Furlough – FAQs for employers
15 April 2020
The Government has released further updated guidance on the Coronavirus Job Retention Scheme (CJRS – the scheme under which employees can be furloughed). A copy of the latest guidance is available here. They have also published a ‘Treasury Direction‘ which is likely to form the basis for the regulations which will be issued in due course about the scheme – those are available here.
In these FAQs we will answer the key questions employers have been asking about the CJRS, and we hope you find this helpful. Please note that although this information is up to date as at 15 April 2020, the situation is rapidly evolving, and we suggest that you always check that you are acting upon the latest information. It is also important to note that the position will of course depend on any subsequent law or regulations that are published.
When did the scheme start from and how long will it last?
Although it was announced on 20 March, the Government has confirmed that the scheme started from 1 March 2020, so employers are able to backdate to then (in certain circumstances – see below).
It was initially intended to last for 3 months from 1 March 2020. However, it has now been announced that it has been extended and the planned end date is now 30 June 2020.
Which employers are eligible to claim under the scheme?
In order to qualify, the employer must have a pay as you earn (“PAYE”) scheme that was registered on HMRC’s real time information system for PAYE on or before 19 March 2020 and they must have a UK bank account.
The Government has said that it does not expect that the CJRS would be used by many public sector organisations, but in a small number of cases, for example where organisations are not primarily funded by the state and their staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate for some staff.
Do we have to show that roles have been affected by the coronavirus in order to qualify?
No, it does not seem that this will be the case.
The latest guidance states that the scheme “is designed to help employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy. However, all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus.”
The Treasury Direction also supports this by stating that the scheme covers anyone who is furloughed “by reason of circumstances as a result of coronavirus or coronavirus disease.”
Some employers had previously been worried that they may need to justify their use of the scheme, but this wording appears to give some reassurance that this won’t be the case.
How and when do we apply?
The idea of the scheme is that the employer will be able to reclaim 80% of the employee’s pay (or £2,500 per month, whichever is the lower). The employer will need to make the payment to the employee in the first instance and will then be repaid via the scheme. The repayment will be made by the Government as a grant, which will come via HMRC.
Employers will need to apply for this money via an online portal. The Government says that it hopes that the portal will be up and running by 20 April 2020, and it intends to make the first payments by 30 April. The general aim is to pay most claims within 4 to 6 working days of receipt of the application. The portal is of course likely to be inundated with applications when it first opens, so it may take time for all the payments to be processed.
The payment dates will of course be key to the employer’s cashflow. We understand that the Government is keen for employers to apply for the Coronavirus Business Interruption Loan Scheme if they are in financial difficulty, but that will not be appropriate or possible for every organisation.
How much can we claim?
Through the portal you will be able to submit a claim for 80% of the monthly wage costs (up to £2,500 per month) for any employees who are on furlough.
You will also be able to claim for the associated employer’s National Insurance contributions in addition to the minimum auto enrolment pension contributions the employer would have to pay (unless the employee has opted out of the pension scheme). These are based on the furlough amounts rather than the employee’s normal pay.
The scheme will not repay any employer pension contributions that you choose to make over and above the auto-enrolment minimum (which is currently 3% of income above the lower limit earnings limit (which is currently £520 per month as of 6 April 2020).
Employers are obliged to pass all of the grant on to the furloughed employees. The amount that the employee receives (i.e. 80% of their wages, or £2,500 per month) will be subject to deductions for tax and National Insurance.
Do we have to pay a ‘top up’ so that my employee receives their full pay?
No. The Government have also said that employers could also choose to top up the employee’s salary so that they receive more than 80%, but there is no obligation whatsoever to do so. If you do choose to pay any form of top up, you would not be able to reclaim the top up amount through the CJRS.
How is the 80% calculated?
For employees who just receive a salary, the calculation is simply based on their salary in the last pay period prior to 19 March 2020.
Although it was not the case initially, the guidance now makes clear that employers can claim for regular payments that they have to make to their employees, including things like a car allowance, overtime and also “compulsory commission” paid to an employee. The guidance doesn’t define what it means by “compulsory commission”, but we presume that this refers to contractual commission. Anything discretionary would not be able to be reclaimed under the scheme, and employers are not allowed to take account of non-cash benefits such as a company car or private healthcare.
