ast week, the UK Government announced financial measures intended to support employers that are struggling to pay employees due to COVID-19 pandemic.
The Government is introducing a Coronavirus Job Retention Scheme through which it will provide a grant to employers of up to 80% of an employee’s wages (subject to a maximum grant of £2,500 per month). The scheme will be open from April to all employers for at least three months, or longer “if necessary” and will cover the cost of wages backdated to 1 March 2020. We are currently awaiting further details on the scheme.
What does "furlough" mean?
Furlough is a mandatory time off from work with no pay. It is generally implemented by employers as a cost-saving measure during tough economic times or otherwise slow periods. In the US, where it is more commonly used (compared to the UK lay-off rules), it operates as an alternative to redundancy, forcing employees to be temporarily absent from work but with an expectation that they can readily return in due course.
Coronavirus Job Retention Scheme
The scheme will apply to staff on an employer’s PAYE system, so will not cover self-employed staff. Under the scheme, employers will need to:
- Assess their workforce and designate them into two groups. Those who will continue to work and those affected employees who will no longer work - and designated as “furloughed workers”; and notify employees of this.
- Submit information to HMRC online about employees that have been “furloughed” and their earnings.
While we await further details from the Government on how the scheme will work in practice, some of the key issues that employers will need to consider are:
- The Government has made it clear that designating an employee as a “furloughed worker” remains subject to existing employment law and, depending on the wording of individual employment contracts. Meaning that staff must agree to be laid off. It would seem therefore, that the scheme may not give employers an automatic right to stop their employees from working and expect the Government to pick up the salary costs.
- The scheme would appear to apply only to employees who can no longer work or are no longer working. In instances where an employee could be redeployed/moved to carry on other duties within the business, it is unlikely to apply.
- In instances whereby employers have already commenced redundancy processes, the question remains whether they should delay those processes while the scheme is running. The Government has made it clear that its aim is to prevent mass redundancies. It would therefore appear risky to continue with redundancy processes while the scheme is operating. Employers should consider discussing the scheme with ‘at risk’ employees as part of the consultation process and agree to either carry on with the redundancy process (recognising the risks associated with it ) or agree to use the scheme as an alternative.
- Some employers may have already introduced policies such as reduced hours or short-time working linked to the COVID-19 crisis. These employers may need to consider whether they can renegotiate with employees and potentially agree new terms making use of the scheme.
- It is currently unclear whether the maximum salary is to be £2,500 and employees will receive 80% of that, or whether employees earning up to £3,125 per month will receive 80% of that figure (which is £2,500).
- It is also unclear whether employees will be restricted from taking on other/new work (if they are able to secure alternative employment under the current climate) whilst receiving a salary under the scheme.
Wendy Lasebikan was previously a director at EIC. Explore the latest COVID-19 business advice on our website.