The Coronavirus Job Retention Scheme
Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.
All UK businesses are eligible, irrespective of size or sector.
How to access the scheme
As set out in Government Guidance, you will need to:
designate affected employees as ‘furloughed workers,’ and notify your employees of this change- changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.
submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal.
HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month.
According to the Chancellor’s announcement on 20th March:
HMRC are working urgently to set up a system for reimbursement and payments are expected to be made within weeks, and before the end of April.
The Coronavirus Job Retention Scheme will cover the cost of wages backdated to March 1st and will be open initially for at least three months. The scheme will be extended for longer if necessary.
Set out below are some queries we anticipate on the operation of the new scheme
How do we furlough (i.e. lay-off) staff?
As the guidance states, normal employment law rules apply to the furlough of staff.
If you have a contractual clause allowing you to lay-off staff, then you do not need their consent to do so. You can lay staff off and then claim under the scheme.
If you do not have a contractual right to lay-off staff, then you would normally seek to agree the lay-off before implementing it. If you laid staff off without agreement, then they could claim constructive unfair dismissal and/or breach of contract against you (though the risk of this in the current climate is probably low).
Employers in this situation have been struggling to get staff to agree to a lay-off, as it results in employees receiving no pay.
The Coronavirus Job Retention Scheme now makes it much more likely that staff will agree to a period of lay-off, as the Scheme covers a proportion of their wages.
The approach we would expect most employers (without a lay-off clause) to take would be to consult with staff (briefly) and say that they either (i) need to agree a period of lay-off and the employer would make claim under the new scheme, or (ii) make redundancies.
Note that if 20 or more staff are potentially redundant you would need to consider the collective redundancy consultation rules.
When is an employee “furloughed” in law?
To be laid off an employee must have been given no pay because they had been given no work.
What if staff can work from home or can carry out some different duties, does this count as furlough?
It is unlikely that they would furloughed if they were provided with some work to do.
What if staff are sick?
If an employee is not available for work because of illness, they are unlikely to qualify as laid off. In Johnson v Knowsley Caravans Ltd a tribunal held that, notwithstanding the fact that the rest of the workforce was laid off at a time when he was away from work because he was ill, the reason Mr Johnson had no work was sickness, not lay-off.
This might give rise to the scenario that an employee on sick leave would receive statutory sick pay, whereas a laid-off employee would receive payments under the Coronavirus Job Retention Scheme. It’s not clear whether employers will be able to treat the employee as being furloughed, or whether HMRC will require employers to differentiate periods of furlough and sick leave, and in the case of the latter be responsible for paying sick pay in the normal way.
Do we have to make a payment to furloughed employees?
No, the Chancellor’s announcement stated that employers could top-up employee pay if they wished, but this is not required in order to claim payments under the scheme.
If the employer does not have a right to furlough employees, however, we foresee that staff may negotiate for a top-up payment, to get closer to their normal salary. Some staff (though we’d expect relatively few in the current climate) might also prefer to be made redundant than to be laid off under the new statutory scheme.
What will be included in calculating pay?
At the time of writing, we don’t know how pay will be calculated. HMRC will need to set out how pay is to be calculated in some detail. For example, how to calculate pay for employees on zero hours contracts, or with variable pay due to overtime or allowances.
We would expect that for simplicity and speed, the payment will be calculated on basic pay, probably assessed as an average over a reference period, similar to how a weeks pay is currently calculated.
Are employer’s national insurance payments covered?
This is not currently clear from the details published so far.
What if we have already dismissed staff, can we reinstate and furlough them?
Whilst payments to furloughed workers can be backdated to 1 March, it is not yet clear whether recently dismissed employees can be re-hired and placed on the scheme. We need to see the details of the scheme. It might be possible to do so, however, particularly if employees have recently been dismissed and have appealed against their dismissal.
Are agency PAYE or umbrella employees covered?
Again, we don’t know this currently. It is clear the scheme is designed for employees, and so in theory anyone that is employed (whether by an agency or umbrella company) could be furloughed and therefore meet the criteria for payments under the scheme.
Are they entitled to holiday pay?
Under current law, where an employee is temporarily laid off they can choose to take paid holiday instead, and must be paid at their normal rate. Note that the rate of calculating holiday pay is due to change on 6 April 2020 to a 52-(rather than 12)-week reference period.
If we furlough an employee, would this prevent us from making them redundant later on?
There is obviously no case law on this yet and we are in unchartered territory with the new scheme. In principle, however, you should not be prevented from making the employee redundant at a later stage if they are receiving payments under the scheme.
We would expect many employers will defer dismissals for as long as the employee is receiving payments under the government scheme. This will mean they do not need to terminate employment and risk claims brought by employees deprived of receiving payments under the scheme.
If you do terminate, you would want to be able to show clearly that there is no prospect of the employee returning to their role, or an alternative role, before you make them redundant.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.