For employees whose pay varies, if they have worked for you for 12 months or more then you would use either their average monthly earnings for the 2019/20 tax year OR the same month’s earning from the previous tax year, whichever is the higher.
If someone has variable pay and has not been with you for 12 months, then you would use an average of their monthly earnings.
What if the 80% takes someone below the National Minimum Wage (or National Living Wage)?
The Government has specifically addressed this point in its guidance and has confirmed that the NMW/NLW only applies to hours worked. Therefore, under the scheme it is possible for furloughed workers on 80% of pay to go below NMW/NLW rates.
Who can we furlough?
The scheme basically applies to anyone who is on PAYE (which will include all employees and some workers).
An employer will potentially be able to furlough any employee or worker, whether part-time or full-time, fixed term, flexible or zero hours, so long as they were on your payroll at 19 March 2020 and you had submitted real time payroll information about them by that date. (The date was originally 28 February – see our article about the change here).
There are also provisions for agency employees, who would normally be the responsibility of the agency.
The scheme does also allow employers to furlough staff who were employed on 28 February 2020 but left before 19 March 2020 if they are rehired by the employer. Initially it seemed that this would only apply to people who were made redundant, but it has now been made clear by the Government that this can apply to people who “stopped working for you”, which is thought to mean people who left for any reason.
However, there is no obligation on you to rehire them, and there are disadvantages to doing so, including the fact that the employee would accrue holiday and is likely to be entitled to other employment rights such as notice pay when their employment ends again.
There have however been developments regarding employees who transferred under TUPE after 19 March 2020 or where payrolls were merged after that date. Although it was initially thought that they would not be eligible for the scheme, it has now been made clear in the guidance that HMRC are now prepared to allow those employees to be furloughed even though they were not on the employer’s payroll at the qualifying date.
Can fixed term employees be furloughed?
The guidance makes it clear that people who are employed on fixed term contracts can be furloughed, even if their contracts are due to expire soon. Their contracts can be renewed or extended while they are furloughed, and this will not breach the rules of the CJRS. However, if someone’s fixed term contract ends because it hasn’t been extended or renewed, you will no longer be able to claim for them under the CJRS, so it will be important to keep an eye out for the end dates.
Can employees who are ill or self-isolating be furloughed?
In the latest version of the guidance, the Government have said that the CJRS is not intended to apply to cover short-term periods of sickness absence. Employees who are either ill or self-isolating will qualify for at least Statutory Sick Pay (many employers of course pay more than Statutory Sick Pay, but although the guidance does not specifically deal with the point, our view is that it is likely the same principle would apply to company sick pay).
However, the guidance now goes on to make clear for the first time that “if, however, employers want to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees. In these cases, the employee should no longer receive sick pay and would be classified as a furloughed employee.”
You can claim back from both the CJRS and the SSP rebate scheme for the same employee but not for the same period of time. If someone becomes ill whilst they are furloughed, they must receive at least the SSP rate. For most situations this means that the employer will normally continue to claim for them through the CJRS, but it may depend on the employee’s earnings.
Can employees who are ‘shielding’ be furloughed?
Yes. The guidance states that employees who are ‘shielding’ in line with public health guidance (i.e. those who have received a letter advising them to ‘shield’ or who are isolating along with a vulnerable member of their household) can be placed on furlough. Although the previous version of the guidance stated that this would only apply “if they are unable to work from home and you would otherwise have to make them redundant” that wording has now been removed.
Can employees who need time off for caring responsibilities be furloughed?
Yes. The guidance states that employees with caring responsibilities (such as those with young children, or with vulnerable family members) can be furloughed.
Can apprentices be furloughed?
Yes. Apprentices can be furloughed from their employment and they can continue to do their training whilst furloughed. You will need to make sure they receive the appropriate level of minimum wage for the time they spend training (this may require ‘topping up’ the amount paid under the CJRS).
Can company directors be furloughed?
One question that a lot of small businesses have been particularly interested in was whether directors of the company can be furloughed. The answer is that they can potentially be furloughed purely in relation to the employed aspect of their role, but the position is more complicated than for other employees, as we explained in our article “Can company directors be furloughed?”
