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April 28, 2020
Four Key Questions about Furlough Leave
As employers use the COVID-19 Job Retention Scheme and put their employees on furlough leave, more and more questions arise. We’ve already shared some helpful FAQs to help you with implementing the Scheme. Plus, we have a COVID-19 Chat Bot that can answer your questions directly.
To further help you, in this blog post we’ll delve into what’s known so far and provide an insight into the four key areas we’re currently advising our customers on.
What is it and who does it apply to?
The Scheme (currently available until the end of June 2020) will allow all UK employers to access financial support to continue paying part of their Employees and Workers’ wages for those that would have otherwise been laid off, placed on short-time working or made redundant during the COVID-19 outbreak.
All UK employers includes limited companies, sole traders, LLP’s, partnerships, charities and recruitment agencies (agency workers paid through PAYE) who had created and started a PAYE payroll scheme on 28 February 2020 and have a UK bank account.
“Employees” needed to have been employed on or before 28 February 2020, paid via PAYE and can be on any type of employment contract including; full-time, part-time, agency contracts and flexible or zero hour contracts.
“Workers” needed to have been engaged on or before 28 February 2020, and for this category, there are different types of Worker to consider which we have listed below along with our view against each here:
Agency workers engaged under the Swedish Derogation who are not now working and would otherwise be laid off due to the coronavirus emergency are within the scope of the COVID-19 Job Retention Scheme. Workers whose hours have merely been reduced will not qualify.
PAYE workers engaged via staffing companies and paid under the PAYE regime. The suggestion is that anyone paid under PAYE will be covered. The proposals do, however, raise the question of how a staffing company would ensure that furloughed agency workers do not do paid work elsewhere during the furlough period. The COVID-19 Job Retention Scheme is only available for agency workers who are not working elsewhere.
Umbrella workers paid under the PAYE regime are within the scope of the COVID-19 Job Retention Scheme on the basis that they are “employment businesses” (which appears to draw them into the Conduct of Employment Agencies and Employment Businesses Regulations regime). Note that the umbrellas will not be able to deduct any administration fee etc. from the furlough payment.
PSC contractors inside IR35 probably are within the scope of the COVID-19 Job Retention Scheme, subject to a director being able to furlough themselves and being prepared to close their business. We recommend you check with HRMC.
PSC contractors outside IR35 are possibly within the scope of the COVID-19 Job Retention Scheme in respect of any employed earnings declared, but this may be a negligible amount (assuming dividend income will not be included in the calculations). We recommend you check with HMRC.
Note that individuals need to have been on payroll on 28 February 2020 to qualify under the scheme.
For “Self-Employed Sub Contractors” the government have announced separate provisions under the coronavirus (COVID-19) Self-employment Income Support Scheme. This blog focuses on the Employee and Worker categories described above.
How does my business get access to the COVID-19 Job Retention Scheme?
For those colleagues who are within the scope of the COVID-19 Job Retention Scheme, they first need to be formally (and temporarily) designated as a “Furloughed Worker” in writing. The “Furloughed Worker” term was created by the Government to describe those workers who are part of the COVID-19 Job Retention Scheme. For more information on this, check out our furlough meaning blog post.
If you have a recognised trade union or employee consultation group, do check the terms of any collective agreements that are in place. Trade unions were involved in creating the scheme and therefore are likely to be broadly supportive.
The process of temporarily designating Employees/Workers as a Furloughed Worker may need to be subject to “meaningful consultation” if you do not have a contractual clause that allows for the “right to remove work” i.e. a contractual right that states you are able to vary the existing terms and conditions simply by notifying the Employees/Workers.
If you do not have this contractual right, you should talk to your Employees/Workers and gain their verbal and written agreement. In the context that other options may be lay off, short time working or even redundancy, it is highly probable that most (if not all) Employees/Workers will agree to being furloughed. The key areas to cover in seeking your workers’ agreement are:
What change you are proposing
Why you are proposing to make that change
When that change will take effect
Who is likely to be affected by that change and for how long that change will be in place
If you currently have Employees/Workers laid off, placed on short time working or have been issued with notice of redundancy, we would encourage you to engage your Employees/Workers as soon as possible to either notify them they are now designated as a Furloughed Worker, or begin meaningful consultation with a view to agreeing in writing that they move to being designated a Furloughed Worker. Employees/Workers who were employed on the 28 February 2020 and were dismissed or resigned on or after the 29 February 2020 are able to be re-engaged and then Furloughed, however we would recommend you seek advice before doing so.
