NOTE: For more current guidance, please review an updated version of this article dated April 21, 2020, which is available here. 

On March 20, 2020, Chancellor Rishi Sunak announced an unprecedented package of measures to help workers and employers in the UK, including a Coronavirus Job Retention Scheme. This article summarises the grant, which is available to all UK employers, based on the most current information.

Q2:      Can an employee work for another employer during furlough, or get a new job?

This issue is addressed in the most recent guidance update.

Yes, provided the other employer is not related to the furloughed employer. If the employee gets a new job, the employee can start work for the new employer (again, provided the new employer is unrelated to the “furlough” employer). This will not affect the first employer’s entitlement to receive funding from the scheme.

Q3:      How is the monthly wage calculated?

For salaried employees (full-time or part-time), the government’s employer guidance is that the monthly wage is calculated by reference to the employee’s before-tax “salary” as of February 28, 2020. In a separate part of the guidance, the government states that “salary” for these purposes includes compulsory payments to employees beyond just basic salary (see more information, below, in a separate FAQ).

For employees with variable incomes, including “zero-hour” employees, the situation is more complicated. For employees with variable incomes who have been employed for a full year, employers will be able to claim the higher of either:

• the amount the employee earned in the same month in 2019; or
• an average of their monthly earnings from the last 12 months.

For employees with variable incomes who have been employed for less than a year, employers will be able to claim for an average of the regular monthly wages since they started work.

For employees with variable incomes who only started work in February 2020, the wages will need to be pro-rated from that month.

Warning: The government’s employer guidance and its employee guidance are not consistent on this issue. In the employee guidance, there is no reference to assessing salaried employees on the basis of their before-tax salary as of February 28; this guidance refers only to the averaging formula. For purposes of this article, we are following the employer guidance on this issue but some measure of uncertainty remains.

Q4:      What payments to employees does their monthly wage cover?

The latest guidance has amended the rules such that an employer can claim for any “regular” payments it is obliged to pay its employees. This figure includes wages, past overtime, compulsory fees and compulsory commission payments. However, discretionary bonuses (including tips), commission payments, and non-cash payments or benefits-in-kind should be excluded.

Q5:      What about pension and other benefits?

Employers have a statutory obligation to automatically enroll employees in a workplace pension, and there are no powers in place to vary that obligation. Presumably, employers should continue to make these payments.

According to the government, the scheme will cover the minimum pension contribution under the auto-enrollment rules. In other words, the scheme will include 3% of the employee’s qualifying earnings based on their furlough payment of up to £2,500 per calendar month.

Employees continue to be entitled to all their other benefit rights under their employment contracts unless they are varied – so employees will be entitled to bonus, commission, healthcare, etc.

Varying these rights may or may not require consent depending on the terms of the employment contract. Employees who are furloughed may agree to forgo these benefits.

Q6:      What about holiday accrual, taking holidays and holiday pay?

The legal position on holidays and furlough is complicated and remains unclear.

Many lawyers are expressing different (and often competing) views, and employers should proceed with care. If this issue is likely to be significant for your business, please discuss your specific business needs with your employment law adviser.

There are various related questions:

• Does holiday continue to accrue during a furlough? The general consensus to date is that the answer is yes for statutory holiday entitlement accrual. It will also normally be yes for extra holiday entitlement provided by employers (i.e., in excess of the statutory minimum), unless the employee’s furlough agreement/letter specifically provides to the contrary.

• Is an employee allowed to take a holiday during furlough or is this legally prohibited? The answer likely is yes, however: (1) the employer may not be able to force the employee to take a holiday; and (2) it may mean the employer cannot claim under the government’s furlough scheme (see below).

• Can an employer force an employee to take holiday during furlough? There simply is no clear answer at this time.

• Does taking a holiday break the Government’s furlough scheme “3 week” rule (and mean the employer cannot claim for reimbursement under the scheme)? HMRC has not said anything conclusive about this issue yet, however in very recent tweets it has indicated that if a furloughed employee takes a holiday day, including a bank holiday, it will not break furlough for the purposes of the scheme rules. We await this twitter advice to be reflected in the next update of the scheme rules.

• What about holiday pay? This also remains unclear but, again in a recent tweet from HMRC, it stated that if an employee takes a holiday (including a bank holiday) then they are entitled to be paid at their “normal” rate (i.e., their pre-furlough pay) unless they have agreed to a permanent reduction in pay going forward (i.e., not just a temporary reduction for the furlough period). For employees who are not salaried but have variable pay, the position is more complicated. This is yet to be reflected in the published scheme rules.

