[UK] ‘Furlough leave’ explained and what businesses need to know

Laura Kearsley - partner and solicitor in Nelsons’ employment law team - breaks down the key information employers need to know about this government scheme in a piece for Business Leader.

As part of continuing efforts to keep the economy moving and protect UK jobs, the government announced plans to introduce the coronavirus job retention scheme - part of a package of alleviation measures against the impact of COVID-19 on UK businesses.

What is the coronavirus job retention scheme and who can participate?

The scheme will enable businesses to recover 80 per cent of wage costs for employees on ‘furlough leave’ - which is an entirely new concept and is a new class of indefinite leave where the government will reimburse the employer for wage costs.

This has been introduced as an alternative for employers who might have otherwise implemented redundancies, lay-off, unpaid leave or other measures for their employees.

All UK businesses are eligible to claim under the scheme. It seems that employees will be covered, but not other workers (such as casual staff or contractors) or the self-employed.

The government has announced that the scheme is available for at least three months from March 1, 2020, and will be extended if necessary.

What costs can employers recover?

The coronavirus job retention scheme allows for 80 per cent of wage costs to be recovered up to a maximum of £2,500 per month per employee. There is no limit on the number of employees or the duration. Wage costs are expected to include wages, pension contributions and employer national insurance (NI) contributions.

What do employers need to do?

Employers and employees will need to agree to members of staff being designated as ‘furloughed workers’. This should be straightforward because this route will no doubt be more attractive to employees than redundancy, lay off, unpaid leave or a reduction in pay.

We are recommending employers send a letter or email to each employee concerned and get them to agree to the change in status formally in writing.

Employers will then need to submit details to Her Majesty’s Revenue and Customs (HMRC) through a new online portal, which is being set up urgently.

It’s also worth noting that employees cannot elect to be a furloughed worker without their employer’s agreement.

Does the employer have to top up the employee’s pay to 100 per cent?

No, they do not. Some employers may wish to make up the shortfall, while others may not be able to. This just needs to be made clear to all employees concerned. We do recommend that each employer adopts a consistent approach.

What about employees that have already been dismissed or taken unpaid leave?

The scheme is backdated to March 1, 2020, and employers are urged by the government to take back anyone they had already dismissed and convert them to this leave instead. Likewise, with anyone who is on unpaid leave.

What situations will this not help with?

Furlough leave is recommended for anyone that would have otherwise been laid off or made redundant due to the impact of coronavirus on the employer’s business.

It does not help with any situations where employees had agreed to reduce their hours, or to a pay cut but where they are still required to work. There is currently no option to do a mixture of reduced hours and furlough leave.

How will this affect the employment status of employees?

The employees concerned will remain on the employer’s payroll and will continue to accrue holiday and service.

It is also important for businesses to acknowledge that this scheme may create resentment between employees.

Some will still be at work getting either full or reduced pay, while others will be on furlough leave getting paid at least 80 per cent for doing nothing, and those who are off sick – as they are ill or self-isolating – may only be getting statutory sick pay (SSP), which at around £95 per week is likely to be less than 80 per cent of full pay.

There will be an incentive for employees not to notify their employer if they become sick or need to self-isolate during furlough leave because of these adverse pay consequences.

Likewise, the employer will also be better off as they can only reclaim 14 days of SSP as opposed to indefinite furlough leave pay.

Laura Kearsley - partner and solicitor in Nelsons’ employment law team - breaks down the key information employers need to know about this government scheme in a piece for Business Leader.

As part of continuing efforts to keep the economy moving and protect UK jobs, the government announced plans to introduce the coronavirus job retention scheme - part of a package of alleviation measures against the impact of COVID-19 on UK businesses.

What is the coronavirus job retention scheme and who can participate?

The scheme will enable businesses to recover 80 per cent of wage costs for employees on ‘furlough leave’ - which is an entirely new concept and is a new class of indefinite leave where the government will reimburse the employer for wage costs.

This has been introduced as an alternative for employers who might have otherwise implemented redundancies, lay-off, unpaid leave or other measures for their employees.

All UK businesses are eligible to claim under the scheme. It seems that employees will be covered, but not other workers (such as casual staff or contractors) or the self-employed.

The government has announced that the scheme is available for at least three months from March 1, 2020, and will be extended if necessary.

What costs can employers recover?

The coronavirus job retention scheme allows for 80 per cent of wage costs to be recovered up to a maximum of £2,500 per month per employee. There is no limit on the number of employees or the duration. Wage costs are expected to include wages, pension contributions and employer national insurance (NI) contributions.

What do employers need to do?

Employers and employees will need to agree to members of staff being designated as ‘furloughed workers’. This should be straightforward because this route will no doubt be more attractive to employees than redundancy, lay off, unpaid leave or a reduction in pay.

We are recommending employers send a letter or email to each employee concerned and get them to agree to the change in status formally in writing.

Employers will then need to submit details to Her Majesty’s Revenue and Customs (HMRC) through a new online portal, which is being set up urgently.

It’s also worth noting that employees cannot elect to be a furloughed worker without their employer’s agreement.

Does the employer have to top up the employee’s pay to 100 per cent?

No, they do not. Some employers may wish to make up the shortfall, while others may not be able to. This just needs to be made clear to all employees concerned. We do recommend that each employer adopts a consistent approach.

What about employees that have already been dismissed or taken unpaid leave?

The scheme is backdated to March 1, 2020, and employers are urged by the government to take back anyone they had already dismissed and convert them to this leave instead. Likewise, with anyone who is on unpaid leave.

What situations will this not help with?

Furlough leave is recommended for anyone that would have otherwise been laid off or made redundant due to the impact of coronavirus on the employer’s business.

It does not help with any situations where employees had agreed to reduce their hours, or to a pay cut but where they are still required to work. There is currently no option to do a mixture of reduced hours and furlough leave.

How will this affect the employment status of employees?

The employees concerned will remain on the employer’s payroll and will continue to accrue holiday and service.

It is also important for businesses to acknowledge that this scheme may create resentment between employees.

Some will still be at work getting either full or reduced pay, while others will be on furlough leave getting paid at least 80 per cent for doing nothing, and those who are off sick – as they are ill or self-isolating – may only be getting statutory sick pay (SSP), which at around £95 per week is likely to be less than 80 per cent of full pay.

There will be an incentive for employees not to notify their employer if they become sick or need to self-isolate during furlough leave because of these adverse pay consequences.

Likewise, the employer will also be better off as they can only reclaim 14 days of SSP as opposed to indefinite furlough leave pay.