Furlough scheme gets off to promising start
01 May 2020
The government’s Coronavirus Job Retention Scheme (often called the ‘furlough scheme’) has now been in operation for almost two weeks. It has been reported that two-thirds of firms have since made claims under the furlough scheme covering four million employees. Still more are expected to do so over the coming weeks. So far, the applications have gone through reasonably smoothly, with the government promising payments within six working days.
The furlough scheme is designed to prevent redundancies during this period of enforced isolation and beyond. A hugely ambitious project, it involves the State paying most of the wages of staff temporarily laid off because of the pandemic. Firms can claim direct grants of 80% of the furloughed employee’s pay up to £2,500 a month, plus the associated employer National Insurance contributions and pension contributions (up to the level of the minimum automatic enrolment employer pension contribution) on that subsidised furlough pay.
The government changed some of the rules of the scheme following its first announcement:-
• the furlough scheme was extended to cover the period up to 30 June (originally it was due to end on 31 May);
• to be eligible for a grant, the employee has to have been on payroll on or before 19 March (originally the date was 28 February), but to qualify for a grant an employer has to have made a RTI (‘real-time information’) submission to HMRC to prove the payments and that excludes most staff joining for the first time in March; and
• sick employees can be furloughed (though not to cover short absences) and their normal salary can be used to calculate furlough pay. However, there is conflicting guidance about whether, when the employee is in receipt of statutory sick pay (SSP), any current sick leave has to end first. If an employee falls sick while on furlough leave, employers can opt to pay SSP instead and can claim it back under the new coronavirus SSP scheme rules.
Interestingly, there are signs from the government that the furlough scheme may now be gradually unwound, and that there may be more flexibility post-30 June in terms of employers and the Treasury sharing the costs of employees returning to work on a part-time or short-time working basis, with partial furlough payments continuing in the background.
Since the scheme was first announced we have been advising and guiding our clients on how to take advantage of the scheme and navigate through its untested and often unclear rules. These clients come from a wide range of industries and sectors: restaurant and hospitality, retail, consultancy services, medical services, aviation, support services, recruitment, food wholesaling, energy, construction and publishing. Many would have to be implementing redundancies were it not for the scheme.
Many firms have been slow to realise that they can claim these generous furlough grants back to 1 March. A claim can even be made for staff who are re-employed, having been made redundant since that date. In that case the grant covers the period from which they were placed on furlough. And, while many businesses have closed down during this isolation period, they can claim furlough grants even if they stay open and furlough only some of their staff.
The government advice is that the furlough has to be evidenced in writing. However, a further step is necessary if employers want to avoid having to pay the remaining 20% of pay. It’s critical that, if nothing is done, employers remain liable to pay all of their employees’ contractual pay during the furlough period. Because this would be commercially very difficult, many employers seek to go further and reduce wages temporarily to 80% of normal pay. This requires a furlough agreement - essentially, a variation of the employment contract.
We have assisted many of our clients with such agreements and have been able to incorporate within them several other useful features designed to provide flexibility in the uncertain times that lie ahead.
If you wish to take advantage of the furlough scheme and require advice and assistance in relation to its many rules, or wish to conclude a furlough agreement with your staff, please contact the head of our Employment Team, Beth Baird on
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