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Coronavirus – “Furlough Employees”, what does this mean?

Updated: Nov 3, 2021

On Friday 20th March 2020, the Chancellor of the Exchequer, announced a number of measures to support business and their employees through these unsettling times.

The Chancellor announced the “Coronavirus Job Retention Scheme” which is available for all employees irrespective of industry, size or sector. The intention of the scheme is to keep as many people in employment and reduce the number of redundancies.

The details of the scheme are still being confirmed, but the key elements are as follows:

  • Employers can contact HMRC for a grant which will cover up to 80% of an employee’s salary up to a maximum of £2,500 per month. These payments will be subject to tax and NI

  • Employers can choose to fund the differences between this payment (the 80% or £2,500) and the employee’s normal salary

  • This scheme will be backdated to the 1st March 2020 and is expected to last at least three months

  • Employees will need to be “Furloughed” rather than being made redundant or laid off

Even though we are in uncertain and difficult times, UK employment law still exists, and employees continue to be protected by this legislation. It is, therefore, important that business follow the legislation and apply best practice when discussing changes of employment with their workforces.

What is a Furloughed Employee?

This is a term that is widely used in other countries (such as the United States) and refers to a temporary lay-off of employees from a business during a downturn in the economy etc.

In order for a business to become part of the Coronavirus Job Retention Scheme, employers will need to identify an employee as a “Furloughed Employee” and report this change of employment status to HMRC.

How to change an employee to be a Furloughed Employee?

Any change of employment status needs to be agreed with the employees and their employer. This is normally done through using an existing contractual clause within the existing contract, a discussion (negotiation) or consultation with the employee(s).

It is unlikely that as an employer you will be able to force an employee to become a furloughed employee unless you have a suitable clause within the Contract of Employment. Equally, an employee cannot request to become furloughed employee if the business is continuing to operate and does not need to take this action.

Our advice would be to follow best practice. If you need to furlough any of your employees arrange to meet with them to discuss the situation and why you have had to come to this decision. In light of recent restrictions on induvial movement, this could be via a phone call or video call. If you are meeting face to face, please remember the rules of social distancing!

Employees always have options, but in this situation the options would be:

  • Accept the request to be classed as a Furloughed employee and therefore receive 80% of your pay (up to £2,500 per month)

  • Take unpaid leave and stay at stay at home

  • Be made redundant. If the business doesn’t have the funds to pay salaries it is a fair assumption that they would not have the funds to make any redundancy payments.

As ever in such discussions, employees should be encouraged to suggested “suitable alternative proposal” to avoid being furloughed. If there are none, then you could then change the employee’s status.

Can a furloughed employee continue to work?

Under the current guidance a furloughed employee cannot continue to work for the business that they have been furloughed from.

However, if a furloughed employee has a second job, we believe that they are able to continue to work for the second business. What is not clear at this time, is whether this second income would affect any payment made under the Coronavirus Job Retention Scheme.

How to calculate the 80% of pay?

We would always advice speaking to your finance team, accountant or payroll provider for the finer details on any payroll calculations. However, as we understand this at the moment.

  • For employees who receive a standard monthly payment, the 80% would be based on the standard monthly salary

  • For employees on zero-hour contracts, the current advice is to use the salary paid in February 2020 to calculate the 80%

How to select which employees will become furloughed?

It is important to remember that employment legislation and best practice needs to be applied when selecting employees to be furloughed. If you think of this in the same way as you would approach redundancy selection remembering to document the decisions etc. This would be the fairest and reduce the risk of a claim in the future.

Do employee benefits and holiday accrual continue during a period of being furloughed?

As the employees is still bound by the contract of employment and have not been terminated by the employer, then it should be assumed that they be entitled to any benefits and would accrue holiday during this time.

However, if as an employer you are unable to continue to fund benefits, such as private medical premiums, you should contact your providers to discuss with them your options. Once these are known you must inform at the earliest opportunity your employees of any changes that are being made.

At the moment, there has been no guidance provided on how company or employee contributions of pension schemes would work but it is assumed that any normal deductions would be taken.

We have started a redundancy process before the announcement of the Coronavirus Job Retention Scheme, should we continue?

One option would be to pause the redundancy consultation and consult with those impacted to change their employee status to “Furloughed”. Once the future becomes clearer then a decision can be taken at that time on what to do next.

Useful Links

COVID-19 Government Guidance for employees, employers and businesses

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DisclaimerThe contents of this blog post do not constitute legal advice and are provided for general information purposes only. We can only advise on the basis of specific client instructions and are unable to offer legal advice by email to anyone who are not our clients. To find out more about becoming a client of Lodge Court please contact us.

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