Coronavirus Job Retention Scheme

What did the Chancellor announce in relation to furloughed workers?

On Friday 20 March, the Chancellor announced under the Coronavirus Job Retention Scheme, all UK employers will be able pay some of the salary costs of their furloughed employees with a monthly grant.  Unfortunately there is little additional detail about the scheme.  We have collated our frequently asked questions about the scheme and added it to this section of the website and will continue to update the page.

What does it mean to furlough a worker?  This is primarily an American phrase.  The Chancellor of the Exchequer used it to describe a temporary leave of absence due to the special needs of the company or employee.  It has no current definition in UK employment law.  In the UK, we are more used to saying laying off a worker.

Who is eligible?  All UK businesses are eligible, ‘any employer in the country, small or large, charitable or non-profit’ to use the Chancellor’s words.  It is available to all employees on the payroll at 28 February 2020.

When is it for?  Furlough is from 1 March 2020, so can be backdated.  It will last for at least 3 months and will be extended if necessary. Note that while the scheme is backdated to the beginning of March as it is intended to support all those employed then, a firm will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer.  This will of course be subject to employment law in the usual way.

How much is the grant?  If the employee is classified as a furlough worker, they will remain employed but are not permitted to undertake work whilst furloughed.  The employer can then claim a grant of 80% of the all employment costs up to a cap of £2,500 per calendar month. This equates to annual salary cost of £37,500.

What about the remaining 20% of the employment costs?  To claim the grant under this scheme you are not obligated to pay the remaining 20% of the employment costs. However, you need to ensure that the employee’s rights are not prejudiced, and so we strongly advise you contact your HR consultant or advisor to ensure you remain within the current employment legislation.

What are employment costs?  We don’t know what is meant by employment costs. The scheme details have not been issued. It is our understanding that this includes employers’ NIC and pension contributions. Wages will be determined by reference to a defined period (yet to be announced).

Is this a subsidy for me to continue to employ staff?No.  In the scant details we have so far, the scheme is only where employees have been furloughed.  Furloughed workers being referred to as workers who remain on payroll but who are temporarily not working.  This is a key point, it will only apply where the employer has to lay the workers off because they cannot work or there is no work for them.

Can my employee insist they are furloughed?  No, it is the employer who chooses who and when to furlough staff. Your staff member might be attracted by staying at home and receiving 80% of their salary, but it is the employer who makes the grant application, not the employee. Ultimately the employer needs to decide on the staffing levels of their own business.

If the workload has reduced, but I still need the worker part-time, do I get a subsidy?  Despite the Chancellor speaking on Friday 20 March, as of now, there are no further details. We don’t know for certain, but it appears no subsidy is available where the worker continues to do some work.  It seems strange that where, for example, the workload has reduced so that the employee is only needed 3 days a week say, that they will then receive 60% of their salary, and the employer will not receive a grant. In this situation both the employee and the employer would be better off financially if the worker was furloughed. 

Ok, I understand furloughed workers cannot do any work for me, but can I keep in touch with them?  Again, there is no guidance on this. We would recommend that you do keep in touch, check on your staff’s welfare, and keep them updated on the situation at work.

I have identified some employees that need to be furloughed, what do I do next?  If your contract with the employee has provisions for laying off staff, you can write to them to furlough.  We strongly recommend that you speak with your existing HR consultant, or employment lawyer to clarify any such provisions in the employee’s contract.  If there is no such provision in the employment contract, it would be by agreement with the worker. You are still required to abide by current employment legislation.  The limited government information refers to employers discussing with employees about becoming classified as a furlough worker. This suggests discussion / consultation and agreement as an alternative to lay off / redundancy with pay being set at 80% (or higher if you chose to pay up to 100%).

When will the scheme be available?  HMRC are building an online portal through which employers can claim the grant. The guidance states that first payments will be made by the end of April. However we recommend that you do not rely on the grants being paid in April.  We strongly recommend that you make provision in your cash flow projections for  the grant not to be paid for a couple of months.

So, what provisions for cashflow can I make?  You could do any or all the following:
• Speak to your bank about short term lending
• Apply for funding via the Coronavirus Business Interruption Scheme
• Speak to your employee about deferring payment until you receive the grant.  Once again, seek employment law advice before you go with this option

What if I furlough a worker now, but then need them intermittently until the virus is under control?  We don’t know if the scheme will workers be able to go in and out of furlough.  We would suggest so, given we are told the virus will remain in circulation until the population has been vaccinated.

What about employees who have already had their employment terminated? The scheme is running for three months backdated to 1 March.  This suggests workers who have only recently had their employment terminated may be able to access the scheme.

How can I calculate revised earnings and claim the grant?  We don’t know yet how the grant will be calculated.  Rest assured at WLCA we will ensure that the technical details are worked out, and if you need our help in accessing the grant, we will be more than happy to help.  After we receive more information about the details of the scheme mechanics, we will contact you and offer this service to you via our payroll service.

Where do I get more information?

The government guidance on the scheme for employers is here and for employees is here.

We will continue to keep all our clients updated via email and the website.

Illustration

Wash Your Hand Ltd employs Mr V at an annual salary of £24,000, so £2,000 per month.  Mr V has opted out of auto enrolment.

Each month, Mr V currently receives net pay of £1,665 which is after deducting PAYE of £191 and employees NIC of £144.  On this salary, the employer pays employers’ NIC of £174.

The available grant for the employer is the lower of

(a) 80% of (£2,000 + £174), and

(b) £2,500

So a grant of £1,739.

The cash required by Wash Your Hands Ltd to furlough based on maintaining the existing salary is £435 per month.  It is a matter for employment law whether the employer is required to pay this top up.  Discussions with employees may have agreed that the employee has agreed to a different arrangement during their furlough.