The Coronavirus Job Retention Scheme - Furloughed Workers

On Friday, the Government announced several measures to support employers to retain staff, including the Coronavirus Job Retention Scheme.

So far, the information on this is very sparse and we await more detail. Here is what we know so far:

Broadly, the scheme will give access to financial support to employers, to help pay the salaries of staff who would otherwise be laid off/made redundant.

The employer will have to designate which staff from their workforce are “furloughed”. This term is not a legal concept, but in the current climate, means staff who would be laid off or made redundant.

If the employment contracts of these staff does not contain a “lay off” provision (i.e. a clause allowing the employer to temporarily stop giving them work and stop paying them), then employers will be expected to negotiate with employees and seek their agreement to them being designated as furloughed. In reality, this will normally not pose significant difficulties as the options available to employees are likely to be limited (i.e. go home unpaid, be made redundant, or agree to being “furloughed”. Most will prefer the latter option).

The employer will then have to submit information to HMRC through a new online portal which is to be set up, giving the salary details of those who are furloughed.

HMRC will reimburse up to 80% of the salary costs (assumed to include pension contributions and employer NI) up to a limit of £2500. There appears to be no obligation on the employer to make up the balance of salary costs such that the employee still receives their full pay – it seems that employees may be asked to accept 80% of their normal pay (subject to the cap) during the furloughed period. (If the employer does not intend to pay the balance 20%, then employees should be asked to agree that they accept 80% pay during the furloughed period, as this is a deduction to their contractual earnings).

It is not clear whether the limit is normal gross pay of up to £2500, or whether this is the maximum payment – but the general view is that the £2500 limit is the maximum amount that HMRC will refund in relation to each individual (so their normal gross pay would be around £3100 and 80% of this amount is being refunded).

To qualify, the employee must not continue to do any work for the employer – so if staff are asked to reduce their hours, they will not qualify for reimbursement of costs under this scheme. This is an important point as many employers are torn between continuing some of their business or closing down altogether – it will be important to weigh up the costs of keeping staff on, on reduced hours (and the income this brings to the business) as against laying them off altogether and being able to recoup 80% salary costs.

Immediate steps to be taken if you are considering the temporary furlough of some of your staff:

• Decide which staff will be furloughed.
• Check their contracts – do you have a lay off provision?
• If not, ask staff for their written agreement to being furloughed.
• If you do not intend to make up the difference in pay between 80%/£2500 and normal salary , also ask for their written agreement to a reduction in pay whilst they are furloughed.

Immediate concerns/questions arise, such as:

• Whether this scheme is open to abuse – for example, will businesses say that staff have been furloughed, claim 80% costs but still ask their employees to carry on working? We do not yet know how the scheme is to be policed.
• Some staff with childcare concerns may want to be furloughed – such that they do not have the pressure of juggling children and work. In response to this, the employer must be in agreement that the employee is actually furloughed – it will not be for employees to choose.
• If an employer is not closing an identifiable part of the business, simply reducing staff across the business in line with demand, how will the employer choose which staff are to be furloughed? If criteria include choosing those with underlying health conditions, how does this sit with sick pay entitlements (which may well be less than normal pay rates) / will staff raise issues over discrimination on health grounds?
• Can employers have a rota of who works – such that staff are furloughed for a week, then at work for a week for example? Or will this be classed as reduced hours? Guidance is awaited.
• A final hurdle may be that staff being asked to remain at work may start to feel disgruntled – whilst they may still be earning 100% of their normal wages, they may consider it unfair that others are not being asked to work but are still receiving 80%. So – employee engagement and communication is going to be key.

We will update our guidance as more detail is issued by the Government.