On Friday 20th March 2020 the Chancellor Rishi Sunak announced a welcome measure for employers who are unable to pay staff.
In order to avoid redundancies and encourage employers to keep staff on the payroll the government will pay 80% of wages (up to a maximum of £2,500 per month) for employees who are temporarily laid off with no work.
Many employers and business owners I have been speaking to have been working hard to find ways to keep as many staff as possible in employment and pay during this time. No one wanted to make redundancies or put staff on unpaid leave and therefore the news that businesses can keep staff on the books and in pay up, to 80% (100% if employers want and are able to pay the difference) is a huge relief.
The scheme is open to all UK employers who have a PAYE payroll system on the 28th February 2020.
This means that if you started your business or took on your first employee after the 28th February 2020 you cannot access the scheme and would need to look at what other funding and options are available to you.
HMRC have released more information about the scheme and how it will work so I have set out answers to some of the frequently asked questions.
If you have any other questions please let me know: [email protected] or for a free initial telephone call contact the office on 01983 897003, 023 8098 2006, 01722 653001 or 020 3470 0007.
Frequently Asked Questions
1. Will the payments be calculated on gross or net pay?
You will pay employees in the normal way through the payroll and then you will recover up to 80% of usual monthly wage costs from HMRC (capped at £2,500 per month). This includes Employer NI contributions and minimum automatic enrolment pension contributions.
So if you decide that you can pay staff the additional 20% then you pay as normal and recover 80% from HMRC.
2. Will you be able to furlough some employees now and some later on?
Yes, you do not have to furlough everyone and you can keep some employees on to undertake work.
If things change and you need to furlough later on you will be able to do so.
You need to keep records of who has been furloughed and when. I recommend you set up a spreadsheet in the interim and keep a copy of the letters you issue to staff to inform them of the furlough period as this will form your evidence if you need it for HMRC.
The minimum length of time that an employee can be furloughed is 3 weeks.
3. I have made an offer to someone who is due to start employment with me on the 1st May 2020 I will not be able to afford to employ them and there is no work for them but they have given notice to their current employer what do I do?
You cannot furlough and claim for employees who start work or are due to start work for you after the 28th February 2020.
You have a couple of options with new starters if you have no work for them and/or cannot afford to pay them at this time:
a) agree a delayed start date with them;
b) agree to pay them a retainer i.e. an amount less than their normal pay;
c) agree for them to start but lay-off on unpaid leave.
In the circumstances the employee may be able to agree to extend their notice period with their current employer who could furlough them and recover 80% of pay. If they are on the employer’s payroll system then they will be able to claim and repay.
There is of course no obligation on an outgoing employer to agree an extension of notice or to keep the employee on.
If you are going to withdraw an offer of employment or delay the start date it is important to check the offer letter and any contract issued to ensure that you are not at risk of a breach of contract or claim for notice pay. If you are in this situation you should seek specific advice about your situation.
4. Do I need to close the business to access the scheme?
No you can remain open and operating but furlough some staff only.
Many businesses will need to keep some staff on to keep the business ticking over.
In small businesses it will probably be the Directors who kept working and not furloughed. Directors are only eligible to reclaim earnings from their salary as put through the PAYE system and not dividends under the furlough scheme.
5. I need some staff to stay on and work how can I decide which staff stay on and which are furloughed?
This is a tricky one and you need to be approach with caution to avoid:
b) Resentment among staff
c) A general feeling of unfairness
The simplest way to start is to identify which departments or particular areas of the business are critical and those where you can make cut backs and then ask for volunteers from that group.
If everyone volunteers then the fairest way is to come up with a selection criteria of sorts and apply this. We have created an example criteria to give you some ideas about what to do and it is included in our Furlough Support Package which you can download HERE for £50 plus VAT.
You may also decide to incentivise or reward those staff who are remaining at work by offering:
- Extra pay for example by giving them an enhanced hourly rate for the hours they are working;
- Reduce their hours of work but keep pay the same;
- Offer a bonus payment in the future to reward them for their work;
- Give them additional holiday to be taken in future when the business is back to normal.
6. If someone becomes sick or is in self-isolation during the time they are furloughed do I switch them to statutory sick pay?
The HRMC guidance says that employees on sick leave or self-isolating should get SSP and can then be furloughed after this. It does not say what happens if they are sick half way through the furlough period.
I suspect that once employees are furloughed they are not going to tell you they are sick unless it impacts their return to work. This is especially the case if they think it could impact their pay, so it is probably not going to arise.
