Coronavirus Job Retention Scheme – Q&APosted in : Essential Guide to Employment Contracts on 25 March 2020
Under the Coronavirus Job Retention Scheme (furlough leave) scheme (“CJRS”), which was announced by the government on 20 March 2020, all UK employers, regardless of size or sector, can claim a grant from HMRC to cover 80% of the wages costs of employees who are not working but kept on the payroll (in other words, those who are furloughed), of up to £2,500 a calendar month for each employee. Employers can choose to top up the remaining 20% if they wish.
The scheme will be backdated to 1 March 2020, be open for at least three months and will be extended if necessary. HMRC are urgently working to set up the new system of reimbursement (likely via an online portal), but the government has said it hopes that the first grants should be paid within weeks.
What is a “furloughed worker”?
This is an employee who is still employed but not working for the employer. It is a term adopted for the purpose of the CJRS and does not have a specific meaning in the employment law context.
How do we designate an employee as a "furloughed worker"?
The detail is yet unclear but the guidance confirms that it is an employee who has been laid off (in the general sense, rather than the technical sense mean by employment legislation), and, note, the decision to furlough employees is still subject to existing employment law. This means that either the employer will have the contractual right to lay off the employee, or the employer and employee agree to the furlough.
Employees can and may object but since the alternative is likely to be unpaid leave, SSP or redundancy, it is likely agreement will be reached.
What employers and employees are covered
The scheme covers all employers – limited companies, LLPs, partnerships and sole traders. The scheme will apply in respect of all employees on PAYE, including those on zero-hours contracts.
What steps must employers take to put employees on furlough leave?
Employers will need to:
- Decide which employees to designate as furloughed employees.
- Notify those employees of the intended change.
- Consider whether it needs to consult with employee representatives or trade unions.
- Agree the change with the furloughed employees. Most employment contracts will not permit an employer to reduce an employee's pay, provide them with no work, and change their employment status, without agreement. However, faced with the alternatives, which are likely to be unpaid leave, lay-off, or redundancy, the majority of affected employees are likely to agree to be placed on furlough leave.
- Confirm the employees' new status in writing. Ideally, the employer should advise how long it expects furlough leave to continue, however, this may be difficult in the current climate. Employers may wish to put employees on furlough leave for an initial period, subject to review.
- Submit information to HMRC about the employees that have been furloughed and their earnings through the new online portal. We expect that HMRC will set out further details on the information required in due course.
- Ensure that the employees do not carry out any further work while they are furloughed.
What does the £2,500 cover?
The guidance issued by the government provides that the cover of 80% of each individual furloughed worker’s salary up to a cap of £2,500 covers all employment costs. The government has not yet clarified what “all employment costs” means. It may cover additional costs such as pension contributions and other benefits. It also remains to be clarified by HMRC whether £2,500 is a net or gross figure.
Are employers obliged to top up the remaining 20%?
No. The guidance on the gov.uk website is that the employer may pay the additional 20% but does not have to. Any reduction in salary is a variation of contract which will need consultation with employees. However, given the alternatives to not accepting are to be made redundant, being laid off or placed on short-time working or placed on sick leave or unpaid leave, it is likely that most employees will accept the 20% reduction.
Can an employee request their employer puts them onto furlough leave?
Yes, an employee can request this, but the employer does not have to agree. It is the employer's decision which employees to place on furlough leave, if any, and whether to place employees on furlough leave or make them redundant. However, one of the aims of the introduction of the concept of furlough leave by the government was to limit the number of redundancies that employers have to make.
What employment law issues may affect designating an employee as a "furloughed worker"?
This is likely to give rise to the same issues as laying off or placing employees on short time working. As well as these issues, there are a number of unanswered questions and we will just have to wait for some more detail to trickle through to answer some of them. Employers will need detailed advice on the other points to avoid potential claims.
Do I have to continue to make pension contributions to my furloughed employees?
As yet we do not know how the £2500 cap will be applied or if employers will be required to maintain pension contributions.
Will the scheme apply to an employee that is designated as a "furloughed worker" in say 4 weeks from now?
The scheme will initially apply to the period of 12 weeks commencing 1 March, however, the UK Chancellor stated that it would be extended if necessary.
What about employees who have already been given notice of redundancy or placed on unpaid leave before furlough leave was announced?
Given that the scheme will be backdated to 1 March 2020 once in force, in theory it would be possible for an employer to propose furlough leave to employees who are still employed but have been given notice of their future redundancy. There may be further guidance on this point in due course. This scenario is however different to the scenario where an employee’s employment has been terminated already for redundancy.
Can an employer be liable for discrimination in relation to the employees chosen to be furloughed?
If there is a choice to make over which employees should be furloughed then this decision should be treated like a redundancy process – there should be an object and fair selection process and employees would ideally be consulted, prior to any decision. Any decision taken on the basis of a protected characteristic (age, gender disability etc) will be discrimination in the usual way.
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The information in this article is provided as part of Legal-Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article.