Furlough Leave – What we currently know

Coronavirus Job Retention Scheme

1. What is Furlough Leave – Furlough leave is not a term recognised by the law, it is just a word, thereis no legal definition.

2. Applicability – All UK business are eligible (limited companies, sole traders, LLP’s, partnerships, charities). 

3. How the Scheme Works – Allows all UK businesses to access financial support to continue paying part of an employee’s salary for those employees that would have otherwise been temporary laid off and received no pay or would have been made redundant during the COVID-19crisis.

4. How to access the scheme – Employer must designate affected employees as ‘furloughed workers’, and notify their employees of this change.

5. How to implement Furlough Leave –

a. Changing the status of staff to “furloughed”remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.

b. Unless your employment contracts contain a contractual right to temporary lay-off staff (unlikely in most cases), employers will need the employees express agreement in writingthat they are going to become a furloughed worker. Unlikely to be an issue if the alternative options to furlough are no pay or redundancy (also potentially the company won’t have any money to pay the redundancy payments and therefore employee will have to sue the company in court or claim from the National Insurance Fund if company insolvent) (take at least 6 months if not more!).

c. My view is that, unless you have a contractual right to temporary lay-off staff (and there is no selection process required if there are group of employees carrying out the same role and you do not need all of them to become ‘furloughed’), you will need to offer furlough as an alternative to redundancy as part of a compulsory redundancy process. This would have to be considered as alternatives to redundancy during the consultation process.  For example:

i. Option 1: compulsory redundancy; or 

ii. Option 2: agree to send employee homebut no pay (temporary lay-off); or 

iii. Option 3: agree to become a furloughed worker and get at least 80% of salary (caped at £2,500 per month). 

6. Process for employer once employees are “furloughed workers”:

a. Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal.  HMRCwill set out further details on the information required).

b. The portal has not been set up yet, this will require fairly major programming.  HMRChave indicated this should be ready by end of April but likely to take longer.

7. What we don’t know yet:

a. Not clear whether the maximum wage can be £2,500 and workers can get 80% of that or whether employees earning up to £3,125 a month will get 80% of that which is £2,500. 

b. Not entirely clear whether the employment costs (Income Tax, Employee National Insurance contributions, Employer National Insurance Contributions, pensions etc.) are covered by the 80%/£2,500 although:

i. Guidance for employers states that “HMRC will reimburse 80% of furloughed workers wage costs up to a cap of £2,500 per month”.

ii. Guidance for employees mentions ‘all employment costs’ which should cover pension contributions, employers’ national insurance contribution and so on.

See https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-businesses-through-the-coronavirus-job-retention-scheme

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