How does Furlough work?

If you’re an employer who has placed employees on furlough leave as part of your response to the COVID-19 crisis, or you’re thinking of doing so, you may still have some unanswered questions. Let’s try to clear some of them up.

The Government’s Coronavirus Job Retention Scheme, more widely known as ‘furloughing’, aims to help employers avoid having to dismiss their staff or make them redundant during the crisis. Giving employers the ability to use staff in this way helps them operate more efficiently during the crisis, dealing with drops in demand. It also puts them in a better position to bounce back when it is over.

In this article, we’ll look at the basic provisions for furloughing as they currently stand. We’ll look at who can be furloughed, what the employee receives and the mechanics of the process behind it.

Who can be placed on furlough leave?

We’ve written an article about furloughing employees which explains the preliminary process in more detail, but here are the basics you need to know.

You can furlough any employees you choose, but you still need to be mindful of Employment Law, as getting the process wrong may open you up to claims in the future. The main requirement is that any furloughed member of staff must have been on your PAYE on March 19th 2020. This is because the scheme will be run through HMRC. They will have records of those staff who have paid tax through PAYE. Remember, this can include agency staff and apprentices, not just directly employed staff.

If you made any employees redundant after March 19th as the crisis was unfolding, you are allowed to bring them back and furlough them. Staff who are sick should be on either  contractual or statutory sick pay, but there is flexibility to furlough in some circumstances, so you should check on this if necessary. Those who are in self-isolation either because of their own status or that of a family member can also be furloughed “by reason of circumstances as a result of coronavirus or coronavirus disease”, so again, you need to check the guidelines carefully.

How much does the employee get?

The scheme allows for staff to remain at home while the government covers 80% of their wages, capped at £2,500 per month. Employers can choose to pay the remaining 20% themselves, but they are not obliged to.

Of course, not everyone earns their salary in the same way, so the government has set out provisions. For employees whose pay differs from month to month, the employer can claim for either the same month’s wage from the previous year (e.g. April 2019) or the employee’s average monthly earnings from the 2019-2020 tax year, whichever is higher.

For people that earn commission as part of their contract, such as salespeople, employers can claim for 80% of the required amount. However, it can only refer to commission from past sales, not future sales, as the employee is not able to work if they are furloughed.

Employers will also be able to claim for their National Insurance Contribution (NICs), as well as the minimum pension contribution permitted through auto-enrolment.

Who claims?

Under the scheme, the employer must make a claim for the money they are entitled to (80% of wages plus some elements of associated NICS and pension contributions) using an online portal, which is hoped will be up and running by April 20th.

It’s hoped that the first payments will be made on April 30th, in time for the next staff payroll, which will be important to many businesses experiencing cash flow problems. Claims can be backdated to March 1st.

When will the employees be paid?

Again, it is hoped that the next payment will be on April 30th, with any backdated pay added.

To address any shortfall, employers can pay staff now where possible, and claim the money back when the portal is up and running.

Can staff be treated differently?

You may need to decide which of your staff to furlough, so that you can have a smaller team to keep things running until business resumes. The best advice on deciding how to do this is to use selection criteria, in a similar way you would use for a redundancy exercise. However, unlike in redundancy, where you need to be careful not to use criteria that could discriminate against certain groups of people, you are at little risk of accusations of discrimination if you select people over 70, people with underlying health issues or, as a further example, pregnant women. To a certain extent, these groups will self-select.  Normal Employment Law has not been suspended, but the new procedures do offer scope for flexibility, so we would recommend you get advice if you are uncertain about who to furlough.

Once you have placed an employee on furlough leave, you must remember that they cannot do anything that will contribute to the work of the business.

When the Coronavirus crisis is over, the Government will be looking to penalise companies that try to take advantage of this landmark gesture. If they believe you are asking the state to pay 80% of their wages while they still work for you, there could be severe repercussions including, we believe, criminal prosecutions.

Can staff be rotated in and out of furlough leave?

It’s possible to rotate staff who are furloughed, putting some flexibility in the process. However, the minimum period for furlough must be three weeks. Once you have placed an employee on furlough, you cannot call them back to work until the three week period has elapsed. And remember, each time you furlough them, you will need their written agreement for your records.

Practical considerations

Coronavirus Job Retention Scheme is not the only support the Government is giving to employers during the crisis, and there have been funds put in place for small businesses to seek loans. If your cash flow doesn’t allow you to pay your staff now, these loans may be  something you want to apply for, but they are loans, not grants, and will need to be paid back in due course.

Find out more

There is a lot of information to take in at the moment, and every business is different.

If you have any questions about Employment Law during the COVID-19 crisis, it’s time to talk to Couchman Hanson.

We are currently offering you a free, 30-minute call with a Couchman Hanson employment lawyer, where you can get all your questions answered. It’s peace of mind during these uncertain times.  

To find out more, call 01428 722189 or email enquiries@couchmanhanson.co.uk