All pubs and restaurants are now closed. We read with interest today that operators who were shutting selected takeaway sites are now taking more drastic action. By shutting all sites operators can shut head office and “furlough” staff there too reducing cash flow as much as possible.
Furlough is a term previously unknown to us. The Coronavirus Job Retention Scheme is part of the Government’s response to the Covid-19 outbreak. It enables you to “furlough” staff and apply for a grant to cover 80% of their wages. Here we set out the details of the scheme as currently known.
Coronavirus Job Retention Scheme
This scheme will enable you to contact HMRC for a grant to cover most of the wages of your workforce who remain on payroll but are temporarily not working during the coronavirus outbreak.
The specific detail of the Scheme has not yet been published and there are still a lot of unanswered questions. The Government has however published some brief guidance for employers and employees, which provides some insight into how the Scheme will work.
Which employers are eligible under the Scheme?
All UK employers (including the public sector, Local Authorities and charities), regardless of size, will be eligible to apply for support under the Scheme.
How long is the Scheme going to be in place for?
It will run for at least three months and cover the cost of wages backdated to the 1st March 2020 but the Government has said it will be extended if necessary. The Chancellor said there is no limit on the amount of funding that will be made available to support the Scheme.
What support can an employer receive under the Scheme?
The Scheme will allow you to apply for re-imbursement of 80% of an affected employee’s wage costs, up to a cap of £2,500 per month, per employee.
The Government will pay 80% of the wage costs under the Scheme, will you be required to pay the rest?
Although we are still waiting on the detail, it appears that it will not be a requirement of the Scheme for you to pay the balance of the wage costs. In the employee guidance produced by the Government it says “your employer could choose to fund the differences between this payment and your salary, but does not have to”.
The employee may however still be entitled to be paid their full pay under the contract of employment. If you are unable to pay the balance, it is advisable to agree a reduction in wages with your employees during the furlough. If you do not, it could be in breach of contract entitling the employee to bring a wages claim and/or resign and claim constructive dismissal. In the circumstances it seems likely that many employees would agree to accept a reduction in pay if the alternative was lay-off on no pay, or redundancy.
What do you need to do to apply for the Scheme?
To apply for support under the Scheme you must designate an affected employee as a “furloughed worker” and notify the employee of this change. If the employee’s contract of employment does not permit this change in status you may need to agree the change with the employee. In view of the alternatives it is likely most employees would agree to this change in status.
What is a “furloughed worker”?
“Furloughed” is not a term normally used in UK employment law. and as such it currently has no technical meaning. The Government guidance makes clear that the employee will remain on your pay-roll if they are furloughed but that they should not undertake work for you during this time. On the basis of the available guidance it appears that an affected employee must be sent home and not provided with work during the period they are furloughed. It is not yet clear how the Government will ensure compliance with this requirement.
How long must an employee be furloughed under the Scheme?
It seems likely that the Government’s intention would be that an employee is only furloughed when the employer would otherwise consider lay-off or make redundancies. We await further guidance.
Does the Scheme only cover the wages of employees?
The Chancellor announced that the Scheme would cover “everybody on the PAYE system” subject to individual circumstances. It may be that it will cover employees and workers. We await more detail.
What should you do once you have furloughed an employee?
You will be required to submit information about each employee and their earnings to HMRC via an online portal once this has been set up.
When will HMRC make the first grants under the Scheme?
The Government intends to pay the first grants within weeks and certainly by the end of April 2020.
The information in this article is based on the guidance issued by the Government as at 22nd March 2020. For further information and updates as they become available please see Coronavirus: Employers Q&A which is updated on a regular basis. For help with furloughing staff contact Christopher Sing
Freeths have been advising clients on how to manage the impact of Covid-19 on their business and have a number of resources which are available on our Coronavirus Hub
The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.