The guidance makes clear that the decision to furlough a registered director will be one for the board and this should be properly documented as a board resolution, as well as being communicated in writing to the relevant director(s).
While they are furloughed, according to the Treasury Direction, directors should “only undertake work to fulfil a duty or other obligation arising from an Act of Parliament relating to the filing of company’s accounts or provision of other information relating to the administration of the director’s company.” This is a very narrow interpretation of directors’ duties and means that directors will need to be very careful not to go any further than this if they wish to benefit from the scheme.
How should we choose who to furlough?
We have been receiving a lot of queries from employers about how they should decide which employees to furlough. Our advice has been that as usual, it will be a question of ‘reasonableness’ and you need to act fairly. The guidance does not give any particular method, so we would suggest something similar to a redundancy selection process may be a good starting point, depending on the situation. You could of course ask for volunteers if you wish, but there can be disadvantages to doing so – please contact us for advice on this.
Also, as with any decision an employer makes, you need to be mindful of your duty of trust and confidence to your employees, as well as the Equality Act and the need to avoid unlawful discrimination.
There may be some situations where an employer could justify offering furlough to specific employees, such as those who are ‘shielding’ (i.e. qualify as vulnerable due to their age or a health condition, or a member of their household does), or those who have childcare responsibilities now that schools are closed. However, we suggest that if you are thinking of doing this it is best to take advice in the first instance.
We have already come across several situations where employees have been unhappy that they haven’t been furloughed when they wanted to be, and others where people have complained they have been furloughed when they didn’t want to be. This is something that will require careful handling by employers.
What is the process for furloughing employees?
The Government’s guidance is very clear (and ACAS’s advice is also consistent with this) that communication with employees about furlough will be key.
Furlough will amount to a change to an employee’s terms and conditions of employment and therefore is something that the employee will need to specifically agree to. Employers are expected to confirm the agreement in writing and keep a copy for at least 5 years. We can help with a suitable agreement – do get in touch if you need assistance with this.
Some people had previously thought that employees only needed to be notified about furlough rather than having to agree to it. We had always advised agreement would be needed, and this is now backed up by the Treasury Direction, which makes clear that in order for the employee to be furloughed, the employer and employee must have agreed in writing that the employee will cease all work. If you furloughed your employees without getting their specific agreement, please contact us for urgent advice.
The Government recommends that employers seek legal advice about furloughing staff, and this is particularly important where large numbers of staff are involved. For example, if 20 or more employees are being asked to agree to be furloughed at one establishment, then collective consultation with employee representatives may be required.
Can we reach agreement about furlough with our employees by email?
Yes, this is what we have been recommending, as the current circumstances mean it is not practical to get ‘real’ signatures from employees. The Treasury Direction makes clear that agreement by email is an acceptable form of agreement for the purposes of the scheme.
Do we have to furlough someone if they ask us to?
No. The nature of the scheme means that it is up to the employer whether or not they offer furlough to their employees. However, there may be some situations where it might potentially be unreasonable of an employer not to furlough an employee. For example, if someone is disabled and having to ‘shield’, then if you refused their request for furlough it might be argued that you have failed to comply with your duty to make reasonable adjustments under the Equality Act 2010.
How long does furlough last?
The CJRS as a whole is initially envisaged to last for three months (starting from 1 March 2020) but it may be extended by the Government depending on how things go.
The guidance makes clear that the minimum period an employee can be furloughed for is 3 weeks.
A period of furlough would normally either end when you decide to bring it to an end because you have work for the employee, or when the Government ends the CJRS scheme. We suggest that you cover this in your agreement with your employees.
When the CJRS scheme ends, you must make a decision regarding whether your employee can return to their duties. If they cannot, then you would need to consider other options such as potential redundancy (we can advise further on this if required – please contact us).
Can you furlough someone more than once?
Yes, the scheme allows for this so long as they are furloughed for at least 3 weeks on each occasion.
Can you rotate employees in and out of furlough?
This is a popular question amongst our clients and the guidance makes clear that this will be allowed, so long as an employee is furloughed for at least three weeks. Therefore it is possible to bring them back and put another employee on furlough in their place.
Whether this is necessarily practical, bearing in mind that the employees who are in work might become ill and cover may be required, will need to be carefully considered.