Q7:      What about employment rights?

Employees will continue to accrue continuous service whilst on furlough. Thus, some employees who do not yet have the two years’ service required to claim a statutory redundancy payment and to bring an unfair dismissal claim may acquire these rights whilst on furlough.

Q8:      What about tax and national insurance and other deductions?

Payments made by the employer will be subject to the usual deductions for income tax and national insurance. Employers are able to reclaim the employer’s national insurance (subject to the financial limits discussed above).

Payments are also subject to other deductions, such as employee pension contributions and student loan repayments.

Q9:      Do employers have to pay employees who are not able to work at the moment?

Yes, whilst employers probably have the right to send employees home and/or to not require performance in these exceptional times, employees have the right to be paid provided that they are ready, willing and able to work.

One apparent exception would be if the employment contract expressly permitted lay off without pay, and if the employee agreed to any pay reduction as part of a furlough arrangement.

Q10:    What is the position of employees who have already been made redundant?

Employees made redundant since February 28, 2020 are eligible if they are re-employed and placed on furlough instead.

Q11:    What is the position of employees with whom employers have already agreed to reduced hours or reduced salaries?

The guidance states that employees who remain working, but with reduced hours/pay, will not be eligible for the scheme.

Q12:    What is the position of employees who are currently on notice of termination (but working through their notice period)?

As we understand the current guidance, there would seem to be no objection for an employer to rescind those termination notices, to furlough instead and to reassess their position when the scheme ends.

Q13:    What is the position of employees who are contracted to join an employer but have not done so?

The scheme only covers employees who were “on the payroll” on February 28, 2020. We assume that this means that a payroll record has been set up and submitted under HMRC’s real time information system.

Q14:    Can an employee who is furloughed return to work and be furloughed again?

Yes, although there appears to be a minimum furlough period of 3 consecutive weeks. The guidance update on April 4, 2020 states that there is no limitation on an employee being furloughed, returning to work, and then being furloughed again.

Q15:    Are directors eligible?

Executive directors (i.e., those with an employment contract) are eligible. Non-executive directors are covered if they are remunerated by PAYE.

Furloughed directors can carry out duties to fulfill statutory obligations so long as they do no more than would be judged reasonably necessary for those purposes. Directors should be careful not to overstep this limit at the potential risk of prejudicing a grant application.

Q16:    Are partners eligible?

Most partners and LLP members are self-employed and so will be outside the scope of the scheme.

However, members of LLPs who are designated as employees for tax purposes (“salaried members”) are eligible to be furloughed.

On March 26, 2020, the government announced a scheme for the self-employed, but it applies only to those with profits of less than £50,000.

Q17:    Are zero hours employees eligible?

Yes.

Q18:    Can employees who are currently absent on sick leave (including those self-isolating in accordance with government advice) instead be furloughed?

No. Employees who are on sick leave or self-isolating should get statutory sick pay (£94.25 per week) but are eligible to be furloughed upon their return. Vulnerable individuals who are being shielded at home can be placed on furlough.

Q19:    Can employees who are at home looking after children be furloughed?

Yes.

Q20:    Do we have to follow a redundancy or any other process before designating employees as furloughed workers?

There is no mandatory process. Employers should try to ensure there is a clear business rationale for decisions about who to furlough in order to avoid allegations of discrimination and further arguments around the unfairness of any subsequent redundancies. This consideration is especially important where there are a number of employees carrying out a similar role and only some of those employees are to be furloughed.

Informal consultation in a manner appropriate to the business in question is recommended, as always.

Q21:    What about sponsored workers?

The Home Office has now confirmed (in a separate statement) that the scheme can be used for sponsored migrants. They have to meet the same eligibility requirements as other employees. For instance, they must have been on the employer’s PAYE payroll on February 28, 2020. Some sponsored workers – especially some Tier 2 (Intra-company Transfer) migrants – will not qualify because they are not on PAYE.

It has also been clarified that sponsors can temporarily reduce the salaries of sponsored migrant workers to 80% of their salary or £2,500 per month, whichever is the lower. Any reductions must be part of a company-wide policy to avoid redundancies and in which all workers are treated the same.  Pay must be returned to normal once these arrangements have ended. Sponsors must report on the SMS that a worker has been furloughed and report the reduction in salary. Employers should confer with immigration counsel for specific advice.

Q22:    Does a decision to furlough trigger collective consultation obligations?

