What is Furlough?

By Niamh Kelly

2020-04-06

‘Furlough’ is a term more frequently encountered in the USA. There, it is a temporary suspension of employment for a specified period of time, during which an employee does not receive wages. Quite why the UK Government decided to use this term is unclear... (maybe they didn’t want to use ‘lay off’)? So here’s your quick guide to furlough and the Government Job Retention Scheme (JRS) – which can be found here: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19.

The guidance makes it clear that, to be eligible for the subsidy, when on furlough, an employee cannot undertake work for or on behalf of the organisation, including providing services or generating revenue. If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for the scheme and the employer will have to continue paying them through its payroll subject to the terms of the employment contract.

Key details of the scheme announced so far include:

1 it is a temporary scheme running for at least three months starting from 1 March 2020;
2 it will be open to all UK employers:
3 it is designed to support employers whose operations have been severely affected by coronavirus:
4 the business will need to:
1. affected employees as being ‘on furlough’;
2. the employees of this change;
3. information to HMRC about the employees that have been furloughed and their earnings through a new online portal (see below for information that HMRC will require);
5 HMRC will reimburse 80% of furloughed workers’ wage costs, up to a cap of £2,500 per month, per employee;
6 HMRC are working urgently to set up a system for reimbursement, and expects the scheme to be up and running by the end of April;
7 the government intends for the JRS to run for at least three months from 1 March 2020, but has stated that it will extend it if necessary;
8 the minimum period for which an employee can be furloughed is three weeks
9 employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with the scheme;
10 those who have been made redundant since 28 February 2020, can be placed on furlough provided they are first rehired by their employer;
11 those who have been placed on unpaid leave after 28 February 2020 can be placed on furlough;
12 it is not possible for a furloughed employee to work reduced hours;
13 the government has stated that funding available under the scheme overall is unlimited.

Which employers are eligible?

The employer must

14 be a UK organisation with employees.
15 have created and started a PAYE payroll scheme on or before 28 February 2020
16 have a UK bank account

Where a company is in administration, the administrator will be able to access the scheme.

Which employees are eligible?

According to the government guidance, the scheme covers employees:

17 who were on the organisation’s payroll on 28 February. Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with the scheme
18 who are on furlough, including:
1. who have been placed on unpaid leave after 28 February 2020, and
2. who have been made redundant since 28 February 2020, if they are rehired by their employer
19 whether they are full-time or part-time;
20 including:
1. on agency contracts, who are not working, and
2. on flexible or zero-hours contracts

Placing employees on furlough

According to the guidance:

1 employers should discuss with their staff and make any changes to the employment contract by agreement;
2 employers may need to seek legal advice on the process;
3 when employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way;
4 if sufficient numbers of staff are involved (ie 20 or more), it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment if they cannot be agreed;
5 to be eligible for the subsidy, employers should write to their employee confirming that they have been furloughed and keep a record of this communication;
6 the employer does not need to place all its employees on furlough. However, those employees who it does place on furlough cannot undertake work for the employer.

Placing an employee on furlough and paying them a reduced salary without their agreement is likely to amount to a fundamental change in terms and conditions of employment, entitling the employee to resign and claim constructive dismissal.

Employees on sick leave, in self-isolation or shielding

The guidance states that:

1 employees on sick leave or a period of self-isolation should get statutory sick pay, but can be furloughed after their sick leave or self-isolation has ended
2 employees who are shielding in line with public health guidance can be placed on furlough.

It is not clear whether this means that an employee who is shielding in a business which is not otherwise furloughing staff can then be placed on furlough, despite there not being a general need for furlough in the business itself.

The guidance does not address the issue of the entitlement of an employee who is on furlough leave under the scheme and subsequently becomes sick….

More than one employer

If an employee has more than one employer, they can be furloughed for each job! Each job is separate, and the cap applies to each employer individually.

Volunteer work or training

A furloughed employee can take part in volunteer work or training, as long as they do not:

1 provide services to their employer, or
2 generate revenue for it

However, if workers are required, eg to complete online training courses while they are furloughed, then they must be paid at least the national living wage (NLW) or national minimum wage (NMW) for the time spent training, even if this is more than the 80% of their wage that will be subsidised. This is particularly important for those of you with Apprentices.

Employees receiving maternity, adoption pay, paternity pay or shared parental pay

The guidance points out that individuals who have given birth must take at least two weeks of compulsory maternity leave (four weeks if they work in a factory or workshop) immediately following the birth of their baby).

It also says that:

7 normal rules apply in relation to eligibility for statutory maternity pay (SMP) and maternity allowance and for other forms of statutory family leave-related pay;
8 however, if the employer offers enhanced (earnings-related) contractual maternity pay (or other forms of enhanced family leave-related pay), this will be included as wage costs that it can claim through the scheme.

Be careful here and seek payroll advice as the employee guidance states that, if an employee’s earnings have reduced due to a period on furlough or statutory sick pay prior to their maternity leave starting this may affect their statutory maternity pay, or other family leave-related pay.

Making a claim

The government expects the scheme to be up and running by the end of April. Full details of how a claim can be made are not yet available but from what we can gather:

1 an employer can only submit one claim at least every three weeks (the minimum length of time an employee can be furloughed for);
2 claims can be backdated until the 1 March if applicable
3 the employer will need to calculate the amount it is claiming, in accordance with actual payroll amounts at the point at which it runs its payroll or in advance of an imminent payroll;
4 HMRC will retain the right to retrospectively audit all aspects of a claim (but we don’t know what they’ll check; or how they’ll check it).

Your payroll provider should be able to help you with those who are on variable hours.. and don’t forget – all employees retain their rights whilst on Furlough!

Keep checking the guidance and get professional advice before you Furlough staff!

About the author:

© Níamh Kelly – Director of The HR Dept Shropshire – is an award-winning HR professional with over 25 years HR experience at a Senior level in the corporate, public and voluntary sector. Working with SMEs across the County; The HR Dept – Shropshire has rapidly developed a very strong client base of local companies. So if you have a question about Recruitment & Right to Work; to Resolving Problems; to Redundancy… she’s here to help you!