What rights do employees have during furlough?
As we expected, the Government has confirmed that employees continue to have all of their employment rights and obligations during furlough (other than the right to receive 100% of their pay) and this would of course include their entitlement to benefits such as private medical cover.
When you write to your employees regarding furlough, we recommend that the position regarding their contractual rights and obligations is made clear to them.
Do people on furlough still accrue holiday?
The interaction between furlough and annual leave is one of the areas which is still not clear in the Government’s guidance. In fact, the latest version of the guidance makes no reference to holiday at all, which is unfortunate as it is currently the source of a lot of the queries we are receiving from employers!
As the employment relationship continues during furlough, it is thought that annual leave would continue to accrue. However, there is no definitive answer at the moment.
Separately to the CJRS, the Government has also brought in new rules to allow employees to carry forward annual leave for longer – more information about this is available in our article here.
Can people on furlough take holiday and if so, what should they be paid for it?
The interaction between furlough and annual leave is one of the areas which is still not clear in the Government’s guidance. In fact, the latest version of the guidance makes no reference to holiday at all, which is unfortunate as it is currently the source of a lot of the queries we are receiving from employers!
For example, if someone has pre-booked a period of annual leave that falls during the time when they are furloughed, should they be paid 80% or 100% of their pay for that leave? And what about Bank Holidays, particularly as we have quite a few of them at this time of year?
No one has definitive answers to these questions yet, but based on HMRC’s answers to some questions on Twitter, it does seem that they are taking the view at the moment if any annual leave is taken during furlough the employer would need to top up the employee’s pay to 100% for those days of annual leave. This is by no means official guidance (much less is it law!) but it may give an indication of where things are heading.
Separately to the CJRS, the Government has also brought in new rules to allow employees to carry forward annual leave for longer – more information about this is available in our article here.
Can the employee do some work for us during furlough?
No. In order to qualify for repayment under the CJRS scheme, it is important that the employee must not carry out any work for the employer during the furlough period. The Treasury Direction makes clear that the scheme will only apply where “the employee has been instructed by the employer to cease all work in relation to their employment.”
Therefore if you still need the employee, but on reduced hours, this scheme will not apply (other options may be available, as we have explained in our recent Dealing with Difficult Times article here).
The guidance also now states that furloughed employees cannot do any work for organisations “linked to or associated with” the employer (as an anti-abuse measure) and the Treasury Direction states that working “indirectly” for the employer is also not permitted.
Can employees do voluntary work or training while they are furloughed?
While someone is furloughed, they are still allowed to take part in volunteer work or training. However, this cannot involve providing services to or generate revenue for your organisation.
If you require them to undertake training then they should be paid at least the National Minimum Wage (or National Living Wage, depending on their age) for the time they spend doing the training, even if that takes them above the 80% of pay that you are claiming under the CJRS.
Can employees work elsewhere while they are furloughed?
If someone already had more than one job before the CJRS was created, then that is not a problem under the scheme. It does allow for an employee to be furloughed from more than one job (or equally, to be furloughed from one and not the other). Each job, and the cap on the amount, will be looked at separately.
There had been some debate regarding whether an employee could take up a brand new job on 100% pay while they are still receiving 80% of their pay by being furloughed. Now the guidance seems to suggest that there would not be a problem with this providing that it is not a breach of contract with the employer who had furloughed them (e.g. if there is a clause in the contract of employment preventing the employee from working elsewhere without permission). This development does seem surprising, as it leaves it open for some employees to profit from being furloughed. We would not be surprised if this is clarified further in future.
What happens about family friendly leave such as maternity, paternity etc?
Someone who has been furloughed will still start their family friendly leave (e.g. maternity, paternity, adoption, shared parental) as normal. They will be entitled to be paid their statutory pay as normal and this will not be reimbursed under the CJRS.
The fact that they have been furloughed may reduce the level of statutory pay they receive during their leave.
If an employer offers enhanced pay during family friendly leave (e.g. company maternity pay) then 80% of the costs of that (up to £2,500) can be reclaimed through the CJRS.
If you are an employer with queries about furlough and the CJRS, then we can help. Please call us on 01243 836840 for a no obligation chat, or email us at [email protected].