Shiva Shadi – Head of Employment – summarises furloughing with her guide for employees and employers

What is furlough?

Furlough occurs when both the employee and employer agree that the employee is unable to perform their work or the employer has no work for the employee to carry out as a result of the Coronavirus (COVID-19).

This must be a mutual decision between both the employee and employer.

Communication between employees and employers in the coming weeks will therefore be essential.

Whist some organizations have already taken steps to furlough employees many have been able to keep going with employees working at home but may need to consider the option of furloughing employees in the coming weeks.

The Coronavirus Job Retention Scheme (the Scheme)

This is a temporary scheme which is anticipated to last up to 3 months ( up to 1st June 2020) but could be extended beyond this. It has been established to encourage businesses to retain their staff given the unprecedented times we are currently experiencing.

The Scheme is to take effect from 1 March 2020 and means an employee could receive up to 80% of their wages through their employer. This is up to a maximum monthly cap of £2,500. An employee will still need to pay the appropriate income tax, National Insurance and any other deduction from their wages.

Employers will also receive the associated Employers National Insurance contributions and minimum mandatory auto-enrolment employer contributions based on the new wage limit under the scheme.

Eligibility

The Scheme will apply for any employee who has been furloughed from 1 March 2020 and was on the payroll on 19 March 2020 including:

  • Part time
  • Full time
  • Employees on agency contracts
  • Employees on flexible or zero-hour contracts.

If an employee has been made redundant after 19 March 2020, they could speak to their employer and ask if their employer is willing to re-employ them and for them to be furloughed instead.

There will however be employees who commenced new positions during the month of March 2020 that will not qualify under the Scheme. In such circumstances you should take some advice as there are alternative options that will enable employers to maintain their employees.

Employees also have the option of going back to their previous employer to see if they will agree to furlough them.

How it works?

The Scheme is open to all UK employers who have had a PAYE payroll scheme in place since 19th March 2020.

Once it has been established that the employee has been furloughed, the employer must write to the employee to confirm this. If you would like assistance for an appropriate letter, please contact our Employment Team

When the Scheme is fully functioning, employers will then need to make a claim through a portal.

The way in which the 80% figure is calculated will be dependent on whether an employee has been employed for a period of 12 months or more and whether the employee’s wage frequently varies. Discretionary bonuses and commission and non-cash payments will not be included in this calculation.

It is in the employer’s discretion if they wish to pay the employee more than the 80% that they will receive. Any additional Employer National Insurance contributions and auto enrolment pension contributions will also need to be provided by the employer.

To qualify employees will need to remain on furlough for a minimum of 3 weeks.

Role on furlough employee

Once an employee is on furlough, they will not be able to make money for their employer or provide services to their employer.

If an employee is still therefore working, albeit on an altered/reduced basis they will not be eligible for the Scheme. Employers may want to enter into consultation with employees in those circumstances in order to reach agreement on pay during the downturn. Employers must ensure that they comply with employment law when taking such steps.

An employee can, however, still be made redundant while on furlough. If they are made redundant the correct redundancy procedure must be followed.

When will this come into effect?

It is anticipated that the Scheme will be operational by the end of April 2020.

It is important to ensure that the usual employment law principles (such as redundancy, dismissal, equality, discrimination etc.) continue to be applied. If you would like to speak to our Employment team, please get in touch on 0161 832 3304 or email me: shiva.shadi@dbf-law.co.uk

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