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The Government announced an extensive package of support on Friday 20 March for employers coping with the commercial difficulties arising from Covid-19. This has been welcomed by employers, many of whom we have been speaking to, who have been extremely concerned about how to pay wages when revenues have dried up or they have been forced to close. Those businesses have been facing very tough choices around lay off, short term working and redundancies – while trying to balance the finances, needs of the business and the livelihoods of their staff and communities.
The key measure announced to help employers is the Coronavirus Job Retention Scheme. Through this, employers can claim a grant to cover up to 80% of an employee’s wage costs. At the time of writing (19:00 on 22 March), we are awaiting detailed guidance as to exactly how this will work: but what do we know about the scheme so far?
Which employers are eligible for the scheme?
All UK employers can apply – you don’t need to be in any specific sectors, just pay people via PAYE. This includes businesses of any size and includes charitable or non profit.
How do you access the scheme?
According to guidance on the Gov.uk webpage, employers will need to:
- designate affected employees as ‘furloughed workers,’ and notify their 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 set out further details on the information required.
It is unclear at this time what (if any) financial information an employer would need to provide to HMRC to show that you cannot cover staff costs due to Covid-19.
The employer will be able to claim a grant of up to 80% of the employees wage for all employment costs, up to a cap of £2,500 per month.
The scheme will be backdated to 1 March (useful for employers who have already had to make lay offs) and will be open for at least 3 months, but extended ‘for longer if necessary’.
As this is a reimbursement grant, the employer will make the wage payment to the furloughed employee and then be reimbursed by HMRC. At this stage the timescale is unknown, although the Chancellor suggested the first payouts could be made by the end of April at the latest. Please see here for more details of support that may assist with cash flow through this time.
What does Furloughed mean?
There is no previous legal term for this and it is a completely new concept to English Employment Law. The common definition of to ‘furlough’ is to allow or force someone to be absent temporarily from work.
We understand that if an employer needs to make an employee redundant or lay them off, they can instead discuss with the employee them becoming classified as a ‘furloughed worker’. This would mean they would remain on the employer’s payroll, rather than being made redundant or laid off with no pay. Their employment would continue but they could not undertake any work for the employer while classified in this way.
We are still waiting for the detail, but it seems most likely that if an employee has an express lay off clause in their contract, the employer could designate the employee as a furloughed worker. The employer would need to discuss this with staff.
If the employee does not have a lay off clause in their contract, the employer is likely to need to have a discussion and seek the employee’s consent to be classified as a furloughed worker. Given that the alternative could be redundancy, most employees are likely to agree. This may depend on what amount of paid notice, Statutory Redundancy Pay and holiday pay they would receive if made redundant. It may also depend on whether the employer is able to ‘top up’ the pay (so the furloughed worker is paid 100% not 80%) or offer for the employee to take or be paid for their accrued but not yet taken annual leave as well.
Does the employer have to pay more than 80% to Furloughed Workers?
No – the early guidance is clear that the employer could choose to fund the differences between this payment and the employee’s salary, but does not have to.
At this point in time we don’t know whether the 80% grant is limited to just salary or whether it extends to include Employers National Insurance or costs for any benefits such as pensions, health insurance etc. Although it seems unlikely, this might mean that the sum actually paid to the employee is less than 80% of net salary, so care should be given by employers when communicating with staff to say that wage payments for furloughed employees will be in accordance with the scheme.
We also don’t know how that 80% would be calculated for those whose monthly or weekly salary varies. Again at this stage it is best to communicate to those staff that payments will be in accordance with the scheme once clarified.
Possible knock on impacts?
At this stage, it is right to feel relieved that there will be a safety net. Further clarification will be welcome, especially in the following areas which could become problematic as this develops:
- If an employer need some employees to continue to work, how do they choose who to classify as a furloughed worker and who should work on? In the absence of any guidance, we would recommend a selection criteria akin to a redundancy selection matrix, making sure you avoid any discriminatory criteria. It will be interesting to see whether any Government emphasis is placed on giving furloughed status to those who have medical conditions that place them at higher risk from Covid-19 or those who need to care for dependants. Without that Government emphasis employers may face discrimination risks in doing so.
- How do you deal with dissatisfaction of those good employees that you ask to carry working on, when other possibly less high performing employees are offered and become furloughed?
- How do you deal with those on Maternity? We expect it will be the position that those on maternity remain on maternity leave until they wish to return, at which point you would need to assess whether there is work for them or offer them to be furloughed. This could cause issues given that the payment to employees who are furloughed could be significantly higher than statutory maternity pay.
- What about those who are currently off sick or self isolating on SSP? Should they be furloughed?
- If there is a delay in payment by HMRC, can you pass that delay on to your employees? This seems unlikely to be encouraged and without provision by the Government may amount to a breach of contract or unlawful deduction of wages. HMRC has set-up a dedicated helpline on 0800 0159 559 for businesses and individuals in financial distress.
We anticipate HMRC will provide details in due course and we will provide updates regularly. In the interim we recommend you regularly check the Gov.uk website which is being updated most days. Do also check our Covid-19 Insights Hub for other useful information relevant to businesses and individuals.