The important thing to bear in mind is when Employees/Workers have been designated as a Furlough Worker, they are not able to perform any work for you, they are either Furloughed undertaking no working duties, or not. They can take part in volunteer work or training again as long as they are not providing services or generating revenue.
Employees/Workers who are working on reduced hours and for reduced pay will not be eligible for the COVID-19 Job Retention Scheme and you should continue paying them through your payroll as normal under the terms of their contract.
When your Employees/Workers have been designated as a Furlough Worker, you must apply for the Government grant via the HMRC. The online service you’ll use to claim along with details of what you’ll need to make a claim is now available here. You will need to make any payments yourself, submit your claim and then be reimbursed. You will only be able to submit one claim every 3 weeks and claims can be backdated to 1 March 2020.
What is covered and how much can I claim?
You can claim a grant from HMRC to cover the wages of an Employee/Worker equal to the lower of 80% of their regular pay, or £2,500 per month, plus associated Employer National Insurance Contributions (NICs) and minimum Automatic Enrolment employer contributions. Fees, commission and bonuses should not be included in the grant claim. The HMRC have yet to issue guidance on the calculation for Employers NICs and minimum Automatic Enrolment employer contributions and as soon as they do, we will update this blog and our Job Retention Scheme FAQs blog.
Employers can top up a Furloughed Workers’ pay, but any additional top up is not funded through this scheme, therefore no employer can claim for Employer NIC’s or Employer Auto Enrolment contribution top ups. Nor can any voluntary Automatic Enrolment contributions above the minimum mandatory employer contribution of 3% above the lower qualifying earnings limit set at £512 per month until 6 April where it rises to £520 a month.
For full and part-time employees, the actual salary before tax on the 28 February 2020 should be used to calculate the 80%, this should not include fees, commissions or bonuses.
For Employees/Workers whose pay varies through zero or irregular hour contracts, then an average pay calculation is required.
If the Employee/Worker has worked for you over 12 months, you can use either the same month last year or the average monthly earnings in the 2019 – 2020 tax year to calculate the 80%.
If the Employee/Worker has been employed less than 12 months then you must use an average monthly earning from their start date.
If the Employee/Worker started in February 2020 (on or before the 28), use a pro-rata calculation for their earnings.
Employees will be liable to Tax, National Insurance Contributions and Auto Enrolment pension contributions, except where they have opted out of auto enrolment. For clarity and audit purposes, we would recommend having a furloughed pay code on any payslip, with hours set to zero.
If after payment and the relevant reimbursement of the grant a business finds it has over paid wages, a payroll correction is possible in the following period. For example, an over-payment in March payroll can be adjusted in April payroll. This would ensure that employees receive the correct furlough payment over the 2-month period and as such your claim to HMRC would be accurate.
For sickness the normal rules in relation to incapacity for work will apply for Employees/Workers. Isolation or fit notes are now able to be obtained from NHS 111 online. If an Employees/Worker who has not been furloughed provides you with that isolation note, then they should move onto SSP, which is payable from day 1. Employees/Workers who are furloughed and report sick do not qualify for SSP, they would need to remain on Furlough pay.
Based on the known advice and payments now available under the Job Retention Scheme, practically speaking it is unlikely a Furloughed Worker will advise you of their requirement to self-isolate or even if they become sick.
Employees/Workers contractual rights including holidays (accrual and pay) continue as normal. The Government have since updated their guidance to state that it is possible for Employees/Workers to take holidays whilst on Furlough leave.
Employers do have flexibility to restrict when leave can be taken if there is a business need. However, whether an Employer can require a Furloughed Worker to take holidays, it is important to say it is unclear at present as the current Employer’s guidance is silent on this point. When that is known the answer to this question may or may not change. However, in normal circumstances and subject to Company policy, an employer can do this by giving the Employees/Worker notice of holiday must be given twice as many days in advance of the earliest day specified in the notice as the number of days to which the notice relates. For example, if the Employer requires the Employees/Worker to take one week’s annual leave, it must give the Employees/Worker at least two weeks’ advance notice.
It is possible to agree to vary holiday entitlement as part of the furlough agreement and the Government previously introduced a temporary measure in relation to holiday accrual so that Employees/Workers can carry over up to 4 weeks’ paid holiday over a 2-year period if they cannot take holiday due to coronavirus.
Holiday pay should be paid at 100% of an Employees/Worker’s normal holiday pay and reclaim 80% under the government grant for those workers who have been Furloughed. For calculating the normal rate of pay where the pay varies, the Employers’ guidance is aligned to the Working Time Regulations which requires it to be calculated on the basis of the average pay received by the employee in the previous 52 working weeks.
