On Friday 20 March, the government imposed additional measures to delay the spread of Coronavirus, including closing pubs, clubs and restaurants. These measures will inevitably have an economic impact not only on businesses in these sectors but on other organisations that provide goods and services to the companies who are being told to close.
To protect businesses from the full impact of these measures, the chancellor announced a range of financial support packages. The support includes the Job Retention Scheme to protect employees who would otherwise have been made redundant or laid-off due to the impact of Coronavirus.
These emergency measures do not mean that employment laws have been thrown out the window, even temporarily.
This post provides guidance to employers to ensure that they apply the government measures whilst adhering to employment laws.
Note: This information is correct at 10:00am on Monday 23 March. The situation changes continuously so we will be updating information as and when new information comes available.
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What is the Job Retention Scheme?
The Job Retention Scheme is designed to offer financial support to businesses impacted by Coronavirus so that they are able to retain employees during this very difficult time. Prior to this scheme being announced, some businesses were left with no choice but to make people redundant or lay them off without pay when their business suffered loss due to Coronavirus. The scheme is designed as an alternative to this.
The announcement by the government is:
Support for businesses through the Coronavirus Job Retention Scheme
Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.
All UK businesses are eligible.
How to access the scheme
You will need to:
- designate affected employees as ‘furloughed workers,’ and notify your employees of this change – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation
- submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required)
HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.
More information can be found here: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses
Who decides on which workers to furlough?
It is a business decision made by the appropriate directors and managers.
How do you implement the furlough?
Employers have the right to “designate affected employees as ‘furloughed workers’, and notify your employees of this change”. That’s great, however, the other key element of this is that is it “subject to existing employment law and, depending on the employment contract, may be subject to negotiation”.
If your employment contract has a layoff / short-time working clause, you will be able to exercise this clause and simply notify the employee that, instead of laying them off, you are placing them on furlough.
If there is no clause in the contract you will need to negotiate the decision to declare an employee as furloughed with the employee. The process for this is similar to the one that you would have needed to use in order to place people on short-time working or lay-off when there was no contractual right for you to do this.
So, you’ll need to engage with your employees and talk to them about their options. These options will be:
- Accept the decision to go to furlough with 80% pay up to the cap of £2,500*
- Challenge for redundancy (although there is a high likelihood of no redundancy payment as the company can’t afford it)
Based on these options, we suggest that the overwhelming majority of employees will accept the decision to be designated as furloughed worker but from a legal perspective, it’s important that you give them the choice.
* Be careful with your wording when you communicate this to staff as there is currently some confusion as to whether the reimbursement will be of 80% of full employment costs up to a maximum of £2,500 which would mean the employee would receive less than if the reimbursement is for £2,500 of gross pay and the employer continues to be responsible for the payment of employer national insurance, pension etc.
What about the other 20% of salary?
The government guidance is that “HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month”. There is no guidance in the employer guidance on the other 20% however, the employee guidance states that “your employer could choose to fund the differences between this payment and your salary, but does not have to.”
So, the business needs to decide whether it covers the other 20%.
Again, you need to be mindful of the wording of your employment contract here. A few contracts may have an option to decrease salary but this will be very rare. Without such a clause, then you should again give people the option of accepting the furlough and the income associated with it, or requesting redundancy.
Faced with the options of 80% or 0% of salary, and an understanding of the challenge the Coronavirus is setting the country (and world), we suggest that the majority of employees will accept the temporary reduction in salary whilst being furloughed.
Note: There is a little uncertainty on the £2,500 as it’s unclear whether the 80% is applied to a maximum salary of £2,500 pm, ie, equivalent to £30,000 pa (the national median wage) or applied to £3,125pm (£37,500 pa) thus making the payment £2,500. We expect this to become clearer in the coming days and will advise when more information is available.
Can an employee declare themselves furloughed?
You might have a few employees that decide that they’d rather take the 80% salary for being furloughed rather than have the 100% for performing their job. Can they do this?
In short, no.
The furlough decision is a decision by the business, not the employee. If the employee chooses not to work, then you would need to manage this through your absence and potentially disciplinary policies, which in normal times may be complex but, in these times, even more so.
What about those employees that have to work whilst others are furloughed?
During this crisis, with the government support, you are now able to reduce your salary costs to get you through the coming months. As part of the actions you take, you may choose to keep your most productive employees working and furlough your less productive ones.
How will that situation affect those employees having to work for 100% of their salary whilst watching the lower performers get 80% for “a paid holiday”? Are you at risk of losing your best performers? In the short-term, probably not, but what can you do about this in the longer-term?
At the moment, we are yet to have an answer on that but will continue to monitor the information available, put on our thinking caps and provide an update on our suggestions as soon as possible.
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