The Coronavirus Job Retention Scheme and Furlough – what we know so far

22 March 2020

The UK’s response to the coronavirus crisis is moving incredibly rapidly. On Friday 20 March the Chancellor Rishi Sunak announced support for employers whose businesses are affected. The headline news was that the Government would reimburse employers for up to 80% of the wages of any employees where there is no work for them because of the coronavirus – an unprecedented step for unprecedented times.

The new scheme is called the Coronavirus Job Retention Scheme, and it sits alongside the other measures that have been introduced (such as the changes to Statutory Sick Pay, which we covered in our previous article here). The Government information for employers about the scheme can be found here.

The key points from an employment law point of view are:

• All UK employers are eligible to claim this (unlike the Statutory Sick Pay changes, which only apply to employers with fewer than 250 employees)
• The scheme creates the concept of ‘furlough‘  (pronounced furlow) – a word which means “give a leave of absence to.” This is not a term which has previously had any specific meaning in UK employment law.
• The scheme enables employers to designate affected employees as ‘furloughed‘ and notify the employees of this. This is important because it is the employer who controls the process (although the employee may need to agree – see below).
• The scheme specifically states that “changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.” As it will be relatively unusual for an employer to have a contractual right to put an employee onto this scheme, this is really saying that in the vast majority of cases, it will need to be agreed with the employee.
• However, from the employee’s point of view, they are highly likely to agree, because the alternative is likely to involve a reduction in hours, unpaid leave or potential redundancy. We would strongly recommend that any agreement with an employee regarding furlough is recorded in writing.
• The employer will need to offer furlough in a fair, non-discriminatory way to minimise the risk of claims. If there are several employees in a ‘pool’ and some may be retained and others may be furloughed, that process will need to be conducted fairly.
• According to the information released so far, “HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month.” This will be faciliated by a new online portal – details of the portal have not been given yet but they are expected imminently.
• In Mr Sunak’s announcement he said that the scheme would apply to anyone paid through PAYE, so would apply to zero hours workers. How exactly it would work for them remains to be seen – presumably some sort of average would be required.
• The Government’s guidance for employers does not specify the start date, but in its guidance for employees it states that the scheme will apply for 3 months from 1 March 2020, with the potential for it to be extended if necessary.
• The guidance for employees states: “This will allow your employer to claim a grant of up to 80% of your wage for all employment costs, up to a cap of £2,500 per month.”
• Due to the way it has been phrased, it is not completely clear at this stage whether the maximum payment per month would be up to £2,000 (i.e. 80% of £2,500, so someone on a salary of £30,000 pa) or £2,500 (i.e. 80% of £3,125, so someone on a salary of £37,500 pa) . We think it is more likely to be the former, but clarification on that is expected soon. It is also not clear what is meant by “for all employment costs” and what the position will be regarding things like pension contributions and National Insurance.
• During the period of furlough, the employment contract will continue and the employee will receive 80% of their wages. The employer could top this up to 100%, but is not obliged to do so.
• One of the issues we can see from the scheme is that it appears to be ‘all or nothing’ – if an employee has some work to do (e.g. a 50% reduction), then they will not qualify for furlough. The Government have specified in its guidance to employees that “To qualify for this scheme, you should not undertake work for [your employer] while you are furloughed.”
• It also isn’t clear at the moment whether employees would continue to accrue holiday during a period of furlough – it would be advisable for employers to specifically address this in any documentation that is agreed with the employee.

As you can see, there are still several points where more detail is needed, but in general it seems that the scheme will give much needed support to employers. We hope that further information will become available in the coming days, and we will of course continue to keep our clients and contacts up to date on developments.

**Updated to add – more information was announced by the Government on 26 March 2020. To see our article covering those developments, please click here.**