On Friday 20 March, the Chancellor announced a package of “temporary, timely and targeted measures to support public services, people and businesses through this period of disruption caused by COVID-19” including the Coronavirus Job Retention Scheme. The full details of the scheme are not yet available but we look below at what we know so far.
Coronavirus Job Retention Scheme
The headline is that “all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis”.
The job retention scheme will pay 80% of all employee’ wages, up to a cap of £2,500 per month. You can choose to fund the differences between this payment and an employee’s full salary, but you do not have to. Employees on reduced income in these circumstances may also be eligible for other support including Universal Credit. It seems that this £2,500 will be subject to tax and NI in the usual way but this may be subject to future announcements.
The Government guidance on the Scheme was updated on 22 March and there will be further details in due course. Although many questions remain about the Scheme, the announcement is very much welcomed.
Accessing the scheme
- Designate affected employees as ‘furloughed workers’. ‘Furloughed’ is not a technical term used in HR/employment law but we take it to mean that you are in a position where you cannot provide any work for the employee. The Government uses the term ‘laid off’ and by this we think it is likely that they mean the employee is either facing lay-off or redundancy. Based on the guidance that is currently available, our view is that an employee who is on short-time working could not be designated as a furloughed worker, because furlough assumes that the employee will not do any work for the employer. It is not clear, however, whether you could designate an employee as a furloughed worker if the business could continue to provide some work to the employee – perhaps, for example, by introducing short-time working, with a resulting pay reduction. (Note that the Government refers to the scheme applying to affected ‘employees’; this term is not defined, but the use of the term ‘employee’ would normally mean that it is only employees, not workers, who are covered.)
- Notify the employee of the change. Employers will not have a contractual right, express or implied, to introduce this change to terms and conditions of employment given that it’s a new concept. Employees’ consent to the introduction of furlough leave would therefore be needed and employers should consult affected employees and/or their appropriate representatives. It seems overwhelmingly likely, however, that employees will consent given that the alternative would be redundancy.
- Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. The portal is unlikely to be ready until the end of April, which will mean that any payments via the portal will not be available until it is operational either. Businesses that cannot survive until then could access the Coronavirus Business Interruption Loan Scheme (CBILS), which is offering loans of up to £5 million for SMEs through the British Business Bank, or the COVID-19 Corporate Financing Facility. The CBILS is now open for applications; details are available here.
Employment status during furlough leave
The Coronavirus Job Retention Scheme is intended to run for at least 3 months from 1 March 2020, but the Government said that it will extend it if necessary. No announcement has been made about employees’ rights to return to work at the end the period of absence.
We would expect that an employee on furlough leave would be able to work for a second employer during the furlough period, provided they had permission from the first employer. Whether this would affect their furlough payment entitlement from the first employer is unclear.
Terms and conditions during furlough leave
It is currently unclear which terms and conditions of employment remain during furlough leave. The Government guidance states that “changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.”
Accordingly, unless the Government chooses to make changes to the operation of statutory rights, or the definitions of pay and absence during furlough leave, we assume that all statutory and contractual employment rights will continue during furlough leave, e.g. statutory and contractual holiday will continue to accrue. However, we think it may be possible for employers to agree changes to contractual benefits when they seek employees’ agreement to furlough leave.
How furlough leave will affect pensions is unclear. Employers will need to consider what their contracts say about pensions, the pension scheme rules and any future Government guidance on the interaction between furlough leave and auto-enrolment obligations.
Another issue that is not currently clear is whether an employee on furlough leave can/should switch to other types of leave. For example:
- if an employee on furlough leave becomes sick, should the employer treat them as being on sick leave (with consequent changes to their pay)?
- if an employer wants to require employees on furlough leave to take holiday, can they do so by giving notice in the normal way and what impact will this have on the employees’ pay?
Can an employer ‘furlough’ those who need to self-isolate, or who are unable to attend work due to childcare needs?
The Coronavirus Job Retention Scheme is stated to be available if the employer cannot cover staff costs due to COVID-19 and is facing the prospect of redundancies. It is not yet clear whether an employer could ‘select’ an employee to be furloughed where they are unable to attend work, for example, because they are a vulnerable person who is being advised to self-isolate for a prolonged period, or because they cannot attend work due to childcare needs.
In such cases, although their role may not be redundant and the employer may have work for them to do, it is still the case that they cannot attend work due to COVID-19. It seems, in these circumstances, that employees will be financially better off if their employer can designate them as a ‘furloughed employee’, entitling them to 80% of their pay up to £2,500 rather than SSP (or possibly no pay at all) which would otherwise be payable. Will employers be able to make this choice?
What about employees who have already left the business?
Some businesses have already had to make the difficult decision to let go some of their staff. What should they do now? Although it is difficult to say what these employers should do, given that the Scheme is backdated to 1 March you could contact those employees and designate them as furloughed workers. This could involve putting them back on the payroll and ‘unpicking’ any termination payment arrangements. There are also issues to consider about what contractual terms you will take them back on (e.g. their old contract, or new terms?) and what the status of these employees would be when furlough leave comes to an end.
What about those employees already in receipt of Statutory Guarantee Payments?
We need further guidance on this point as it is unclear whether a day which has been treated as lay-off, in respect of which statutory guarantee pay has been paid, can be converted into a period of furlough.
Other measures announced by the Chancellor
In addition to the Coronavirus Job Retention Scheme, the other measures that the Chancellor has announced over recent days include:
- deferring VAT and Income Tax payments
- a Statutory Sick Pay relief package for SMEs
- a 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England
- small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
- grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
- the Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank
- a new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans
- the HMRC Time To Pay Scheme.
How we can help
We will also continue to update our FAQs on issues affecting members which arise from the COVID-19 outbreak.
Webinar COVID-19: Employment law considerations
Wednesday 25th March 2pm
Join this live webinar to understand the key employment law considerations facing employers and their workers.
Our policy experts will guide you through the new measures including the job retention scheme, the process, eligibility and what it means for you. Along with the new rules on SSP and childcare for key workers. This webinar will cover all the information available to date.
Register for the webinar here