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Employment Law and the Recent Announcement on Furloughing
Following the Chancellor’s announcement on Friday 20th March 2020, the government announced plans to help pay the wages of employees not working, under the Coronavirus Job Retention Scheme, but what does this actually mean?
Under the Coronavirus Job Retention Scheme, all UK employers regardless of size or sector will be able to access support to continue paying part of their employees’ salaries for those employees that would otherwise be laid off without pay or made redundant as a result of the Coronavirus crisis. Any such employees would be “furloughed” (ie only temporarily laid off). It seems that the majority of employers and employees across the UK are counting on this scheme and are putting their hope and faith into it saving their businesses and jobs.
The government has published some guidance on this scheme, however, the available information is limited (given the speed this was announced) which leaves lots of queries and unanswered questions for both employers and employees. There will of course be further information published from the government about this scheme, however this is what we know thus far and here are some generic queries/questions we all have about it:
Under the scheme, all UK employers, regardless of size or industry, can claim a grant from HMRC to cover 80% of the wages costs of employees who are not working but kept on the payroll (”furloughed”), of up to £2,500 a calendar month for each employee. Employers can choose to top up the remaining 20% if they wish. The Government has made clear that the Scheme will run for at least 3 months from 1 March 2020, but it will be extended if necessary.
For employers to access the scheme, they will need to designate affected employees as “furloughed workers”. This has no technical meaning in UK law, and so should be taken to cover employees who would otherwise be laid off or be made redundant. The furloughed workers will still remain employees of the company but will not be allowed to work during this temporary suspension. However, they will continue to be paid through the funding from the Government's Coronavirus Job Retention Scheme.
Applications are to be made by Employers to HMRC through a dedicated portal, where employee data including names, national insurance details and pay will be submitted. HMRC will then process and pay the relevant grant to qualifying Employers. The online portal is currently being set up and they hope to have it up and running in the coming weeks.
There are so many questions surrounding this scheme from both employer and employee perspectives and the government are working hard to provide us all with answers, however as it stands current law operates and we will have to adhere to those laws until such time announcements of change are made.
One of the first questions to arise is that of consent and how easy it will be to make employees furloughed workers. Under the Coronavirus Job Retention scheme, the government has said for employers to designate affected employees as ‘furloughed workers,’ and notify employees of this change. It notes that changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation. Few contracts contain an express right to change status or lay off employees for whom the employer has no work, therefore in the majority of cases the furloughing of employees should be done by agreement between the employer and affected employee(s).
If employers go ahead and make the change with no express clause in the employment contract they potentially expose the risk of employees resigning to claim wrongful dismissal and (for those with 2 years’ qualifying service) unfair dismissal. There is also the possibility that employees could refuse to accept the change, however in practice, many employees may consider it more attractive to accept the change to become furloughed than face redundancy.
Some other questions are such as:
- Which payments will employees receive under the scheme and what is the effective salary cap?
- In regards to tax, will the employer still need to pay National Insurance Contributions? Is the £2,500 cap or gross or net?
- Is the employer obligated to make up the 20% of wages lost by staff who are paid under the Scheme?
- If employees have already been temporarily laid off, can the employer access the Scheme?
- Will employees be restricted from taking on other/new work while receiving a salary under the scheme?
- Will annual leave continue to accrue while staff remain employed?
- Can employees on maternity leave be brought into the scheme?
- When will the portal go live?
There are many more questions which remain unanswered about this scheme and the details about these we are expecting to be released in the coming weeks. It is essential that the furlough process is managed correctly to ensure employers and their employees are protected. If you require any further advice on this matter, please get in touch with our team at Giles Wilson.