We are certain that most business owners who heard the Chancellor’s announcement on Friday breathed a sigh of relief. He announced an unprecedented and comprehensive list of measures to support firms both large and small.
We are also aware that the announcement will have raised many specific questions regarding how, when and to whom the financial aid applies. Our inbox is brimming with such questions.
There was some technical employment language in the announcement too, specifically relating to furloughing employees. We know that some employers may not be so familiar with such terms.
We feel it important to highlight that government guidance states that the rules applying to the Coronavirus Job Retention Scheme are subject to employment law. Employers are liable and so it is very important that this is handled correctly. Certain details of how the scheme will actually operate are still pending, but some aspects have been clarified. Let us explain.
For whom and for what does the scheme apply?
Firstly, you will be pleased to know that the Coronavirus Job Retention Scheme applies to all businesses, sole traders, limited companies, LLPs, partnerships and charities. It is available to staff who are paid through PAYE.
The scheme is designed to support those employees who may be laid-off or made redundant and who consequently would not be working for the business at all during this time. This scheme is not to top-up the wages of those who are on reduced hours and continue to work, or those currently on sick leave or in self-isolation.
What is furlough?
Furlough is a term more commonly used in America to describe temporary leave from work. It is not a term that we would typically use in our communications with you. The word originates from the Dutch word “verlof” which translates in English to “leave”.
When we talk about furlough in relation to the Coronavirus Job Retention Scheme, we are referring to employees who may be laid-off temporarily, and we may use the terms furlough and lay-off interchangeably.
Terms and conditions
Currently an employer can only-lay off an employee if there is an express term in their contract to do so. If there is no such clause, an employer will need the employee’s agreement before placing them on furlough leave.
We feel it is unlikely that employees will refuse furlough leave if the alternative is to be made redundant. And just to be clear, an employee cannot ask to be furloughed. Although you may find that some will try, as receiving 80% of their salary without working will sound attractive to some.
If agreed, the employee’s status changes to ‘furloughed employee’ and HMRC will pay 80% of their wages, up to a maximum of £2,500 per month. Employers may, if they can afford to, top-up the payment so that the employee receives full pay.
It has not yet been made clear what exactly is included in the HMRC calculations, but we eagerly await further information in order to keep you informed.
If you are in the unfortunate situation that you are unable to pay staff as a result of the coronavirus’s impact on the economy and your business, you may well be wondering who you can designate as a furloughed employee.
We strongly recommend that you seek professional HR advice here, so as not to unwittingly discriminate during the selection process. We also advise that you consult with designated employees and obtain a written agreement.
These are testing times for everyone and it will be important to keep the lines of communication open with all employees, home workers and furloughed employees alike, so that when the time comes you can return to business as usual and rebuild your team.