The government has updated its guidance on how furlough will work in practice under the new Coronavirus Job Retention Scheme.
On 4 April 2020 the government issued updated guidance for employers on claiming for employee wages through the new Coronavirus Job Retention Scheme, along with separate guidance for employees. This article sets out the key points from the updated guidance and answers FAQs about the scheme.
Key points from latest guidance
- There has been a lot of media attention on the situation of employees who resigned after 28 February 2020 to start a new job. They cannot be furloughed by their new employer and in many cases have had their job offer withdrawn. The chancellor announced on Twitter on 3 April 2020 that the old employer would have the option to rehire them. The updated guidance does state that the old employer could do this, but does not go so far as to encourage this practice or offer guidance on how it would work. There is no obligation to rehire and employers should be cautious.
- The updated guidance still does not deal with the vexed question of holidays, although Acas has provided its own guidance confirming that employees can be furloughed and on holiday at the same time. This may alleviate the concern shared by some employers about employees returning from furlough with lots of holiday to use up just as the business is getting back on its feet.
- The new guidance does, however, give more clarity on salary sacrifice, which types of worker can be claimed for (eg, salaried limited liability partnership (LLP) members and company directors) and which payments can be included. It is also clearer that furloughed employees can work for a different employer during furlough so long as their employment contract allows it.
Can employers use the scheme only if redundancy was the alternative?
The government previously indicated that the furlough scheme was an alternative to redundancy, lay-off or unemployment. Although the guidance for employees refers to furlough as applying when the employer is unable to operate or has no work for the employee to do, the latest guidance for employers states that all employers are eligible to claim under the scheme and that the government recognises that different businesses face different impacts from COVID-19.
However, the guidance makes clear that the scheme is "designed to help employers whose operations have been severely affected by coronavirus" and that employers which cannot maintain their current workforce because of this can make use of the scheme.
Ultimately, it seems that employers may be allowed some discretion, but they should not be abusing the scheme. Importantly, the government has indicated that it will retain the right to retrospectively audit employers, with scope to claw back fraudulent or erroneous claims.
To which employers is the scheme open?
The scheme will be available to all UK employers, including businesses, charities, recruitment agencies and public authorities, of any size and in any sector. To be eligible, employers must have:
- created and started a pay-as-you-earn (PAYE) payroll scheme on or before 28 February 2020;
- enrolled for PAYE; and
- a UK bank account.
Rotating furlough and other options where there is still work, but less of it
Can employers rotate employees on furlough?
Yes, this appears to be the case. Some employers have work for some staff, but not enough work for all. One of the most pressing questions since the scheme was first announced was whether employers could rotate employees on furlough or if they would have to choose some employees to be furloughed while others stayed at work.
The latest guidance states that employees can be furloughed multiple times. Each separate instance must be for a minimum of three consecutive weeks (one period can follow straight after an existing furlough period) and when employees return to work, they must be taken off furlough. This indicates that employers can rotate employees on furlough, so long as each employee spends a minimum of three weeks on furlough.
Can employers make some people redundant and furlough others?
Yes, the guidance clearly states that not all employees need to be furloughed.
How should employers select which employees should be furloughed?
Workers who cannot work from home and currently have no work to do will be obvious candidates for furloughing. Otherwise, employers may need to consider a process of calling for volunteers, pooling and selection – as with a redundancy process. There is a risk of claims (including discrimination claims) if the process is handled incorrectly.
Can employers do a partial furlough to put somebody on reduced hours? No, an individual cannot work for their employer at all if they are furloughed.
If an employer has some work for an individual, but not enough, they can still have a discussion with the employee about going down to a reduced working week. Employees will need to agree to this, except in the unlikely event that the employer has reserved the right to put them on reduced pay for reduced work, and they will not be on the furlough scheme.
What can employers claim through the scheme?
How much is the subsidy?
Her Majesty's Revenue and Customs (HMRC) will reimburse 80% of furloughed workers' regular wages, up to a cap of £2,500 (gross) per worker per month, plus the associated employer national insurance contributions (NICs) and minimum automatic enrolment employer contributions on that wage.
How do employers calculate regular wages?
For salaried employees, employers must use the actual salary before tax, as of 28 February 2020. For employees whose pay varies (eg, because they work different hours each month) employers can claim for the higher of either:
- the same month's earnings from the previous year; or
- the average monthly earnings from the 2019-2020 year
If an employee with variable pay has been employed for less than a year, an employer can claim for an average of their monthly earnings since they started work.
