COVID-19: What you need to know about furlough leave
Information correct as at 16 April 2020
As the UK continues to battle through the Covid-19 pandemic, employers and employees around the country are being faced with job losses. Here’s what you need to know about the Government’s emergency job retention scheme.
- The Government expects the scheme to be up and running by 20 April 2020. Claims can be backdated to 1 March 2020.
- An employer can make a claim for furloughed employees that are on their PAYE payroll scheme on or before 19 March 2020 provided that HMRC has received a real time information (RTI) submission notifying of payment in respect of the employees on or before 19 March 2020.
- If an employer made employees redundant or they stopped working for them after 28 February, the employer can re-employ them, put them on furlough and claim for wages through the scheme. This applies as long as the employee was on the employer’s payroll as at 28 February 2020.
- The Treasury has issued a Direction to HMRC under the Coronavirus Act 2020, to confirm that an employee is furloughed if:
- the employee has been instructed by the employer to cease all work for the employer;
- the period the employee does not carry out any work for the employer is a minimum of 21 days; and
- the instruction was given by the employer due to circumstances arsing as a result of Coronavirus.
- The Treasury’s Direction to HMRC confirms that an employee has been instructed by the employer to furlough only if the employer and employee have agreed in writing (which the Treasury has confirmed may be in an electronic form such as email) that the employee will not carry out any work for the employer. An agreement in writing is therefore crucial and the Government guidance confirms that employers must keep a record of the communication confirming the instruction of furlough for a period of five years.
- For employers not intending to top-up their furloughed employee’s pay to 100% and where the contract of employment does not allow for a reduction in pay, an employer should also obtain agreement from the employee to vary their contractual pay on a temporary basis to 80% in line with employment law.
- Employers can reclaim up to 80% of regular wage costs up to a cap of £2,500 per month, plus associated employer NICs and minimum auto enrolment pension contributions (max of 3%) on that subsidised furlough wage providing it is paid to a pension scheme.
- The Treasury’s Direction to HMRC has confirmed that ‘regular’ in relation to wages or salary means an amount of salary or wages which arises from a legally enforceable agreement, understanding, scheme or transaction, and which is: not conditional on any matter; is not a benefit in kind; and does not vary (except where the variation arises out of a legally enforceable agreement, understanding etc.). Examples may include regular payments the employer is obliged to pay such as, past overtime, fees and compulsory commission. However, discretionary and performance related bonuses, commission, fees (including tips) will not be covered unless the above exception applies.
- For salaried employees, 80% of salary is calculated based on the salary paid to the employee in their last pay period prior to 19 March 2020. If, based on previous Government guidance, employers have calculated and submitted claims based on an employee’s salary as at 28 February 2020 and this calculation differs from their salary in the pay period prior to 19 March, employers can choose to still use their initial calculation for their first claim.
- For employees whose pay varies, the employer can claim the higher of either: the same month’s earnings from the previous year; or average monthly earnings in the 2019-20 tax year; or if the employee has been employed for less than 12 months 80% of their average monthly earnings since they started work until the date they were furloughed.
- The employee must not work for the employer (or any associated/linked organisation) at all during the furlough leave period. They can undertake training (which would have to be paid at NMW rate) and volunteer work as long as neither generates any revenue for the employer. The Treasury’s Direction to HMRC also states that a Director who is furloughed can fulfil a duty or other obligation arising from an Act of Parliament in respect of the filing of company accounts or the provision of other information relating to the administration of the director’s company. Under these very limited circumstances the work undertaken by the Director will be disregarded for the purposes of claiming under the scheme.
- Provided that the period of furlough leave is not less than 21 days, there is nothing in the Government guidance which prohibits rotating furlough leave amongst employees.
- Employees on sick leave or self-isolating as a result of Coronavirus will be entitled to SSP (14 days can be reclaimed by employers). Furlough leave is not intended for short term absences from work due to sickness (less than three weeks), but there might be business reasons for an employer to want to place an employee who is on sick leave on furlough, in which case Government guidance states that they are eligible to do so. However, employers should approach this with some caution as the Treasury’s Direction to the HMRC states that where Statutory Sick Pay (SSP) is payable or liable to be paid to an employee at the time the employer gives instructions to an employee to furlough, the period of furlough does not begin until the original SSP has ended.
- A new employer is eligible to claim under the scheme in respect of employees of a previous business transferred after 19 March 2020 if either TUPE or PAYE business succession rules apply to the change in ownership.
- Employees will continue to accrue their holiday entitlement during their period of furlough leave and have all other rights and protections. The Government has passed legislation to allow carry-over of four weeks annual leave into the new holiday year where such holiday could not reasonably have been taken because of Coronavirus. However, employers should be cautious on the issue of employees taking their annual leave during any period of furlough leave as there is no Government guidance either way at present. The potential issue being whether annual leave would interrupt the furlough leave period thereby effecting an employer’s ability to claim under the scheme.