Under the Coronavirus Job Retention Scheme, all employers in the UK will be able to access support to continue paying part of employees’ salaries who would otherwise have been laid off during the ongoing health crisis.
Furloughed workers are those whose employers cannot cover staff costs due to coronavirus, and as such they have been asked to stop working, but have not been made redundant.
Such employers are now able to access support to continue paying part of their staff’s wages, to avoid redundancies.
How does the scheme work?
If your employer intends to access the job retention scheme, they should discuss with you becoming classified as a furloughed worker.
This would mean that you are being kept on your employer’s payroll, rather than being laid off.
To qualify for this scheme, you should not undertake work for your employer while you are furloughed, according to gov.uk.
Workers will remain employed while furloughed, and your employer could choose to fund the differences between this payment and your salary.
If your salary is reduced as a result of these changes, you may be eligible for support through the welfare system, including Universal Credit.
The scheme will initially run for at least three months, from 1 March 2020, with all UK businesses being eligible.
Do companies have to pay 20 per cent of workers’ wages?
No. Having been written in such a hurry, the chancellor’s announcement last Friday was unclear on this point. Treasury officials were horrified at the weekend to find that many companies were still planning to lay off staff because they thought they would still have to pay 20 per cent of wages.
Instead, companies should pay 80 per cent of workers’ wages up to £2,500 a month once they have been furloughed, officials said, and they will retrospectively be able to claim for that amount. They should do this using normal payroll systems, deducting tax and national insurance under the pay as you earn (PAYE) system. If employers want to top up pay levels, they can, but will not be able to claim for more than 80 per cent of £3,125, equivalent to a gross salary of £2,500.
The big outstanding issue is what happens to employers’ national insurance contributions, which amount to about 13.8 per cent of the majority of a worker’s salary. This has not been decided yet. Questioned about this, a Treasury spokesperson said: “We are working on getting some more detailed guidance out there as soon as possible on NICs.”
What should employers do to access the scheme?
To access the Coronavirus Job Retention Scheme, employers will need to take the following steps:
– 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 are working urgently to set up a system for reimbursement, and existing systems are not set up to facilitate payments to employers.
Key unanswered questions
Several issues concerning the scheme currently remain unclear and employers urgently need more clarity from the government:
- Cap. Is the £2,500 cap gross or net? It is most likely to be gross but we await confirmation.
- What is meant by laid off? The scheme applies to workers who would otherwise have
been “laid off” – but it is not clear what laid off means in this context:
- Lay-off (in the legal sense) involves sending workers home with no pay during periods when there is no work for them but does not involve dismissing them.
- Employers can only put employees onto a lay-off arrangement (in the legal sense) if the contract specifically says they can, and few contracts already include this provision (although it is open for the employer and employee to agree to include one).
- Probably the government intends that the scheme will apply to workers who would otherwise have been made redundant (which would make more sense).
- Grant conditions. It seems that the payment will be a grant from HMRC. It is unclear if HMRC will impose conditions, such as employee consultation or a commitment not to make any redundancies for a period of time as a result of Coronavirus.
- Eligibility. How will HMRC decide if the worker would otherwise have been “laid off”? Does the employer need to have commenced – or progressed through – a redundancy process?
- Consent. Do all workers
need to consent to being furloughed, or can the employer impose furloughing
without agreement in some cases?
- The overview published by the government says that “changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation”.
- If the employer proposes to maintain full normal pay for furloughed workers (whilst claiming the grant from HMRC) then employers will not necessarily need worker consent to designate them as furloughed.
- Process. Will employers need to follow any kind of process to demonstrate eligibility? Presumably, they will have to fund salary payments themselves until the money from HMRC comes through?
- Working for other employers. Will workers be able to work for other employers while furloughed? This seems possible, because the details released so far simply say that the worker cannot do any work for an employer that has furloughed them. If workers can pick up work elsewhere while still being furloughed, it will make it more attractive. We expect the government shortly to confirm the rules concerning working elsewhere during furlough.
- Sickness. What if a furloughed worker becomes sick? It seems likely that they would be eligible for statutory sick pay (SSP) but this could be at a lower rate than furlough pay. The position on company sick pay beyond SSP for furloughed workers is also unclear
- NICs and benefits. The employer is likely to need to maintain benefits for furloughed employees, unless it agrees something different with them. It is not yet clear whether employers will be expected to pay the employer’s National Insurance contributions due in respect of the HMRC subsidy.
- Period of furloughing. Given that there is no certainty about the position from 1 June 2020 onwards, will fixed or open-ended furloughing arrangements be put in place? Employers are likely to want to reserve the right to call employees back from furlough.