If it does happen then seek specific advice at that time.
7. If someone was going to leave anyway what do I have to do? They have given notice and are due to leave, can I furlough them?
As above you can if you wish to keep them on as your employee and furlough them, noting of course that you have to pay them and recover the money later on.
If you do not want to keep them on after the agreed termination date then you do not have to do so and the employment relationship will end in the same way as it would have before the job retention scheme was introduced.
8. What do I do if they have booked holiday during the furlough period?
The holiday would proceed as normal and it is advisable to pay the employee full pay for this period (unless you agree otherwise with the employee).
You can however agree for the employee to cancel their holiday and take it at a later date if you wish.
Subject to the terms of your employment contracts you can also give notice to employees to take holiday during this furlough period. If it is not covered by your employment contracts you would need to give double the amount of the holiday time as notice. i.e. if you want them to take 1 week you would need to give 2 weeks notice before the holiday starts.
9. Does an employee who has been furloughed continue to accrue holiday during this period of no work?
Yes they continue to accrue holiday and their normal rights apply.
10. Can I still make redundancies in the time someone is furloughed?
Yes if you need to make reductions the normal redundancy rules and procedures apply.
11. I cannot afford to top up the wages to 100% will this cause any problems for me?
Only in so far as employees object to the reduction in pay they could:
- Make a claim for their loss as a result of the breach of contract.
- Claim unlawful deductions from wages.
- Resign and make a claim for constructive unfair dismissal (if they have been employed for 2 years or more).
Given the extraordinary circumstances we all find ourselves in it is low risk but is still possible.
My view is that you need to weigh the commercial risk v legal risk and in the current situation if paying the additional 20% means that you are likely to go out of business or be unable to pay anyway you are better to take the legal risk.
The way to reduce the risk is to communicate with staff and explain the reason you are doing this. If they understand that it is to keep jobs and to ensure the business is sustainable in future then they are less likely to object.
12. If I have some work in the furlough time, for example if a contract comes in and I need some staff temporarily, can I bring them back to do some work and then furlough them again?
This is not entirely clear from the guidance. If they are furloughed it must be for a minimum of 3 weeks, but after 3 weeks it is not clear if they can come back and do some work and then be furloughed again.
13. Can an employee do any work for me in the furlough time?
No they must not undertake any work during the furlough period.
14. Can an employee work for someone else when they are furloughed?
They cannot start a new job and continue to be furloughed. If they have another job already then they can continue in that job, or be furloughed by both employers.
15. Do I have to pay pension contributions during the furlough period?
Employer contributions must still be paid in the normal way, but this can be included in the claim to HMRC.
The guidance states: ‘You can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying wages.’
Employee’s can of course opt out of the pension if they wish during this time in the normal way.
16. Do my employees retain company benefits during the furlough period for example company car and/or private healthcare?
All normal contractual benefits would remain in place and I would not advise you to remove them, unless of course you need to do so in order to make cuts to overheads, and then this is best done by agreement with employees.
17. Will I have to pay my employees and claim it back or will it be paid directly from HMRC to the employee?
You will need to pay the employees and then make a claim to recover the money from HMRC. This is where having sufficient cash flow to pay in the interim is very important.
You can access some of the other support and funding available for this reason. https://www.businesssupport.gov.uk/coronavirus-business-advice/
18. Should I suspend the disciplinary and/or grievance procedure and investigations if an employee is furloughed?
You can continue with these processes in the furlough period if you wish but it may be difficult given social distancing.
If you decide to place them on hold make sure you communicate this clearly to the employees involved.
Again you may wish to get specific advice about the particular situation before making a decision.
19. Do I need to extend an employees probation period if they are being furloughed?
This may be advisable and you would do this by notifying the employee and confirming in writing.
You will need to ensure that appropriate mechanisms and processes are in place when they return to work to pick up and perhaps retrain or refresh with them.
20. What happens with employees on maternity, adoption or parental leave?
They remain on leave as normal and the same rules regarding leave and pay apply.
If they give notice to return from leave and you need to furlough them then they would be furloughed in the same way as others.
21. How can I or should I stay in touch with employees who are furloughed?
It is important to maintain regular contact with employees during this time and therefore try to agree the best method of communication.
As long as they are not undertaking any work there is no reason why you cannot have a call or email with them to catch up.
22. An employee has asked to be furloughed rather than take unpaid parental leave (as they have to stay home to care for their children) can I agree to this?
