably include the employee’s NI number. Employers should probably:

  • Fairly select employees affected for being furloughed (the government have not said this but it seems sensible).
  • Decide if you wish to supplement employee salary over the 80% to be paid by HMRC (see below)
  • Gain the employees’ written consent unless contractual provisions already cover lay off.
  • Stop the employees from working if they are now working from home, or send them home from the workplace. 

Which employees can be furloughed?

Employees must be consulted and agree to being furloughed. Changing the status of employees always is subject to existing employment law.

The employees that can agree to being furloughed are those working for businesses that would otherwise have to dismiss as redundant or lay off part or all of their workforce.

Who is not covered?

The 80% wage guarantee will not cover zero-hour contracts or casual workers unless they work on the PAYE system.

The self-employed are also not covered, but we feel additional measures may follow for the self-employed?

Presumably public sector employees will not be affected as the scheme applies to employers who cannot cover costs. It is also not known if the owner of a small business who pays themselves a salary is covered. 

There is no guidance as yet relating to part-time employees. 

Are payments to the furloughed workers under the Coronavirus Job Retention Scheme a loan or a grant?

Under the Coronavirus Job Retention Scheme, all UK employers who would otherwise have dismissed employees during this crisis can access payments for part of the employees’ salary. This is a grant which employers do not have to pay back. The scheme will run for three months but may be extended as necessary. The details we have so far are as follows:

  • HMRC will pay 80% of furloughed workers wages, up to a cap of £2,500 per month.
  • HMRC are setting up a new online portal for reimbursement.
  • The pay will be backdated to wages payable from 1 March 2020. 

What happens if employees don’t agree to be furloughed?

Yes, if employees do not agree to be furloughed employers can dismiss by reason of redundancy if the redundancy definitions are met and a proper process followed.

If employers feel furlough is likely to be followed by redundancies it may help to select employees for furlough using a process similar to redundancy selection. This would involve using objective criteria, such as a scores matrix based on skills, productivity, previous appraisals etc. 

Am I required to supplement my employees’ salary over 80%?

Employers can make up additional pay, but they are not required to do so. 

For employees who have been furloughed employers can choose whether to:

  • Only make the salary payment reimbursed by the government.
  • Pay all of the difference between the grant and the employee’s normal salary.
  • Pay part of the difference between the grant and the employee’s normal salary.

Any extra payment the employer chooses to make will be either the additional 20% of salary, or any amount in excess of £2,500. 

Will the furloughed employees receive £2,500 exactly?

It is not clear if the furloughed employees will receive £2,500 exactly until more detailed guidance is issued. However, it is logical that employees who earn under £3,125 a month will receive less than £2,500.

This is because, for those earning £3,125 a month, 80% of salary would be £2,500:

  • Employees who earn less than £3,125 a month normally, will get 80% of their salary for three months (or more).
  • Employees earning in excess £3,125 a month will receive the £2,500 figure which is less than 80% of their salary for those three months (or more) unless the employer chooses to supplement it. 

The £2,500 may include employer’s NI and pension contributions, but this is not yet clear. Therefore £2,500 may end up not being the precise maximum gross pay which the employee receives, if, for example, pension contributions are then taken into account.

The £2,500 a month figure has presumably been chosen as it is broadly £30,000 a year which is the national median net salary. 

Contact your normal WR Service Delivery Manager in the first instance to discuss how we may be able to assist or visit our Contact Us page.

See other Coronavirus Updates here.

 

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