Last updated 4th May 2020
What is furlough leave?
Furlough leave is a type of paid leave which the government introduced via the Coronavirus Job Retention Scheme (“CJRS”) to help businesses retain their staff during the coronavirus crisis. It enables employers to agree with their employees to not work and then the employer can still recover 80% of their wages (up to a maximum of £2,500 per month) from the government.
The business must furlough employees for a minimum of 3 weeks. The 80% (or £2,500 cap) is paid by businesses and then will be refunded by HMRC once their portal goes live, which is expected to be by the end of April. Employers can top up employees’ salaries on furlough to 100% or agree with employees to accept the lesser rate.
How do you furlough someone?
Employers should seek the agreement of their employees to make the temporary variation of the contract required to place someone on furlough. To be eligible for the grant employers must confirm in writing to their employees that they have been furloughed and should keep a record of this.
When does the CJRS run from and to?
The scheme has now been extended to 31 October 2020 and is backdated to 1 March 2020 for any employees already on lay off or made redundant as a result of the pandemic. Employees must be furloughed for a minimum of three weeks.
Who can be furloughed?
The scheme applies to employees on an organisation’s payroll at 19 March that are full-time employees, part-time employees, employees on agency contracts, employees on flexible or zero-hour contracts, employees who were made redundant since 28 February 2020, if they are rehired by their employer.
What if employees have some work but not enough?
If employees have some work but not enough then they cannot be furloughed under the CJRS. Employees are not allowed to carry out work for the employer during the furlough period. The scheme is only aimed at supporting staff who would otherwise be dismissed or otherwise left without pay.
If employers’ priority is to obtain the payments under the CJRS, then reducing everyone’s hours equally will not work. Employers should consult staff to find a solution that works for everyone. If employers decide a reduction in hours or pay is the only solution, then employees will need to agree and this will fall outside the CJRS.
Can you reclaim for the reduction in salary for employees on less hours or who have taken a pay cut?
No. The CJRS only applies to employees who do not continue to work in the business.
If employees do not agree to be furloughed can they be dismissed by reason of redundancy?
Yes, if employees do not agree to be furloughed employers can dismiss by reason of redundancy if the redundancy definitions are met and the proper process is followed.
Some employers may feel that the long-term effect on their business will be inevitable closure or reduction in the workforce. If employers feel furlough is likely to be followed by redundancies it may help to select employees for furlough using a process similar to redundancy selection.
Can employees on sick leave be furloughed?
The guidance states that short term illness / self-isolation should not be a consideration in deciding whether to furlough. If, however, employers want to furlough employees and they are currently off sick, they can still furlough them. The employee should no longer receive sick pay and would be classified as a furloughed employee.
Employees on long term sick leave or who are shielding can also be furloughed. The guidance states that it is up to employers to decide whether to move employees who have been furloughed and become sick onto SSP, or keep them on furlough at their furloughed rate. If a furloughed employee moves onto SSP employers can no longer claim for their furloughed salary. In most cases, someone on furlough leave is unlikely to tell their employer they are sick as the payments while being furloughed are likely to be substantially more than SSP.
Can employees on maternity or paternity leave be furloughed?
Women on maternity leave must take the minimum maternity leave period off work (two or four weeks as relevant) following the birth of their child. Following this, they can return to work following the normal notice periods and then be furloughed.
Can a director be furloughed?
Yes, so long as the director is a PAYE director. The director will not be able to do any work for the company other than complying with their statutory duties.
What restrictions are there on employees whilst they are furloughed?
Individuals cannot perform any work for the organisation that has furloughed them. They can, however, complete training or voluntary work for the organisation, so long as it does not provide services or generate revenue for the organisation.
Individuals can continue to work other jobs (as each organisation has its own responsibility to furlough if necessary) and can volunteer for other organisations.
What is the 80% (or £2,500 cap) comprised of?
The 80% will be based on the employee’s regular salary plus their associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on the subsidised wage. The government has confirmed that you can claim for any regular payments you are obliged to pay your employees.
The calculation is based on an employee’s actual monthly wage, before tax. If the employee has variable earnings then for those employed for 12 months prior to the claim – the claim is for the higher of either the same month’s earnings last year, or the average monthly earnings for the 2019/20 tax year; for those employed for less than 12 months – the claim is an average of monthly earnings of their period of work.
Can my employer pay me below the National Minimum Wage if I am ‘furloughed’?
The government has stated employees on the National Minimum Wage (NMW) can be paid less than this usual legal minimum. They say that the NMW does not apply to furloughed employees. However, if employees are required to engage in training activity, such as completion of an online training courses, whilst they are furloughed, they must be paid at least the NMW for the time spent training.
What about deductions?
The employee will still pay income tax, National Insurance and (if applicable) pension contributions on the reduced salary. Employers are still liable for employer NI and employer pension contributions on behalf of their furloughed employees but can claim for these under the scheme.
The reimbursement from HMRC covers wages equal to the lower of 80% of the employee’s regular salary or £2,500 per month, plus the associated employer NI and pension (minimum automatic enrolment) contributions.
Whilst minimum automatic enrolment employer pension contributions can be claimed for as well as the 80% salary any employer contributions above the mandatory contribution are not covered.
If employers choose to top-up the 20% of salary above the 80% grant, then employer NI and pension contribution on the top-up amount will not be funded through the coronavirus job retention scheme.
Do employers just make one claim for all employees under the Coronavirus Job Retention scheme?
Employers make a collective claim for the group of furloughed employees under the scheme, but it is anticipated that employers may need to make more than one claim throughout the period of furlough. Employers will submit one claim at least every three weeks as three weeks is the minimum length of time an employee can be furloughed for.
When will my business be reimbursed for the wages paid during furlough?
Employers will need to fund 80% of furloughed employee’ wages up to £2,500 a month and then calculate and retrospectively claim that amount back. Employers can use normal payroll systems, deducting tax and national insurance under the PAYE system.
Although the scheme is hoped to be fully operational by the end of April it is already too late for the March payroll. There may be glitches with the April payments too. If employers need short term cash flow support, they may be eligible for the Coronavirus Business Interruption Loan Scheme.
What if the employer gets the 80% and the employee still works anyway?
An employee who is furloughed must not work for the employer at all to be able to claim the salary reimbursement from the government. The grant does not cover the wages of employees who work reduced hours due to the virus. So, it is in the employers’ interests to ensure the employee does not do any work.
Furloughed employees can do volunteer work or training without jeopardising the furlough payment, as long as they don’t provide services or generate revenue for the employer.
HMRC retain the right to retrospectively audit all aspects of employers’ claims. Employers who are found to be abusing the scheme could potentially face criminal prosecution for fraud. Presumably if HMRC discover one employee has in fact been working during the period of furlough this would put the entire grant received for other employees in jeopardy as well. There is also always a risk that HMRC will investigate if another employee or third party notifies them that there has been a breach.