All UK businesses will be able to apply for assistance to support paying part of their employees’ salary for furloughed employees. The scheme is hoped to be up and running by the end of April 2020 in order for businesses to start submitting claims.
In our initial article Covid-19 & Business Owners: Guidance on the Job Retention Scheme published on 24 March 2020, we outlined the basis of the scheme for you, but the government has now provided some further guidance which was released on 4 April 2020.
There are still many grey areas to the scheme, but we hope that we can provide some clarity on any initial questions you may have with regards to the updates.
The key updates:
- It is now compulsory for employers to notify employees of their furlough status in writing and keep the record of that written notification for five years.
- The 80% or the cap of £2,500 will be calculated based on the employees regular, contractual pay, such as wages, compulsory commission and past overtime and subject to tax, NI, pension contributions and student loans in the usual way.
- Employers are able to furlough employees that are shielding or can’t work because they are having to care for dependants arising from COVID-19.
- The guidance now states employees can be re-employed and then furloughed if employees were made ‘redundant or stopped working for the employer after 28 February 2020’.
- Employees can be placed on furlough and still continue to work elsewhere or volunteer.
- Employees can be on any type of employment contract, including full-time, part-time, agency, flexible or zero-hour contracts. Foreign nationals are eligible to be furloughed.
- Company directors and office holders can be furloughed and will be able to perform their statutory duties.
- Salaried members of LLPs, Agency workers; and ‘limb b’ workers (those who are not employees but would still benefit from legal protection afforded to workers) are also eligible to furloughed.
- Employees can be furloughed multiple times, i.e. they can be furloughed, brought back to work, then re-furloughed (subject to each furlough period being at least three weeks).
We set out a brief overview to answer some of your initial questions on the updates above, which we hope will assist:
Who is Eligible for the Scheme?
As outline in the previous article, all businesses are eligible, however they must have the following:
- PAYE scheme which was in place before 28 February 2020;
- Enrolled for PAYE online;
- A UK bank account.
The guidance has clarified that if employers receive public funding for staff costs, and that funding is continuing, the Government expects employers to use that money to continue to pay staff and correspondingly not furlough them.
Does the 80% calculation include benefits that an employee may be entitled too?
The government have confirmed that regular payments such as fees, compulsory commission and past overtime (which we assume will need to be contractual) will be included in the calculation.
The calculation will not include discretionary commission (including tips) payments or bonuses, non-cash payments or benefits in kind, such as a company car or medical insurance.
What happens the 80% of the salary falls below the National Minimum wage?
Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW)/ Apprentices Minimum Wage (AMW) for the hours they are working or treated as working under minimum wage rules. Therefore, as they will not be working when furloughed it will be acceptable if the salary, they receive falls below.
However, if the employee continues to train whilst furloughed (which is encouraged especially for apprentices) they must be paid at least the AAMW/NLW/NMW as appropriate for all the time they spend training. This means employers will be required to cover any shortfall between the amount eligible to claim for their wages through the scheme (80%) and their appropriate minimum wage.
If an employee has resigned from their position can they be re-employed and then furloughed?
The guidance now suggests that those who ‘stopped working for their employer after 28 February 2020’ which seems to extend the definition and include those employees that have been dismissed (for a reason other than redundancy) or resigned.
It will ultimately be the choice of the employer if they wish to re-employ the employee, but it is important to consider any detriment claims and other areas of employment law any decision could impact on.
Can an employee’s working hours be reduced, and the employer still take advantage of the scheme in order to top up the wage for the hours they have lost?
Unfortunately not, to place an employee on furlough leave the employee must not complete any work for the employer. There is currently no option to do a combination of reduced hours and furlough leave.
However, employees are still able to undertake training for the employer, so long as the employee is not providing a service or generating revenue for the company. This may be great opportunity for employees to develop and upskill whilst on furlough leave.
Can an employee be placed on furlough if they are on sick leave?
The answer is no. If the employee is on sick leave or self-isolating, they will be eligible for Statutory Sick Pay (SSP).
Once the employee stops being eligible for SSP, employers can then place them on Furlough leave and take advantage of the scheme.
It’s important not to confuse this with those that are shielding because of a health condition and have been required to do so. Any employees that are shielding (or employees that need to stay home with someone who is shielding) can be furloughed. However, they should only be placed on furlough leave if they are unable to work from home and the employer would otherwise have to make them redundant.
Do employees on maternity leave, shared parental leave or adoption leave need to be furloughed?
Employers are not required to furlough these employees. The normal rules and pay entitlements will apply.
However, employers can claim through the furlough scheme if they pay enhanced pay during these kinds of leave.
Company Directors can be furlough and still undertake ‘statutory duties’ but what does this mean?
We suspect that this will include duties such as compulsory filings at Companies House. Therefore, any director that is furloughed should not be conducting work that would generate revenue or assist/provide the services/products offered by the company.
The guidance specifically states that the director should ‘do no more than would reasonably be judged necessary for that purpose’.
Issues we await clarification on:
- Can employees be furloughed and take annual leave?
- What about employees who were hired after 28 February due to having to work notice periods?
- How is commission to be calculated if employees are not working i.e should the employer be using the previous months or an average over a period of time?
- What about employees who have been subject to a TUPE transfer after 28 February 2020?
As you can see, although there is a scheme offered to help in these times of uncertainty, there is a lot of thought and risk analysis to be done in the background to ensure it is used correctly. HMRC will have the right to investigate fraudulent claims therefore it is important to get this right and seek appropriate legal advice.
If you would like help making these decisions, please do not hesitate to contact our Commercial or Employment Team on 01623468468 or fill out the enquiry form below.
Please note: This information was accurate at the time of publication, these new laws and support schemes are ever-changing during this time, so please contact us to confirm if the guidance above is still valid.Request a Callback
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