The Coronavirus Job Retention Scheme (The Furlough Scheme), and the benefits and implications for employers

In these unprecedented times, all businesses are facing major challenges to their ongoing viability. Every day we read of well-respected names that are entering administration or “closing their doors”, even though the Government has announced huge support packages to assist the business world. In this article, I am specifically looking at one of those support schemes, the Coronavirus Job Retention Scheme (The Furlough Scheme), and the benefits and implications for employers.

What are the key features of the Furlough Scheme?

The scheme potentially takes in all employees who were on the PAYE payroll on 28 February 2020. They can be employed under different types of contract – full time, part time, zero hours etc.

The government will cover 80% of furloughed employees’ wage costs, up to a maximum of £2500 per month (plus Employer National Insurance and minimum automatic employer pension contributions). Employers may choose to top up the wages if finances permit but they do not have to. Rules provide for how the £2500 is calculated. It is a grant, not a loan and does not need to be repaid. Payments made to furloughed employees are taxable.

Employees cannot do any sort of work for their employer whilst on furlough, even for free. What they can do is training or volunteer work.

Furlough leave is for a minimum of three weeks. After that, employees can be put on a fresh period of furlough leave. Alternatively, staff can be rotated around, taking it in turns to be on a three-week furlough leave.

How to select for Furlough?

Employees need to agree to be placed on furlough. This should be confirmed in writing to them. When choosing who to place on furlough, employers do not need to demonstrate that redundancy was the only alternative. The usual employment law rules otherwise apply, so employers cannot select those to go on furlough for a discriminatory reason. Employers could consider a version of a redundancy selection exercise – ask for volunteers and then have a pooling and selection process. A fair procedure needs to be used, or run the risk of claims. If more than 20 are to be put on furlough, the employer will need to carry out collective consultation, unless it can show a ‘special circumstances’ defence.

Will annual leave accrue during Furlough leave?

Yes, although the HMRC guidance does not currently expressly deal with annual leave, it does confirm that: “Employees that have been furloughed have the same rights as they did previously”. This will presumably include entitlement to accrue annual leave in accordance with their contract.

To the extent that an employee’s contractual annual leave entitlement exceeds the minimum statutory entitlement of 5.6 weeks, it may be possible to expressly agree that the employee will ‘waive’ their enhanced entitlement in exchange for their pay being ‘topped-up’ (beyond 80%) during the period of furlough leave. So, by way of how this might work: if an employee’s contract provides for 25 days’ holiday plus 8 days’ bank holidays, then agreement could be sought to waive 5 days of this entitlement and ‘convert’ that entitlement into cash which can be then used to ‘top-up’ their furlough leave pay.

What about employees already been made redundant who you may now think could have been dealt with under the Furlough Scheme?

Employers may be able to reinstate former employees who have been made redundant since 28 February 2020. Where an employer wants to allow an employee to return, but only for a fixed period, in order to benefit from Furlough leave then it might be possible to enter into a settlement agreement preventing any future claims when the employee leaves again. This will be particularly attractive for employers if an employee will accrue two years’ service during Furlough leave and where there is likely to be a redundancy situation after Furlough leave.

Alternatives

For some employers, Furlough leave is not suitable. For example:
They might still need the employees, but for fewer hours;
They might still need the employees 100%, but cannot afford to pay them 100%;

Negotiation of reduced pay and reduced hours remains possible. If necessary, redundancy is still possible (instead of or after Furlough leave). Again, however, process and consultation will be important even where timescales are tight, and especially where there are 20 or more individuals involved.

It is worth keeping in mind that when the current restrictions are lifted and Furlough leave comes to an end, many businesses will struggle to return to a normal state immediately.

Summary

Good employment practise was important before COVID and remains still at the essence of all that businesses do whilst utilising the scheme, with the scheme providing additional flexibility during a period when the economic knock-on effects may well have a considerable impact for some time.

If you would wish to dis cuss any aspects of the above, please contact James Macdonald on 020 8891 6141 or via j.macdonald@srb.co.uk

James Macdonald