What is Furlough leave?

The Chancellor of the Exchequer, Rishi Sunak, has introduced new terms into the Coronavirus discussion – furlough leave and furloughed employees. They are Americanisms which don’t mean yet anything in the UK, he could just as easily have used the terms “gone home leave” or “gone home employees”.

The Coronavirus Job Retention Scheme will enable ‘Furloughed’ employees to be paid 80% of their salaries whilst they are not working. The financial assistance will be available to limited companies, partnerships, sole traders, charities and all businesses.

In order to put your employees on furlough leave and claim the repayment employers need to follow the steps below.

Step 1 – Designate Employees

Employers need to designate affected employees as furloughed workers and notify them of that change by way of a variation to contract signed by both parties. As the change is subject to current employment laws; employers will an employee’s agreement. Most employee’s are very likely to agree as the alternatives for them are:

• Go home without pay (where the contract of employment permits lay-off without pay)
• Be made redundant but not receive a redundancy pay due to cashflow;
• Claim a redundancy payment from the government in 6-9 months time;

So, agreeing to become furloughed and receive 80% of his pay but stay home is a complete no-brainer!

Step 2 – Submit Information to HMRC

Once an employer has designated workers as furloughed they need to submit information on their details and earnings to HMRC on a portal that has not yet been set up. HMRC will then reimburse 80% of the wage costs to a cap of £2,500 per month.

Step 3 – No Other Work

Employers must ensure that furloughed workers do not undertake any work for the employer that designated them as furloughed.

FAQ

When can I furlough employees?
The Government has not yet released the legislation which will govern this new scheme. There are therefore a lot of unanswered questions. In order to ensure that you meet the requirements of the Coronavirus Job Retention Scheme, it might be sensible to wait a couple of days for the legislation to be released.

Can it be back-dated?
We expect so but are waiting confirmation.

What is the £2,500 limit?
The Government have not confirmed if the 80% reimbursement will be on a maximum wage of £2,500 or on a maximum wage of £3,125 (80% of which would give the £2,500).

The Government guidance for employees, discusses the 80% as being for “all employment costs” to the £2,500 cap. This suggests that the £2,500 is what the furloughed worker will receive and would probably therefore, include any pension and national insurance contributions.

Can I top the pay up?
Employers may choose to fund the 20% difference but do not have to. Whilst we are of the view that there must be a contractual right to withhold the 20% it could also be done with agreement. We are sure that employees would agree to the scheme to get the 80% and be at home than face the obvious, starker, option of receiving nothing.

What if a furloughed employee becomes sick or is already off sick due to being high-risk?
You should pay these employees SSP (where eligible) until the regulations are released to confirm the correct approach.