If the worker only started in February 2020, employers should use a pro-rata approach.
Is the wage calculation based on pre or post-salary sacrifice wages?
Post-salary sacrifice wages as of 28 February 2020 should be used. Benefits provided through salary sacrifice schemes (including pension contributions) that reduce taxable pay should not be included.
HMRC has confirmed that COVID-19 can count as a life event that could warrant changes to salary sacrifice arrangements, provided that this is reflected as a change in the employment contract.
What about payments which employers do not describe as salary or wages?
The guidance states that employers can claim for any regular contractual payments, including wages, past overtime, fees and compulsory commission payments. However, discretionary bonuses (including tips) and commission payments and non-cash payments are excluded.
What about pension payments?
Employers can reclaim the minimum mandatory employer pension contribution on the subsidy. This claim can be made on top of the £2,500 cap.
The minimum contribution under the auto-enrolment regulations is 3% of an employee's income above £520 per month (from 6 April 2020). Pension contributions over and above this cannot be claimed through the scheme but employers must maintain them, unless they agree something else with employees (and proposing a reduction in pension contributions could trigger pension consultation obligations).
What about benefits such as health insurance and gym membership?
The scheme does not include the cost of non-monetary benefits provided to employees, including taxable benefits in kind. Benefits must be maintained, however, unless employers agree something different with furloughed employees.
Employers that offer permanent health insurance or death-in-service benefits should check with their scheme provider about what salary would be used in the event of a claim – would it be normal annual salary or pay during furlough?
Which employees can be furloughed?
Does someone need to have been on the payroll on 28 February 2020 to be furloughed?
Employees must have been on the payroll on or before 28 February 2020. Employees hired after 28 February 2020 cannot be furloughed or claimed for. Note that the key date is 28 February 2020, even though 2020 is a leap year and there was a 29 February 2020.
What if redundancies have already been made?
If employers have made employees redundant since 28 February 2020, it is possible to give those former employees the option of being rehired and then put straight on the scheme.
What if someone has resigned since 28 February 2020 – can employers rehire them?
Yes, the latest guidance has confirmed that this will be possible.
However, employers are under no legal obligation to take anyone back. If they are considering rehiring some workers, but not others, there is a risk of claims, including discrimination claims. If employers decide to rehire any workers in order to put them onto the furlough scheme they should take advice about the best way of doing this in order to reduce their exposure to risk.
If someone has resigned, but has not left yet, then it seems that employers could allow them to rescind their notice (and this will be administratively easier than a rehire) but employers need not do so.
What if employers have inherited employees following a TUPE transfer after 28 February 2020?
The guidance is silent on the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). There is an argument that employees' employment transfers on their previous terms and conditions. However, conversely, such employees are not technically on the transferee's payroll on 28 February 2020. It is unclear whether such employees could be furloughed by the transferee. If not, they could perhaps be rehired by the transferor and furloughed (if the transferor wishes).
What about casual workers and workers on zero-hours contracts?
The scheme will cover workers on the PAYE system, including any casual or zero-hours workers who are paid in that way.
What about workers on fixed-term contracts?
The updated guidance confirms that workers on fixed-term contracts can be furloughed and that their contracts can be renewed or extended during the furlough period without breaking the terms of the scheme.
What about other types of worker?
The grant can be claimed for the following types of worker, provided that they are paid via PAYE and are not doing any work:
- office holders (including company directors);
- salaried members of LLPs;
- 'limb b' workers; and
- agency workers (including those employed by umbrella companies).
For directors and LLP members, furlough arrangements should be adopted formally as a decision of any relevant company or LLP.
What about sick workers?
The guidance states that "you cannot claim for employees while they're getting statutory sick pay, but they can be furloughed and claimed for once they are no longer receiving statutory sick pay". This suggests that employers cannot put an employee on furlough until they have come off sick leave, which is surprising.
The guidance does not deal explicitly with employees who become sick while on furlough, although it does state that employees will retain their entitlements to statutory sick pay (SSP). However, since SSP is likely to be lower than furlough pay, they will have no incentive to declare themselves sick.
Employers will need to decide what to do about company sick pay. It may be best to agree that company sick pay is suspended.
What about workers who are shielding or have caring responsibilities?
The guidance makes clear that employees who are unable to work because they have caring responsibilities can be furloughed. It also states that employees who are shielding in line with public health guidance can be furloughed if they are unable to work from home and would otherwise be made redundant.
