What is Furlough Leave and how does it work?

Update: On 3rd March 2021, Rishi Sunak announced in his Budget that furlough leave would now be extended until the end of September 2021.

On 31 October, it was announced that the Coronavirus Job Retention Scheme would be extended until the end of March 2021.  You can find out more about the extension in our latest Updated Coronavirus Job Retention Scheme Guidance article.

On Friday 20 March, the Chancellor announced the concept of Furlough Leave in response to the economic uncertainty caused by the outbreak of COVID-19 (Coronavirus). As part of this announcement, the Chancellor explained that a Coronavirus Job Retention Scheme (the Scheme) would be set up to allow “all UK employers… 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 has been referred to as Furloughed Leave. Here, our Employment Law team explain what Furloughed Leave is, who it applies to and how employers can apply for the grant.

What is Furlough Leave?

Under this new Scheme, HMRC will reimburse 80% of Furloughed workers wage costs, up to a cap of £2,500 per month.  As the employee remains employed while Furloughed, as an employer, you could choose to fund the differences between this payment and the employees’ salary but you do not have to. This new law will be subject to existing employment law and therefore in order not to pay the remaining 20%, you will either need to have a contractual right to vary pay (which will be extremely rare) or will need to seek the consent of your employees.  However, employees may be willing to agree given the alternative of redundancy and given the lack of alternative employment or benefits available.

In terms of calculating the 80%, the employee's actual salary, before tax, as at 28th February 2020 should be used. The guidance notes that fees, commission and bonuses should not be included. As for employees whose pay varies, in the case of employees who have been employed for at least a year, you will be able to claim for the higher of the employee's earnings in the same month the previous year or the employee's average monthly earnings in the 2019/20 tax year.

The guidance says that the scheme will run for 3 months from 01 March but that will be kept under review and extended if necessary. The Furloughed Leave period will need to be agreed with employees and confirmed as part of the notification to staff. It has been confirmed (27^th March 2020) that an employee must be Furloughed for a minimum of three weeks in order to be eligible for the payment.  This, therefore, prevents job sharing or rotational schemes.

Whilst they are Furloughed, employees cannot do any work.  However, you may want to bring people back from Furloughed Leave at short notice to cover those who become unwell and are unable to work. 

Which businesses are eligible to apply for Furlough Leave?

As yet there is no legislation to bring Furloughed Leave into effect but it is understood to apply to all employers including limited companies, limited liability partnerships, charities, partnerships and sole traders who employ staff.  There are no eligibility criteria to apply for this grant, with HMRC currently building the portal for employers to use to apply.

Who can I put on Furlough Leave?

You will need to determine which employees are to be subject to Furlough Leave and notify them, taking into account the usual employment law measures that might be needed to change terms of employment. This suggests there needs to be some form of consultation between you and your employees and agreement from employees to go on this leave.  You will need to consider the terms in their employees’ contracts as they may already have a contractual right to withdraw work from them, albeit this is unlikely in many sectors.

Government guidance interchanges the terms employee and worker and so it is not clear whether businesses can access the scheme in relation to workers and employees or just employees.

If you felt it was appropriate to put an entire department on Furloughed Leave then it would apply to all. However, if you still need some representation from a department, we would suggest that you use some form of objective criteria, for example productivity records, appraisals, or workload levels.  You should not use employee risk levels as a basis as this could give rise to a disability or age discrimination claim if you did so. 

What happens to holiday, maternity and sickness leave during a period of Furlough Leave?

If your employees are currently on annual leave, you may wish them to continue with that leave in order to reduce the risk of having too many employees all then taking leave once this pandemic is over.  If they are on annual leave, then you will still be required to pay 100% of their pay for any annual leave taken as opposed to applying for the Furlough Leave, so it is up to you as a business to decide which avenue to take, ensuring that this is communicated effectively and is within existing employment law.

Your employees currently on long term sick leave are entitled to sick pay as before and, under current employment law, cannot be laid off.  If they return to work after a period of sickness absence, they can be Furloughed after this.  New guidance released on 27^th March 2020 also confirmed that employees who are shielding in line with public health guidance can be placed on Furloughed Leave.  We believe that employees on maternity leave will still be on maternity leave and entitled to their Statutory Maternity Pay.  This will not be recoverable as Furloughed pay through the grant.  Employees who qualify for SMP, will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is currently £148.68 a week, rising to £151.20 a week from April 2020.

We understand that this is an unprecedented situation, and as an employer, you will have many questions about what this means for your business and your employees.  As with any employment law issue, we would always recommend you seek legal advice before proceeding; we are currently working with our clients on providing them with the necessary policies, letters to staff and answers to other frequently asked questions. If you would like more information on how you can also gain this advice, you can contact our team on 023 8071 7717 or email employment@warnergoodman.co.uk.

To receive regular Employment Law updates from the team regarding recent tribunal cases and legislation updates, you can subscribe to our weekly Employment Law Newsletter by completing our subscription form or emailing us at events@warnergoodman.co.uk. 

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing (27th March 2020) and we cannot be held responsible for any changes that may invalidate this article.