In March 2020, the Government announced an unprecedented package of support for UK businesses and charities to help them overcome the coronavirus outbreak. The purpose of this support package was to preserve employment wherever possible, as whole sections of the economy saw their revenues and funding fall off a cliff.

One of the major planks of this support package was to introduce a new employee status to UK employment law: the concept of furloughing your employees. Whereas previously a downturn in work would have led to lay-offs (effectively a temporary leave of absence on no pay) or a redundancy, employers can now temporarily access public funds to pay up to 80 per cent of the employees’ salary (capped at £2,500 per month). 

So, how does the scheme work?

Eligibility

To be eligible, employees need to have been on payroll on 19 March 2020* and there needs to be no work for them to do**. So, if you had a new starter join your workplace after 1 March 2020, they cannot be furloughed by you. Employees can, however, ask their previous employers to re-engage and immediately furlough them, in order to access furlough payments.

*On 15 April 2020, the Government changed this date from 28 February 2020 to 19 March 2020.

**On 3 April 2020, the Government extended the criteria to include employees who have caring commitments that have resulted from COVID-19. At the time of this article, we are awaiting further guidance on this new development.

How do you furlough employees?

As this is a contractual change, there are important steps that you need to follow before furloughing employees. If you have a contractual clause that allows you to place employees on short-time working or lay-off, then you may be able to place employees on furlough without needing their express agreement. 

If you don’t have this specific clause in your contracts, or potentially do not have any employment contracts, it is important that you seek the agreement of your employees. This is normally done via a process called consultation. 

Ordinarily, contractual changes for 20 or more people would require collective consultation for a minimum period of 30 days but the latest guidance on gov​.uk does not expressly state this. It currently says: Employers should discuss with their employees and make any changes to the employment contract by agreement.” 

When can furlough leave start?

The period of furlough can start from the first day after the work for that employee ceased. As the scheme was opened on 1 March 2020, the period of furlough can be backdated to that date. The decision should be followed up in writing and that documentation retained for a period of five years. Please note, HMRC are likely to retrospectively audit employers, so it is vital that the correct documentation is in place.

How long does the period of furlough last for?

Employees can be furloughed for a minimum of three weeks and can be furloughed multiple times. For example, you could furlough them for three weeks, bring them back to do a week’s work (on full pay, not claimable from the HMRC) and then re-furlough them.

What can employees do when on furlough?

The guidance states that employees cannot undertake work for, or on behalf of, the organisation. This includes providing services or generating revenue. Employees can volunteer or work for other organisations with the employer’s consent, without breaking the terms of the furlough agreement. 

Although the guidance doesn’t expressly forbid volunteering for the employee’s own organisation, it seems unlikely that you will be able to satisfy the Government’s requirements if you allow paid employees to volunteer for you whilst on furlough (this includes volunteering for roles that they don’t normally perform, as it may count as providing a service or generating revenue).

How do you claim the furlough payment?

HMRC is busy building an online portal which should be released before the end of April. Employers will have to calculate 80 per cent of the eligible salary and then add this to the portal. For full- and part-time employees, February 2020’s salary will be used for the calculation. For employees with variable pay, the following rules apply:

If the employee has been employed for 12 months or more, you can claim the highest of either the:

  • same month’s earning from the previous year
  • average monthly earnings for the 2019 – 2020 tax year

If the employee has been employed for less than 12 months, you can claim for 80 per cent of their average monthly earnings since they started work.

One of the major planks of this support package was to introduce a new employee status to UK employment law: the concept of furloughing your employees.

If the employee only started in February 2020, work out a pro-rata for their earnings so far, and claim for 80 per cent.

In addition to claiming the 80 per cent, you can reclaim Employer’s National Insurance contributions and the minimum automatic enrolment pension contributions (based on the 80 per cent payment). HMRC has indicated that they will provide a calculator to help you get the amounts right.

As the period of furlough is a minimum of three weeks, we expect that you will need to complete this step every three weeks. This will be clarified in due course.

Can you top salary up to 100 per cent of salary?

Yes, but you don’t need to. If you do, be careful of not breaching any equality and discrimination laws by deciding to pay 100 per cent for some employees over others.

Do benefits accrue?

Holidays and other contractual benefits will continue to accrue whilst the employee is on furlough as they are still classed as an employee. If you ask employees to take annual leave during furlough, then our understanding is that they should be paid 100 per cent for those days.

Can directors self-furlough?

Yes, directors can, subject to the rules of the furlough scheme. For directors, this means you cannot complete any revenue generating activity nor should you provide services for your organisation. So apart from completing statutory duties (in compliance with the Companies Act 2006), you would need to cease all other activities. 

Charity or company directors need to ensure that the decision to furlough is passed into the company records. Dividends aren’t included in any furlough payment so it the furlough payment would be just based on PAYE salary.

What happens at the end of the furloughing process?

Employees will revert to normal terms and conditions of employment and this change should be communicated in writing. If you need to make redundancies at the end of the furlough period, then this can be done in accordance with normal employment practices. Please seek specialist advice if this is the case.

Where can I find further information?

The guidance is changing on a weekly basis at present so make sure you keep checking the government website for the latest information. We’ve also produced a FAQ page which is available here.

Note: This article is not intended to replace government guidance but to supplement it with useful information for employers.