As part of its package to support employers, businesses and employees during the COVID-19 pandemic, the Government has published plans to introduce a Coronavirus Job Retention Scheme.
With the guidance changing daily, it is no surprise that we have received a lot of questions regarding the scheme. The questions and answers below reflect the guidance given up to 6 April 2020.
What is Furlough Leave?
Under the scheme, employers are able to put employees, that would otherwise be at risk of redundancy, on Furlough Leave on 80% of their regular salary (capped at £2,500 per month), plus the associated employer national insurance contributions and minimum automatic enrolment employer pension contributions on paying that salary. Those employers can then claim that back from the Government. Most UK employers with a PAYE scheme are eligible.
To which employees does the scheme apply?
The Government guidance states that the scheme will apply to all employees who were on their employer’s PAYE system by 28 February 2020. This means that any employees who joined a new employer after 28 February 2020 will not be covered by the scheme. It’s not yet clear what the position will be for employees who are transferred to a new employer under TUPE (the Transfer of Undertakings (Protection of Employment) Regulations 2006) after this date. This is because, although they will be deemed to have continuous service with their new employer, they won’t actually have been on the PAYE scheme at the relevant date. This is the sort of issue that HMRC may be asked to resolve.
How will payments under the scheme be calculated?
The amount payable will be based on an employee’s normal salary. An employer can claim for any regular payments they are obliged to pay their employees, including wages, past overtime, fees and compulsory commission payments. Discretionary bonuses and commission payments, tips, and non-cash payments are not however recoverable.
Where an employee’s pay is variable, then the employer can claim for either the corresponding month’s earnings from the previous year or the average monthly earnings from the last tax year (whichever is higher). Where the employee has under a year’s service, pay will be based on an average of their earnings since they started work.
How is putting an employee on furlough leave different from laying them off?
Furlough leave is a new term. It means a ‘temporary leave of absence’. To take advantage of the Government scheme an employer will need to designate an employee as being ‘furloughed’. This means that they are not given any work to do but are nevertheless kept on the payroll. In reality this is no different from a ‘lay-off’ (although typically where an employee is laid-off this is without any pay).
I have been required to close my premises, do I still have to pay my employees?
This will depend on the terms of the employment contract. Unless there is a clause in the contract allowing you to lay employees off for a temporary period without pay, salaried employees will be entitled to be paid in full. The same applies for hourly paid employees who have a minimum number of guaranteed hours. Where there are no minimum/guaranteed set hours of work, for example in the case of an employee working under a zero hours contract, then the employer won’t be required to pay if the employee is not working. But please note the next paragraph.
Will the scheme apply to zero-hours workers?
The guidance suggests that the scheme will apply to everyone who is paid through PAYE, including zero-hour staff if they are on the payroll. Those staff who are not on the payroll won’t qualify under the scheme, but may be able to claim under the proposed new scheme for the self-employed. Such individuals would have to pursue that directly with HMRC.
Will the scheme apply to agency workers?
It appears that an agency worker who is on their agency’s PAYE system, will qualify for furlough provided that they are not working. In practice, the end user would have to terminate the assignment that the agency worker is working under, so that the worker then qualifies for furlough. Where the agency worker is supplied through an umbrella company that operates PAYE, it is the umbrella company that must furlough the worker.
Can I decide which employees to place on furlough, and who I want to come into work?
The guidance published suggests that an employer must designate the employees it wishes to furlough, inferring that the choice of who to place on furlough will be the employer’s. The personal circumstances of individual employees should be taken into account when deciding who to place on furlough leave, and who to require to attend work. For example, those with caring commitments might find it much harder to continue working, even if they can technically work from home, than those without. But take care, as the Equality Act will still apply. Decisions as to who to furlough and who to ask to work from home will require consultation and, if pay is to be reduced to 80%, consent. Ultimately it will be for the employer to make its decision based on the business’ needs, ensuring that the employees continuing to work have the skills and experience needed to keep the business operating.
How do I put an employee on Furlough Leave?
To access this support, employers will need to designate employees as “furloughed employees” and notify them of this change in writing. The guidance from the Government states that “changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation”. In almost all cases, a variation of the contract of employment will be required which will need agreement from employees. This will usually require consultation with each employee and may, in certain circumstances, trigger collective consultation obligations. This is a potentially onerous requirement which needs Government attention. Ideally, guidance is required stating that these are “special circumstances” and that collective consultation is not required.
Once the employer has selected which employees are going to be furloughed then they will be required to submit information about the furloughed employees and their earnings to HMRC. Employers will need to do this via a new online portal and HMRC will provide further details on the information they require in due course. HMRC will also introduce a system for reimbursement as the current systems are not able to facilitate payments to employers.
What about employees receiving national minimum wage?
