Under the Coronavirus Job Retention Scheme, the Government has put into place emergency measures to avoid workers being laid off or face redundancies as a result of the ongoing health crisis. By making their employees furloughed and placing them on furlough leave, employers will be able to access support to help cover the wages of those who have had to stop work.
What is furlough leave?
Furlough leave is when an employee has had to stop working but remains on the payroll. Employees on furlough leave must NOT continue to work, even at home.
Designating an employee, a furloughed worker
Unless there is a lay off clause in a employee’s employment contract, their consent will be required to put them on furlough leave, and an Agreement in writing should be made. If the employee refuses furlough leave, they may be at risk of redundancy. As always, a fair process for redundancy selection must be adhered to by the employer.
Who is eligible to claim?
All employers who cannot cover the cost of wages, due to the Coronavirus, for a furloughed worker that was on the payroll on 19th March 2020, can claim 80% of their salary, up to £2,500 per month. You can be on any type of contract, including a zero-hour contract or a temporary contract.
It is not yet known whether there may be room for disputes with the HMRC over the eligibility of certain employers. For example, whether a company can afford to cover the cost of their staff’s wages; or those with healthy profit margins and cash flows.
Topping up a furloughed workers wage
While the Government have pledged to cover 80% of a worker’s wages, an employer may cover the other 20%, but this is entirely optional. It is advisable for an employer to be consistent with all employees.
How will payments work?
The scheme will pay a grant to employers through a new online system which is currently being purpose built. Employees will then be paid as normal, through payroll. As the system will take time to build, employers can look to the Coronavirus Business Interruption Loan Scheme to support cash flow in the meantime.
Furlough can be backdated from 1 March 2020. It is proposed to last for at least 3 months and may be extended, if necessary.
Frequently asked questions
An employee must be furloughed for a minimum of 3 weeks before any payments can be claimed.
Yes, National Insurance contributions and minimum automatic enrolment employer pension contributions can be claimed on top of the actual wage cost.
For full and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.
For employee’s whose salary varies, if they have been employed for a full 12 months prior to the claim you can claim for the higher of either:
- the same month’s earning from the previous year; or
- the average monthly earnings from the 2019-2020 tax year
If the employee has been employed for less than 12 months you can claim for an average of their monthly earnings since they started work.
Yes, although an employee must NOT do any work for the company while they are on furlough leave, they can undertake training courses.
Yes, an employee who works for 2 different companies (and therefore has separate employment contracts) can be put on furlough leave by one company but continue to work for another.
Yes, self-isolating employees can be furloughed, but this must be for the minimum 3 weeks.
If an employee is sick during the furlough period pay, they should switch to contractual sick pay or Statutory Sick Pay.
Provided you are on furlough and not working, any wages paid via PAYE can be claimed for. You cannot claim for any dividends.
Information, guidelines, and rules are changing rapidly, and you should seek independent confirmation before acting. The official Government web page is here, but we will keep you posted with any significant changes.
As always, if you would like to discuss anything please feel free to get in touch.