No, not in relation to the decision to furlough — but collective consultation may still be required if redundancies are proposed, even if they will not take effect until the end of the furlough period.

Where an employer goes beyond contemplating the possibility of redundancies, to making a proposal to dismiss as redundant 20 or more employees at any establishment within a 90-day period, then collective consultation obligations are triggered. Such consultation must begin in good time and for a minimum period of 30 days (45 if more than 100 redundancies are contemplated). This process requires consultation with any recognised trade union or, if no other appropriate representatives, employee representatives who are elected for this purpose.

For these purposes, proposing to “dismiss” an employee is deemed to include a situation where the employee proposes to dismiss them under their current contract of employment and offer them new employment on a different (less costly) contract.

Many employers that do not wish to top up salary to 100% of pay will require employee consent to agree to the reduction in pay. When seeking such agreement, employers should be careful not to inadvertently trigger the collective consultation obligations by suggesting that there are  firm proposals to make redundancies.

Even if collective consultation obligations are triggered, failure to consult awards can be made only to those individuals who are actually dismissed. If the expectation is that every employee will consent to be furloughed now rather than to be made redundant after a minimum 30/45-day consultation period, then theoretically, there will be no aggrieved person.

In certain situations, it may be sensible for employers to start collective consultation, as they can be in a position to implement any necessary redundancies once the scheme comes to a close. Employers faced with potential redundancies should check with an adviser.

Q23:    Can employers carry out redundancy consultation whilst employees are furloughed?

The guidance does not explicitly address this question. In theory, being “consulted” arguably is not “work,” but HMRC could adopt a different position.

Just to recap:

• individual redundancy consultation -- is required in all cases, where employees have acquired 2 years continuous service.

• collective redundancy consultation -- is required in all cases where an employer proposes to dismiss as redundant 20 or more employees at any one establishment in a 90-day period.

As another reminder, union representatives and employee representatives have the right to paid time off for carrying out their duties. Depending on the circumstances, it may be necessary to “top up” their salaries for those days that they are carrying out their duties.

Q24:    Will being placed on furlough impact an employee’s a redundancy payment or a payment in lieu of notice (PILON)?

Taking each in turn:

• Statutory redundancy pay: This may be an issue for those earning less than £525 a week on furlough. For this group, by accepting a reduction to salary whilst on furlough, their statutory redundancy payments will be based either on their furlough wages or on the average earnings in the prior 12 weeks. We expect that the government will legislate to close this anomaly.

• PILON: This will depend on the drafting of the furlough letter, but we would expect an employee terminated at the end of the furlough period will receive a PILON by reference to their normal salary.

Q25:    Can we give notice of termination of employment now and furlough an employee for the duration of the scheme?

This is a difficult question. The original policy intent of the scheme is to avoid redundancies. Based upon the guidance published on March 26, 2020, it was a requirement of the scheme that the furloughed worker would otherwise have been made redundant. However, nothing in that guidance would appear to specifically prohibit an employee being given notice of termination and then furloughed during their notice period. Nonetheless, HMRC could potentially view this approach as an “abuse” of the scheme after the fact.

Employers should ensure that they keep their decision to make redundancies under review for the duration of the furlough period and take specific advice.

Q26:    How will the scheme be policed?

We expect that the grant application will include a simple “check box” declaration. HMRC is anticipated to have extensive enforcement powers to audit applications after the fact in order to prevent fraud and abuse.

Q27:    When will payments be made?

Payments to employers are expected be made “before the end of April” although some believe that that is optimistic. Employers will need to pay and therefore fund salary costs in the meantime and may be eligible for a Coronavirus Business Interruption Loan.

Q28:    What should employers include in furlough communications?

Under the guidance provided to date, the only mandatory requirement is that the employee is designated as a furloughed worker and is asked to stop working. This letter/email should be retained on file. Topics to consider include:

• Whether there will be a reduction to basic salary whilst on furlough;

• When the furlough period will end and the employer’s right to require the employee to return to work early; and

• Any impact on any benefits (life assurance etc) that are impacted by the change to salary.

Q29:    Are there any record-keeping obligations?

Yes. The April 4, 2020 guidance update states that furlough records must be kept for at least 5 years.

Q30:    Are there any other practicalities to be aware of?

Yes. We understand that the scheme will only pay out to businesses that have a UK bank account and are registered with HMRC’s online PAYE system (a process that takes about 2 weeks to complete). Also, the latest news is that the government expects the scheme to be set up by April 20, 2020, with the first payments to be made by April 30, 2020.