In this guide I explain the concept of furlough leave.
The government has set up a new scheme, whereby employees are placed on furlough leave. The government will pay grants to employers for employees who are, what’s called furloughed, placed on temporary leave and not working.
The scheme is currently open until the end of June 2020.
In order to be eligible for the grant employees have to be furloughed because of circumstances arising as a result of the coronavirus.
Who can apply for furlough leave?
Any UK organisation can apply to furlough employees including businesses, charities, recruitment agencies and public authorities.
Employers must have had a PAYE system operating on or before 19 March 2020.
Agreement to be placed on furlough leave
Unless the employment contract allows for the employer to place employees on temporary leave, employees must agree to being furloughed. Employees are likely though to agree given the alternative scenario such as redundancy.
The government has directed that employers must have agreed in writing that the employee will cease all work in relation to their employment. There is some conflict though as the government’s guidance only states that to be eligible for the grant employers must confirm in writing to their employee that they have been furloughed and this communication must be retained for five years.
If the employer is varying the contracts of twenty or more employees the employer will need to carry out appropriate collective consultation obligations,
If employees refuse to be placed on furlough leave employers could consider other options, which might include the redundancy route.
What can employers claim for furlough leave?
Employers can claim 80% of furloughed employees’ usual monthly salaries up to a maximum of £2500 a month plus any associated employer national insurance contributions and minimum auto-enrolment employer pension contributions.
Employers are not obliged to top up salaries to benefit from the furlough leave scheme. However, if the employer does not wish to pay the employee their full original salary the employer will need to get agreement from the employee.
For salaried employees, its the employee’s actual gross monthly salary in the last pay period prior to 19 March 2020 which should be used to calculate the 80%.
For employees whose pay varies the employee has been employed for twelve months prior to the claim the employer can claim the higher of the employee’s monthly earnings for the same period the previous year or an average of the monthly earnings for the tax year 2019 to 2020. If the employee has been employed for less than a year the employer can claim the average of the employee’s monthly earnings since the employee started.
Discretionary bonus and commission payments cannot be taken into account for these calculations.
The government has indicated that furloughed employees shall continue to accrue holiday leave in accordance with their employment contract and may take annual leave while being furloughed. Employers will have to pay statutory annual leave entitlement of 5.6 weeks’ at the normal rate of pay or where the rate of pay varies, calculated on the basis of the employee’s average pay in the previous fifty two working weeks. This means employers being required to top up salaries when employees take statutory holiday leave during furlough leave. The employer and employee, however, can agree to vary holiday entitlement above the statutory minimum entitlement.
Selection for furlough leave
If employers decide to put part of the workforce on furlough leave it will be important to carry out a fair and objective section criteria. Employees could allege discrimination.
Employers can only claim for furloughed employees that were on their PAYE payroll on or before 19 March 2020 and which were notified to HMRC through the Real time Information Submission (RTI) on or before 19 March 2020. Initially the government had indicated that an employee hired after 28 February 2020, even if hired before the announcement of the scheme on 20 March 2020, could not be furloughed.The position has now been changed.
If an employee stops working for the employer on or after 28 February 2020, the employee can be re-employed and placed on furlough leave, even if not re-employed until after 19 March 2020. This applies as long as the employee was on the employer’s payroll as at 28 February 2020 and had been notified to HMRC on an RTI submission on or before 28 February 2020.
For the avoidance of doubt an employee who is serving their notice can also be furloughed.
Also employees who have transferred under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) to the employer after 28 February2020 may still be furloughed.
The minimum length of time an employee can be furloughed is three consecutive weeks.
Employees who have been furloughed cannot work for the organisation though could do voluntary work or training as long as they are not providing services or generating revenue.
If the employment contract permits employees to work for other organisations, furloughed employees may do so.
An employee receiving sick pay cannot be placed on furlough leave, though could be furloughed after that time.
How does an employer claim for furlough leave?
Employers will be able to use an online portal to claim. it is expected that the portal will be available to use before the end of April 2020.
Claims can be backdated to 1 March 2020, where employees have been furloughed.
This guide is intended for guidance only and should not be relied upon for specific advice.
The government has produced detailed guidance.
Do check mattgingell.com regularly for updated information.