Again this is not specifically covered in the guidance but it would seem to me that you can furlough employees if you wish (it is a decision for your business) and therefore in a scenario such as this you would be able to designate them as furloughed and include them in a claim to HMRC.
23. An employee has asked to be furloughed because they are worried about the risk to them and their family of the coronavirus, can we do this?
Yes if you agree then there seems to be no reason why you cannot do this.
The HMRC guidance says that if an employee is ‘shielding in line with public health guidance’ they can be placed on furlough.
24. If someone is due to go on maternity leave can they be furloughed?
Only until their normal maternity leave would start. Employees must take a minimum of 2 weeks off work (4 weeks if they work in a factory or workshop) immediately after giving birth. After this they can give notice to return to work and could then be furloughed.
It is unlikely that an employee would wish to do this and bring their maternity leave to an end early just to benefit from the furlough scheme as once things are back up and running they would have to return to work and could not ‘start up’ again with the maternity leave.
25. Are we able to have a rolling program for furloughed staff depending on the requirements of the business? On the shop floor, staff build different products depending on the orders coming in, if orders reduce can we have some staff in for two weeks then furlough them, then have them back when the next order comes in (in the area they build in) and so on? Or do we have to select some staff to furlough for the entire duration?
The minimum duration of furlough period is 3 weeks. What is not entirely clear is if you can bring them back and then furlough again.
In this scenario it would seem sensible as the purpose of the scheme is to retain jobs and keep businesses going and viable.
Until HMRC clarify this point I cannot however say for certain.
26. Can we claim anything for the two employees we have on maternity?
Small businesses can normally recover statutory maternity pay anyway.
If you pay enhanced (earnings related) maternity pay then the HMRC guidance states that ‘this is included as wage costs that you can claim through the scheme.’
27. Are there any other rules for apprentices or do the same apply?
The same rules in terms of pay and furlough apply to apprentices. However in terms of your contractual obligation to them and how you deal with the break in their training will depend on what you contract with them states.
You may also be able to seek some guidance on how best to deal with apprentices training and picking it back up again from the training provider.
28. How does this affect zero hours and people who work irregular hours, will it be calculated on a 12 week average?
The method for calculating pay for those whose pay varies is set out on the HMRC site as:
‘If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either:
- the same month’s earning from the previous year
- average monthly earnings from the 2019-20 tax year
If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.’
29. This monthly wage that will come from HMRC, up to 80% of monthly wage, will employers have to pay HMRC back these wages later when this is all over?
There is no provision for paying it back in the future, it is clear that this is a grant.
Unless of course HMRC retrospectively audit the claim and determine you have been overpaid or your claim is out of the scheme rules, then they could seek to recover what has been overpaid to you.
30. Do you have to identify all employees at the same time or can you stage them? For example we might identify half of each department like installers, sales but then depending on business need to then add some of customer services and more sales and installers?
No, from the guidance you can furlough some now and some in future if you need to. As long as they are furloughed for a minimum of 3 weeks.
31. What happens about the National Minimum Wage?
The guidance from HMRC states:
‘Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working.
Therefore, furloughed workers, who are not working, must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.
However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.’
ACAS guidance: https://www.acas.org.uk/coronavirus
Support from the RELA Team
- Letter/notice to all staff asking for volunteers and notifying staff of proposal.
- Example Selection criteria form.
- Letter notifying staff that they are being furloughed – agreement included within.
- Letter notifying staff that they are being furloughed – agreement separate.
- Furlough agreement.
- FAQ’s sheet to issue to employees.
- Spreadsheet to record furlough details.
You can purchase the documents here: HERE
Business Support from a Solicitor: For a fixed fee of £250 plus VAT we can provide:
- Review of your employment contracts to check relevant applicable clauses that may assist in your decision making.
- Providing advice on options available at this time in respect of staff during the current situation including:
- Reducing hours
- Up to 1-hour of telephone calls to discuss and answer questions.
- Template letter depending on your choice of action.
- FAQ’s document for furloughed employees.
- Automatic updates when available of if there are changes to the scheme.
For more information or to access these offers for employers please contact us on 01983 897003 or by email: [email protected]
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The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.
The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.
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If you have any questions or would like to stay up to date, please contact us.
Alison Colley at Real Employment Law Advice.
Phone: 023 8098 2006 Email: [email protected]
Albert Bargery at Real Employment Law Advice
Phone: 01983 897003 Email: [email protected]
Miranda Amos at Real Employment Law Advice
Phone: 01722 653001 Email: [email protected]