There is no requirement to top-up the pay of employees who would normally receive national minimum wage. However the Government guidance says that if a furloughed employee is asked to complete training, e.g. online, then they must receive at least the national minimum wage for this time.
Will the scheme allow us to recover wages we have already paid or does it only apply if we don’t pay the wages? Can it be backdated?
The scheme is to help employers who have elected to keep employees on the payroll rather than make them redundant. It is intended to reimburse employers for 80% (capped, as mentioned above) of wages they have paid or are obliged to pay through the payroll while those employees are laid off and unable to work. The Government has said that the scheme will be backdated to 1st March, so it’s anticipated that employers that have been paying employees from that date, will be able to make a claim, provided that the employees haven’t been working during that period.
I made employees redundant before the scheme was announced; can I bring them back and furlough them?
The Government’s guidance encourages employers to reemploy staff that were made redundant after 1 March 2020 but before the scheme was announced. It seems that such employers will be able to claim in respect of such employees, even for the period they were unemployed. This assumes that they have been reinstated and the terminations rescinded. Presumably in such circumstances the employer would wish to recover any redundancy payments made, so it assumes that the employee has agreed to return on this basis. Employers are not, however, obliged to take this step, i.e. to re-employ.
Can we furlough an employee, bring them back to work and then furlough them again?
The guidance states that the minimum period for which an employee may be furloughed is three weeks. There is nothing to suggest that an employer cannot rotate staff on furlough leave, provided that each period of furlough leave for a particular employee is at least three weeks long. This will enable employers to focus on those areas of the business that need attention at any one time, and also allow a fair distribution of work and furlough leave among employees.
Can employees who are on sick leave be placed on furlough?
The guidance says that an employee on sick leave will not qualify for furlough. Once sick leave ends the employer will be able to place the employee on furlough leave. This has the unfortunate effect that employees on sick leave with coronavirus may be worse off and may declare themselves fit for work in order to be placed on furlough leave. It will be important in such cases that the employee does not attempt to come into the workplace.
As the furlough scheme does not pay all of an employee’s salary, do I have to top up their pay?
The guidance says that this is voluntary, but in reality will depend on the terms of the contract of employment. For most salaried employees, or with a guaranteed minimum number of hours, the employer will remain obliged to pay them in full even if it isn’t able to offer work. But see below.
If there is a clause in the contract which permits an employer to lay-off employees without pay then there will be no obligation to top up the payments made under the furlough scheme.
For the vast majority of employers, however, who don’t have a right to lay-off employees without pay, the option is to seek to agree a temporary reduction in salary to apply during furlough. The employer could seek agreement from employees to place them on furlough leave on 80% of pay, as an alternative to making them redundant.
How long will the scheme run for?
The Coronavirus Job Retention Scheme will run from 1 March 2020 for at least three months and will be extended if necessary.
Can I reduce my employees’ working hours and what does this mean for pay?
This depends on the terms of the employment contract. Few employees will have a contractual right to insist on working a full working week provided that they are still paid as normal. Where the employee’s remuneration package is based on commission or bonuses that are output driven, then it may be arguable that the employer is in breach of contract if they seek to reduce the employee’s working hours. In these unusual circumstances however, there must be a strong argument that it would not have been possible to earn much commission anyway. As for pay, some contracts include a right to place employees on short-time working and to make a commensurate reduction in pay. Without such a right, an employer wishing to reduce working hours and pay would need to obtain the agreement of the employees, perhaps as an alternative to redundancy.
Can I instruct employees to take annual leave? Can I require employees to take annual leave during furlough leave?
This is a question that has been the subject of much debate. An employer is entitled, under the Working Time Regulations 1998, to instruct a worker to take statutory annual leave (that is the 5.6 weeks minimum entitlement under the Regulations) by giving notice that is at least twice the length of the leave that must be taken (or as otherwise varied by the employment contract). Furthermore, the courts have held that employers can direct employees to take holiday during periods when they were not obliged to work. There doesn’t seem to be any reason, in principle, therefore why employers cannot direct employees to take their annual leave during furlough leave.
The ACAS guidance does, in part, deal with holiday, but unfortunately is ambiguous. On the one hand the ACAS guidance suggests that an employee can still take holiday during a period of furlough leave and can be required to take holiday on bank holidays. That of itself has added some much needed clarity, as it was originally thought that there was a possibility that annual leave could not be taken at all during furlough leave. However, the Government has now announced (and this has been confirmed in ACAS’ guidance) that an employee that has been unable to take holiday, because of Covid 19, can carry over their untaken leave for up to two years. This certainly covers essential workers whose leave is effectively cancelled, such as the NHS. But why would an employee be unable to take annual leave if on furlough, given ACAS has said it can be taken during that period? It’s not clear, but it tends to suggest that (save in respect of bank holidays) ACAS may consider that furloughed employees will be treated much the same as employees who are on long-term sickness absence, who can take holiday during sickness absence if they choose to do so, but cannot be compelled to do so. Unfortunately the Government guidance doesn’t address the issue at all.
