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What is furlough?

6 April 2020

What is furlough? The word ‘furlough’ means temporary leave of absence from work. This can be due to economic conditions affecting one company, or matters affecting the whole country. Until now the expression has not carried any meaning in UK employment law but has been temporarily introduced in response to the unprecedented situation presented by the COVID-19 pandemic.

This does not mean that the fundamentals of employment law have changed, simply that this scheme adds to them. It has been introduced to provide employers with an option to keep employees on the payroll without them working.

As furloughed staff are kept on the payroll it is different to being laid off without pay or being made redundant.

The ability to furlough employees is designed to support employers who are severely affected by coronavirus.

This provides employers another option when reviewing the circumstances of their business and is an alternative to redundancies or being laid off without pay. Employers will need to review this option carefully to pursue the best option for them.

Which employers are eligible? Any employer (of any size) is eligible for the scheme and includes businesses, charities, recruitment agencies (if the agency workers are paid through PAYE) and public authorities. To be eligible the employer must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account. It has been confirmed that where a company is in administration, the administrator will be able to access the Coronavirus Job Retention Scheme. More information is available via and further details are expected in due course. Do not use Google or other search engines to validate your opinions only use credible websites and agencies. The government does not expect much public sector use of the scheme because many public sector employees are continuing to work throughout the coronavirus outbreak. Non-public sector employers who receive public funding for staff costs are expected to continue to pay staff and not to place them on furlough. However, where staff cannot be redeployed to assist with the coronavirus response, the furlough scheme will be applicable. Which employees are eligible? Employees that are working for businesses that would otherwise have to be dismissed as redundant or laid off. Furloughed employees must have been on the employer’s PAYE payroll on 28 February 2020, and include:

  • full-time employees

  • part-time employees

  • agency employees on agency contracts (provided they are not working at all)

  • zero-hour contract workers (provided that they are employees albeit on flexible contracts).

For new employees who were not on the employer's payroll on 28 February 2020 complexities arise. There are also certain complexities for employees who have been:

  • on sabbatical or unpaid leave

  • recently made redundant or laid-off

  • are pregnant or on maternity leave or adoption/paternity/shared parental leave

  • caring for children

  • migrant workers.

Employees who have been on sick leave can be placed on furlough leave after the period of sick leave has ended if there is no work for them to do and they would otherwise be laid off or made redundant and employees who are shielding themselves in line with government advice can also be placed on furlough leave. For more information specific to employees that are potentially grouped in these categories please contact the office.

Employees who work elsewhere: Employees with two or more employers can be furloughed for each job separately but the £2,500 cap applies to each employer individually. This means that an employee with two jobs can have 80% of their salary reimbursed with a cap of £5,000, or more, if the employers top the salary up above the grant level. Employees do have to agree to being furloughed, unless there are lay off provisions in their contract, so an informed employee may say they only agree to being furloughed and taking a 20% pay cut if the employer agrees to them working elsewhere during their normal working hours. Alternatively, employers may ask employees to agree new or reconfirmed restrictions on working elsewhere, especially if for a competitor. The employer may agree to furloughed employees working in limited sectors, for example, food, health and social care or other essential services.

Business owners and partners: Owners of small businesses who pay themselves a PAYE salary are covered under the furlough scheme. The scheme does not apply to dividend payments so director-shareholders who are paid partly or mainly in dividends will only be covered to the extent that they receive PAYE earnings. The Coronavirus self-employment income support scheme has been introduced to provide similar support to those not eligible under the job retention scheme. This means self-employed directors with taxable profits below a £50,000 annual threshold may be eligible to apply for support under the self-employment scheme. Salaried partners who are paid through a PAYE payroll will be eligible under the furlough scheme. Partner owners and LLP members who are treated as self-employed (and not paid through the PAYE payroll) will not be covered. Like directors, self-employed partners with taxable profits below the annual threshold may be eligible to apply for support under the self-employment scheme.

How to apply to the scheme: The ability to furlough employees under the Coronavirus Job Retention Scheme will be operational from the end of April. The scheme is backdated and will apply from 1 March for at least three months until 31 May (unless extended). Once employers have reached an agreement with employees about being furloughed, they should write to the affected employees confirming that they have been furloughed and keep a record of this. Employers access the scheme through an online portal, providing details of the affected furloughed employees and information about their earnings and any other information required (such as the employee’s NI number). Employers should decide whether to pay 80% of salary or to supplement it to the full 100%, gaining the employees’ written consent unless contractual provisions already cover lay off and importantly stop the employees from working.

How to calculate and amount to claim from HMRC: To work out what amounts they are claiming employers will have to work out the employer NI and minimum automatic enrolment employer pension contributions for all employees. When the portal is operational employers will apply with their ePAYE reference number, bank account number and sort code and specify the:

  • number of employees being furloughed

  • claim period (start and end date)

  • amount claimed (the minimum length of furlough is three weeks)

  • employer’s contact name and telephone number.

Employers are advised by the government to claim in advance of an imminent payroll or at the point when they run their payroll. Employers make a collective claim for the group of furloughed employees under the scheme (not for individual employees) but employers will probably need to make more than one claim throughout the period of furlough. Once HMRC have the claim and agree the employer’s eligibility a BACS payment will be made direct into the bank account supplied. It’s important to be aware that HMRC retain the right to retrospectively investigate and audit employers’ claims. People who get furloughed must not work for the employer during the period of furlough and they will return to their job afterwards (unless redundancies follow).

Summary of facts: Under the scheme furloughed workers will receive either 80% of their regular wage or £2,500 per month, whichever is lower. The £2,500 a month figure has presumably been chosen as it is broadly £30,000 a year which is the national median net salary. Employers will receive a grant to cover part of the salaries of any employees who would otherwise have been dismissed. Employers do not have to pay this grant back. Employers must pay over the entire grant received to the furloughed employees; plus, any top up payment they are choosing to pay. Fees, commission and bonuses should not be included when working out the 80% figure. Employers who furlough employees can also claim employers’ national insurance payments and minimum pension contributions. Employees continue to accrue annual leave entitlement during furlough. For regular salaried employees, employers should base calculations on actual salary before tax, as at 28 February 2020. For employees with variable pay employers can claim the higher of either:

  • the same month’s earning from 2019; or

  • average monthly earnings from the 2019-20 year.

If an employee with variable pay has been employed for under a year employer can claim for an average of monthly earnings since they started work. For workers who only started part way through February 2020, the wage will have to be taken pro-rata.

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