On 20 March 2020, the Chancellor announced the Coronavirus Job Retention Scheme (Scheme). That has now been supplemented by the government guidance on the operation of the Scheme, click here for full details.
Under the Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.
This note is up to date as at 9am on 27 March 2020 but, as in all areas of the response to the pandemic, the situation is changing frequently and advice will be needed on your specific circumstances. We have also sought to give a practical view based on our shared experience as employment lawyers, but this is not to be relied upon as generic legal advice.
- Which parts of the workforce does the Scheme cover?
The Scheme will apply to all employees paid via the PAYE system.
- What does the grant under the Scheme cover?
HMRC will reimburse 80% of furloughed employees’ wage costs, up to a cap of £2,500 per month, plus any employer NI and employer auto-enrolment minimum pension contributions on those sums. It does not cover fees, commission or bonuses.
The link to the guidance provides full details on calculating the value of reimbursement for employees with variable hours or non-standard hours.
- Do I need to make up the shortfall in furloughed employees’ wages?
Not unless you wish to do so.
You will also not be required to ensure that furloughed employees receive the NLW/NMW during the period of any furlough, unless they spend any of their time during that period on any training activities related to their work when they must be paid the NLW/NMW for that period by their employer.
- Can furloughed employees undertake some work for me?
No. The Scheme is clear that employees must not do any work for you during periods of furlough. They can undertake training though or volunteer elsewhere.
- Can I choose who is furloughed and who is not?
The Scheme is wide enough to allow an employer to pick and choose which employees it keeps active and which it places on furlough and to organise work accordingly.
This will need to be managed carefully from an employee relations perspective and to minimise the risk of discrimination claims if particular groups with protected characteristics are disproportionately affected. Therefore, we would urge you to undertake early workforce analysis and consider a fair basis for selection, if needed.
- What process would I need to go though to furlough my employees?
In our view, employers wishing to furlough employees should speak to them and seek agreement to furlough because, even if an employer has a lay off clause in the employees’ contracts, it is likely that employers will be varying their contract in some way, particularly if wages or benefits are being reduced.
Otherwise, any employee could bring an unlawful deduction from wages claim, breach of contract claim, or a constructive dismissal claim (if they are an employee with qualifying service).
To be eligible for the grant under the Scheme, employers must write to their employee confirming that they have been furloughed and keep a record of this communication.
The easiest and quickest way to implement a contractual variation is by agreement. In practice, where employees are facing no work and no pay, they are likely to agree to furlough in most cases.
The terms should be recorded in writing, asking employees to confirm their agreement, most likely by email in the current circumstances. The furlough arrangements overlay any contractual rights, which will continue.
Employees will continue to accrue holiday leave and it is not clear to what extent they will be able to mix and match furlough and paid leave entitlement under the Working Time Regulations. Therefore, if an employer intends to stop any benefits, the employer will need to make clear what benefits other than pay (e.g. bonuses, car allowances, etc.) will be stopped.
Once an employer has furloughed employees, it will need to submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. We understand HMRC are working urgently on this and are setting up a system for reimbursement which is likely to use the PAYE system and will apply from the end of April onwards.
If an employer does not get agreement and is still considering placing 20 or more employees on furlough at one establishment within a period of 90 days and, in particular, varying their employment terms and conditions, collective consultation under section 188 of the Trade Union and Labour (Consolidation) Act 1992 (TULRCA) are likely to be triggered and a HR1 may need to be submitted.
As a protective measure, employers may want to submit a HR1 form with a covering note explaining it is furloughing employees, given it is a criminal offence not to submit a HR1 form if the obligation is triggered.
There is also likely to be an increased risk of failure to inform and consult claims if employers are also considering redundancies and triggering terminations at the same time as furloughing staff.
In our view, where the numbers affected mean there is a risk of collective consultation obligations being triggered, it would be prudent to have employee representatives in place, (where there is not already a trade union or standing body of representatives), to consult about the furlough arrangements and any redundancies.
Nevertheless, we appreciate that some employers will not have the cash flow to wait to take any action during a collective consultation period and so may take the commercial decision to proceed without undertaking collective consultation.
Whilst the risk of failure to inform and consult claims cannot be ruled out, we consider that the risks may be mitigated in practice by speaking to employees openly and honestly and trying to reach agreement.
Employers would need to argue that they have done everything they can reasonably to consult and agree any changes with employees (via their representatives), so the more employers can engage with their employees the better.
If it looks like redundancies will be necessary at the end of the furlough period and the numbers are 20 or more at one establishment within a 90-day period, collective consultation obligations under TULRCA will be triggered.
We would strongly recommend collective consultation is started by employers in good time, ideally before the furlough ends, to help with cashflow. Individual redundancy consultation would also be necessary to mitigate the risk of unfair dismissal claims for employees with qualifying service.
We hope this note is helpful at this time. Obviously, this note will not answer all your questions nor is it a substitute for detailed legal advice on the specific circumstances you are facing.
If you have specific queries or would like detailed legal advice, please contact any member of the Employment team or call 0191 211 7777.