COVID-19 Coronavirus Business Impact: Coronavirus Job Retention Scheme – Q&A

March 26, 2020

The Government’s announcement last week of its Coronavirus Job Retention Scheme (“the Scheme”) may have provided considerable encouragement to businesses and employees that financial support would be available from the UK Government to assist in staving off redundancies and other cost cutting measures in businesses affected by the COVID-19 pandemic, but it left a large number of questions unanswered, many of which we address in the following Q&A.

What is the Scheme?

The Scheme is an aid package for employers whose objective is to encourage and enable employers to retain staff rather than make them redundant.

The Scheme does not involve direct payment of wages to employees nor a guarantee to employees from the Government that they will be paid their salary or a proportion of it. Rather, it enables employers to seek reimbursement of a proportion of the wage costs relating to the employees whom they furlough.

If employees are designated as “furloughed workers”, then they will effectively be placed on a temporary leave of absence and the employer will be able to claim the relevant reimbursement of wage costs from HMRC.

What is furloughing?

Furloughing for these purposes is where an employee remains employed, but is not provided with any work.

Partial working is not permitted for the Scheme to apply and reimbursement to be claimed – it is made clear that an employee should not work for the employer while furloughed.

When will the Scheme operate?

The Scheme runs from 1 March 2020 for an initial 3 months, although it may be extended and it may well be the case that this is necessary.

The Government has indicated that the Scheme should be making payments by the end of April 2020.

How will we introduce the Scheme?

Unless the employer has the contractual ability to lay employees off work and reduce their pay, it will be preferable for employers to reach agreement with employees to become furloughed workers for the purposes of the Scheme. Imposing furloughing may risk breach of contract and other claims.

Employees cannot insist on being furloughed - this is the employer’s decision.

Consideration needs to be given to whether the implementation of and availability of the Scheme needs to be addressed as part of a collective redundancy consultation process. This will likely depend on the number of staff involved and the likelihood of staff refusing to agree to the changes.

Which staff can we include?

The interchangeable references to employees and workers in the Government’s pronouncements to date, mean it is not clear whether only employees, as opposed to workers, are covered by the Scheme but it appears that the key requirement is that the individual be paid through PAYE.

The Scheme will not apply to genuinely self-employed contractors. As the Scheme will apply to those paid under PAYE, salaried members of LLPs who are paid through payroll are likely to be covered.

It is not yet confirmed whether the fact that the Scheme runs from 1 March 2020 means that those who have already been dismissed by reason of redundancy can have the Scheme applied to them retrospectively. This would require the redundancy effectively to be reversed – presumably with any notice and redundancy payments repaid to the employer – with the employee being re-engaged and furloughed.

How do we select who to furlough?

If an entire group of employees is being furloughed, the issue of selection may not arise; likewise, if the employer seeks volunteers and sufficient staff come forward. If the employer needs to furlough only some of the staff in a particular area, then selection will need to be conducted carefully to avoid grievances and discrimination complaints and should be conducted on an objective basis similar to a redundancy exercise focusing on the retention of necessary skills and experience and those who are able to work effectively remotely.

How much can we claim?

The Government will meet 80% of the wage costs of furloughed workers subject to a cap of £2,500 per month per employee. It is not clear whether the £2,500 per month cap applies before or after the application of the 80% proportion of wages costs that the Government will reimburse. That said it is assumed that the £2,500 figure will be the maximum monthly reimbursement per employee.

It is also not yet clear what items in addition to basic salary, such as commission, overtime and bonus payments, will count as wage costs for which reimbursement can be sought and whether tax and national insurance payments will be included.

What should we pay?

There is no obligation on employers, as a condition of eligibility to make a claim under the Scheme, to top up employees’ wages to their full contractual entitlement. Many employers will seek to pay to staff the amount they are entitled to recover from the Government, i.e. 80% of wage costs (up to £2,500 per month).

It appears that payments made to furloughed workers will be subject to income tax deductions and employees' National Insurance Contributions and will attract employer’s National Insurance Contributions, as well as any applicable apprenticeship levy payments.

How is the 80% calculated for those with variable earnings?

This has not yet been clarified, but will presumably be based on average prior earnings. The Government will need to clarify whether commission payments, overtime and bonuses are included as wage costs which will be reimbursed under the Scheme.

How will we make a claim?

The Government has yet to issue detailed guidance as to the operation of the Scheme or how to set up an online portal that employers will be required to input the necessary information to claim reimbursement under the Scheme.

Employers will presumably be required to provide details of the earnings of their furloughed workers in respect of whom they are making a claim for payment. They may also be required to confirm that the requirements of the Scheme are met, such as the fact that employees should not work for the employer while furloughed.

Will it be unreasonable to dismiss for redundancy when furloughing is available?

Not necessarily. The employment tribunal would look at all circumstances of the case. There could still be sound business reasons for proceeding with dismissals that have nothing to do with taking advantage of the Scheme, such as cash flow issues, meaning that paying salaries in advance of reimbursement under the Scheme is not viable. Employers may also wish to consider the availability of loans under the Government’s support schemes.

Can we prioritise elderly and vulnerable workers when deciding who gets furloughed?

This could be a pragmatic approach, although in principle it could lead to claims of discriminatory treatment from younger workers.

Can employers require employees to take their holiday during a furlough period?

Whilst employees’ contractual provisions may differ, if an employer requires an employee to take leave at a certain time, then under the Working Time Regulations 1998 the employer must give the employee notice which is twice the length of the holiday. This power could be utilised in relation to a furlough period. Employers may alternatively wish to ask employees to agree to take holiday during the furlough leave, although they should nonetheless be mindful of the health and safety implications of putting employees in the position where they can take no or materially reduced leave for the remaining proportion of the holiday year after returning from being furloughed.

What if a furloughed employee takes a new job with their (now) spare time?

Employees will still be bound by any prohibition in their contracts on working elsewhere. Consent would be needed to take outside employment, the terms of which the employer would need to consider carefully.

Subject to the specific terms of an employee’s employment, presumably unpaid voluntary work for a third party such as a charity or the NHS will be permissible, as would the employee taking advantage of the new right to take emergency volunteer leave.

Can we continue with a disciplinary or grievance process when an employee is furloughed?

Yes. Since the employee is still employed, they can be required to participate in a disciplinary or grievance hearing. Failure to do so could, depending on the circumstances, constitute failure to comply with a reasonable instruction. The employer would need to consider carefully the logistics of remote participation in such a process.

What other areas have not yet been clarified?

Pending further guidance, various issues remain unclear including whether and how furloughing can apply to those on family leave and those on short term or long term sickness absence, the application of the Scheme to agency workers and what evidence will be need to be provided to establish eligibility for reimbursement under the Scheme.

How should we document furloughing?

Employers should seek to document furlough arrangements with employees formally. Furlough agreements should address a variety of issues to ensure contractual clarity as well as compliance with the conditions of the Scheme for eligibility for reimbursement of wage costs. These issues will include the duration and termination of the furlough arrangements, the treatment of pay, holiday and benefits and other contractual issues. Please contact us if you would like assistance with the drafting of appropriate furlough agreements and associated communication and Q&A briefings.