So, on this particular point, we don’t have a clear answer. Until such time that further guidance is issued by the government as to the interaction between annual leave and furlough leave, then, apart from bank holidays which are designated as part of the holiday entitlement under the contract, the cautious approach is probably not to instruct employees to take their leave during furlough leave.
In any event, it’s important to note that depending on the terms of the contract, some employees taking annual leave may be entitled to their normal full pay, rather than furlough pay (if lower).
And even if it transpires that employers will be able to instruct their furloughed employees to take annual leave, it’s important to remember that the purpose behind the European Working Time Directive is to protect a worker’s health and safety. The timing of the holiday year will have an impact on this. If an employer is at, or near the start of the holiday year, as most will be, employers should ensure that employees are not compelled to take all their annual leave during furlough and that sufficient is left that they have the opportunity to take annual leave later in the year, once back at work. When instructing employees to take holiday, or refusing a request to cancel holiday, it’s also important to have regard to individual circumstances to avoid potential discrimination issues.
How do I prevent too many employees taking the rest of their annual leave later in the year once they are back to work?
The Government has made an amendment to the Working Time Regulations to allow employees who have been unable to take their basic four-week annual leave entitlement (that is the entitlement under the European Working Time Directive) to carry over that leave for up to two years. Where it is not reasonably practicable to take their full entitlement in the current holiday year, because of the coronavirus pandemic, employees will be able to carry over their remaining leave to next year. Employees must still take the additional leave of 1.6 weeks under the Working Time Regulations in the current holiday year. Any enhanced entitlement to leave under the contract will be determined by the contract terms.
An employer can defer an employee’s request to take annual leave in circumstances where it has ‘good reason’ to do so. Whilst a large number of requests for leave towards the end of the year may well be sufficient to satisfy this requirement, an employer should accommodate requests for leave where this is possible.
Will the opportunity to furlough employees make it unfair to make employees redundant?
This will certainly be a relevant factor in determining the fairness of a dismissal. There may be circumstances in which any reasonable employer would conclude that the scheme means that it isn’t necessary to make employees redundant. The extent to which the employer could recover its wage costs by furloughing employees will certainly affect the reasonableness of any decision to dismiss.
However, the scheme does not in itself protect employees from redundancy. Neither does the scheme cover all of the costs of employing someone. An employer of furloughed employees could still be facing considerable costs, particularly if, contractually, they must top-up pay.
It’s likely however that an employment tribunal would expect an employer to at least explore the options available from the scheme and whether an employee would accept the associated drop in pay for the duration of the furlough, before proceeding with compulsory redundancies.
My employee isn’t currently showing symptoms of the virus but is living with someone who has it, should they be signed off sick?
The Government advice is that they should stay at home. If they can work from home they should be paid as normal. If they cannot work from home then under the Statutory Sick pay (SSP) scheme (as now amended) they are entitled to be treated as on sick leave and paid SSP from Day One. Alternatively you may choose to place them on furlough leave.
What evidence can I request from an employee that they are genuinely ill or that they are required to self-isolate?
Obtaining a GP fit note isn’t feasible in the current circumstances. An online scheme has been introduced through NHS 111. Under this scheme, after answering a series of questions, an employee can be emailed an ‘isolation note’ which instructs that they stay at home either because they have symptoms of coronavirus or because they are advised to self-isolate. This note will be adequate for SSP purposes.
My employee is refusing to come to work as they are afraid of contracting coronavirus – are they entitled to do so?
The Government has issued very strong advice that, for employees working in businesses that haven’t been ordered to close, employees should work from home unless this is absolutely not possible. Where working from home is simply not possible, employees can still travel to their place of work.
In most cases, this means that an employer can still require an employee to attend work in the usual way. This, however, assumes that the employer has taken all reasonably practicable steps to reduce the risks to employees, including putting in place appropriate social distancing measures. If an employee reasonably believes that their employer is instructing them to work in unsafe conditions, refuses to attend work, and is then dismissed as a result, that will be an automatically unfair dismissal irrespective of their length of service.
Employers should be sensitive to employees who are being particularly cautious for good reason, for example because they have a medical condition that places them at higher risk or because they have contact with vulnerable people. In such circumstances, if working from home is not possible, an employer is probably best treating the employee as either being off sick or placing them on furlough leave.
The guidance contained in this article is for general purposes only, and is based on the Government and ACAS guidance published, at the time of writing, which may change. Employers and employees should seek independent legal advice in line with their specific terms and conditions of employment. For further advice on the Coronavirus Job Retention Scheme or any of the other issues raised in this article, please contact Marie Allen at firstname.lastname@example.org or Kimberley Clayton at email@example.com or by calling 01473 298126.