What about employees on maternity or other family leave?
The guidance states that employers can claim for enhanced maternity pay through the furlough scheme. This suggests that employers can furlough employees on maternity leave.
If an employee on maternity leave agrees to be furloughed, their employer will be able to reclaim their statutory maternity pay (SMP) in the normal way. The employer will then be able to claim for any enhanced contractual pay on top through the furlough scheme.
At present, employers can reclaim 92% of SMP (or 103% if they qualify for small employers' relief). It seems that employers cannot claim the 8% balance of SMP through the furlough scheme, along with enhanced contractual pay, because the guidance makes no mention of this possibility.
The same principles apply to other types of family leave.
Are foreign nationals with visas eligible for the furlough scheme?
Yes, the guidance states that foreign nationals are eligible. They would presumably have to be working in the United Kingdom and paying UK PAYE. There are potential sponsor compliance issues to consider for Tier 2 workers, and while foreign nationals with limited leave are in most cases not entitled to receive public funds, accessing funds through the furlough scheme is not currently prohibited.
Are self-employed individuals eligible for the furlough scheme?
How do employers put someone on furlough?
Do employees have to agree to being furloughed?
Yes, employers must confirm this with each employee. The guidance states that employers should discuss furloughing with their employees and make any changes to employment contracts by agreement. This does not necessarily require a protracted procedure, as most employees will be willing to accept furlough on the basis that the other options are worse and to ensure that they still have a job to return to when the crisis is over.
Assuming that an employee agrees to be put on furlough, employers must designate them as furloughed. The guidance states that, to be eligible for the grant, employers must confirm in writing to their employee that they have been furloughed. A record of this communication must be kept for five years.
Can employees put themselves on furlough?
No, employers must designate employees as furloughed.
Will payments to employees on furlough be taxable?
Yes, payments that employers make to furloughed employees will be subject to PAYE and NICs.
Will employees continue to accrue continuous service during furlough?
Yes, the underlying relationship will continue if a worker is furloughed, so their period of continuous employment will continue to accrue and be recognised in full once the furlough comes to an end.
Do employers have to top up the subsidy?
No, employers can top up the subsidy if they wish, but they need not do so. It is open to employers to agree with their employees that they will receive only the amount of the grant during furlough.
For employers that are topping up, a key question is how to maintain a fair differential between furloughed employees and any employees who are still working.
What if the subsidy is less than the minimum wage? Must employers top it up?
No, workers are entitled only to the national minimum wage/national living wage (NMW/NLW) for the hours that they are working. Employers need not ensure that employees are receiving NMW/NLW rates while on furlough.
The position is different if employers are asking workers to complete training (see below).
Will workers continue to accrue holiday allowance while they are furloughed?
Yes, because they remain employed. Employers could agree to reduce any enhanced contractual holiday (beyond the statutory minimum of 5.6 weeks per year) to reflect the fact that an employee has been on furlough, but employees will retain their right to annual leave under the Working Time Regulations.
Can people take their holiday allowance while furloughed?
The updated guidance is silent on holidays, but updated Acas guidance supports the view that furloughed employees should be able to request and take holiday in the usual way. Therefore, if employees have pre-booked holidays, they will be able to take them and employers need not allow rescheduling unless they would ordinarily have a right to reschedule. If employers would like to require employees to take holiday during furlough, they would need to give twice as much notice as the length of the holiday that they want employees to take (eg, 10 days' notice for five days' holiday) unless the contract states otherwise.
What about bank holidays during furlough?
There are four bank holidays during the furlough scheme period: 10 April 2020, 13 April 2020, 8 May 2020 and 25 May 2020. If employees have the right to take bank holidays off as holidays, this will apply during furlough unless the employer and employee agree otherwise.
What should employers pay staff who take holiday during furlough?
This is a complicated question on which advice should be sought. Frustratingly, the updated guidance does not confirm explicitly that employers can claim for holiday pay under the scheme, but holiday pay would likely count as a regular payment that employers must pay employees and should therefore be claimable. However, any top-ups paid to furloughed employees would not seem to be recoverable.
What can employees do and not do while on furlough?
Can employees do the odd bit of work for their employer while furloughed?
No, employees cannot do anything that provides services to or makes money for an employer that has furloughed them or for a linked or an associated company. If a furloughed employee performs work for their employer or a linked or an associated company, the employer may have to repay the grant.