If an Employees/Worker usually works bank holidays, then the Employer can agree that this is included in the grant payment. If the Employees/Workers usually takes the bank holiday as leave then the employer would either have to top up their usual holiday pay to 100% normal rate of pay, or give the Employees/Worker a day of holiday in lieu (paid at 100% normal rate of pay).
We recommend that Employers avoid approving any un-accrued holiday for an Employees/Workers (or any final payment than might need to be made upon termination, such as for redundancy) so that an Employer is not in a position of having to recover overpaid holiday entitlement post termination.
If your Employees/Worker has more than one employer they can be Furloughed for each job. Each job is treated as separate and the cap applies to each individual employer. In practical terms this means an employee can be furloughed in one job whilst still working in the other job. It is important to know Employees/Workers can start a new job when on furlough (meaning they might end up earning 80% of the old salary and 100% of a new one). The guidance expressly allows for this and does say it has to be allowed under the old employment contract, but we presume the old employer can waive that.
Employees/Workers who are on paternity/adoption/maternity leave should be paid the appropriate (statutory and/or contractual) rates of paternity pay, adoption pay, maternity pay or maternity allowance initially, with the employer recovering as above following the initial payment.
An Employees/Worker training while Furloughed must be paid at least the National Minimum Wage /National Living Wage whilst training, recovering as above following the initial payment.
If an Employer is struggling to pay Employees/Workers whilst waiting for the grant, we would recommend you visit here for more details of support available to businesses during this time.
What happens when we need to end Furlough?
The minimum amount of time an Employees/Worker can be Furloughed is 3 weeks. In practical terms this means if you have work to be completed, we would recommend assessing how many Employees/Workers you might need to perform that work and if possible, look to rotate employees off Furlough status in minimum blocks of 1 week (note 1 week isn’t currently a legal requirement) at a time for operational and employee engagement purposes. If you need to return an Employees/Worker to Furlough status, that should follow the guidance above and be for a minimum period of 3 weeks. It is important that when selecting Employees/Workers those are based on furthering the operational needs of the business only. We would encourage you to seek advice around your selection method before it is deployed.
To designate an Employee/Worker as a Furlough Worker, you either need the contractual ability to impose this temporary designation, or engage in meaningful consultation and secure their written agreement for it
Employees/Workers are either Furloughed (so not working at all for a minimum of three weeks) or not
You can claim a grant from HMRC (details to follow) to cover the wages of a Furloughed Worker equal to the lower of 80% of their regular salary, or £2,500 per month, plus the associated Employer National Insurance Contributions (NICs) and minimum Automatic Enrolment employer contributions. Fees, commission and bonuses should not be included in the grant claim
Payroll adjustments for FY19/20 and actioned in FY20/21 are possible
We would recommend having a furloughed pay code on any payslip, with hours set to zero for clarity and audit purposes
Pay associated with booked and approved holidays, sickness, paternity/maternity/adoption should be (where entitled) paid at the current (statutory and/or contractual) rates
If your Employee/Worker has more than one employer, they can be furloughed for each job. Each job is treated as separate and the cap applies to each individual employer
Employees/Workers can return from Furlough Worker status after a minimum 3-week period of being Furloughed and having performed work (which must be paid at 100% of their normal/contractual earnings), can be rotated back onto Furlough Worker status for a further minimum 3-week period
If an employer is struggling to pay Employees/Workers whilst waiting for the grant, we would recommend you visit here for more details of support available to businesses during this time
Got questions? Try out our COVID-19 Live Chat facility here.
*On Tuesday 12 May 2020, Chancellor Rishi Sunak announced his long-awaited plan for the future of the Job Retention Scheme – ‘furlough’. To the surprise of many who were expecting a reduction in the level of support, the scheme has been further extended to the end of July 2020 in its current form. It will then continue until October with amendments. Details are still awaited – and indeed are still being worked out – but we do know that employers will be expected to share the costs from August onwards. It’s also widely expected that the later stages of the scheme will support employers to transition furloughed workers back into the workplace. The current scheme is for ‘full time’ furlough only, and businesses gradually picking up at the end of the summer will welcome the opportunity to increase working hours gradually while still having support for pay costs.*
Keep checking back to the Knowledge Centre for the latest updates.
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Ask Moorepay for expert advice on all things payroll and HR.
Andrew has a wealth of experience in advising and representing clients of all shapes and sizes in a range of Employment Law topics from unfair dismissal through to all forms of discrimination and the complexities of TUPE. Andrew heads up our Advice Line and Advocacy teams who provide Employment Law advice to our clients 24 hours a day, 365 days a year and support our clients in presenting defences at Employment Tribunals throughout the UK & Ireland.