Employers should highlight this to furloughed employees who could otherwise be doing some work from home. It is important that they do nothing that could jeopardise the employer's ability to claim the grant.
Can directors do statutory duties?
Directors and owner managers can be furloughed if they are on PAYE and will still be allowed to do statutory duties in these roles, but no more work than is reasonably necessary for that purpose. They must not generate commercial revenue or provide services to or on behalf of their company.
Can employers ask employees to do training while furloughed?
Yes, furloughed employees can do training if this does not involve providing services or generating revenue. In fact, the guidance states that furloughed employees should be encouraged to undertake training.
Employees must be paid at least the NLW/NMW or the apprenticeship minimum wage (as increased on 1 April 2020) for 100% of the time spent training, even if this is more than the subsidy.
Can someone in the furlough scheme do work for other employers?
Yes, if this is allowed under their contract with their employer.
This includes agency workers, but they must not do any work for, through or on behalf of the agency that has furloughed them while they are furloughed, including for the agency's clients.
Employers should be able to impose restrictions on employees working elsewhere, but they should think carefully about whether to do so. Employers will want to stop furloughed employees from working for a competitor, and there will be no need to say this explicitly because the employee's underlying contract of employment will stay in place throughout the furlough. Employers might want to allow furloughed employees to take on extra work in, for example, the health and social care sector or essential services. However, the employee guidance helpfully points out that such employees must be able to return to work for their employer if their employer decides to recall them and undertake any training that their employer requires of them.
Can furloughed employees do volunteer work?
Yes, this is allowed (so long as it does not provide services to or generate revenue for their employer).
How long can employers keep workers on furlough?
The scheme will be open for an initial period of three months (ie, 1 March 2020 to 31 May 2020) but could be extended. The minimum length of furlough is three weeks.
Can employers call employees back from furlough?
Employers are likely to want to reserve the right to call employees back from furlough if trading conditions improve. This should be included in employers' agreements with employees.
Can employers give notice to an employee on furlough?
As the guidance for employees states that employees can be made redundant while on furlough, it seems that employees can be given notice (or paid in lieu) while furloughed, although the guidance does not explicitly state this.
Can employers make employees redundant on furlough?
The employee guidance states that "your employer can still make you redundant while you're on furlough or afterwards". The HMRC guidance for employers and employees does not explicitly state that collective or individual redundancy consultation can be carried out during furlough or whether that would count as work, although on the basis that it is not making money for the employer or providing services, a sensible approach should be taken.
The guidance is clear that the furlough grant cannot be used for redundancy pay.
What happens at the end of the furlough?
The idea is that employees will be able to come back to work. The scheme is designed so that employers need not make redundancies and then recruit a new workforce once the crisis is over – their existing workforce will be ready and waiting to resume work.
However, if trading conditions have not improved sufficiently for employers to take all of the furloughed employees back when the scheme ends, they will be able to make employees redundant, subject to the usual rules on redundancy. This is significant because other European countries that have similar schemes in place are imposing restrictions on employers making redundancies. No such conditions are being imposed in the United Kingdom.
What happens if furlough ends after, for example, two weeks?
The guidance is silent on what happens if a furlough period is shorter than the minimum period of three weeks (eg, if it ends after two weeks because the employee has been dismissed or resigns). It is assumed that employers can claim only for blocks of three weeks, as this is stated to be the minimum period, but this is uncertain.
How will employers claim the subsidy?
When will the scheme be ready?
The government's intention is to have the scheme up and running by the end of April 2020. Employers need not wait until the grant scheme is up and running to put employees on furlough.
What is the process for claiming the payment?
Employers will need to submit information to HMRC about workers who have been furloughed and their earnings via a new online portal, which will hopefully be available from the end of April 2020. If employers need short-term cash-flow support in the meantime, the government has stated that they may be eligible for a Coronavirus Business Interruption Loan.
Is it a grant or a loan?
It will be a grant, not a loan, so it will not need to be repaid. Payments received by a business under the scheme must, however, be included as income in its calculation of taxable profits for income tax and corporation tax purposes – although businesses can continue to deduct employment costs as normal.
How does backdating work?
Claims can be backdated to 1 March 2020 where employees have already been furloughed. Employers can also re-employ people who were made redundant after 1 March 2020, furlough those employees and claim the grant. The grant is available only from when an employee has finished work and started furlough. Although unclear in the guidance, this may include employees who were laid-off or sent home due to workplace closures prior to the announcement of the furlough scheme.
