Furlough Leave - An Emergency Update
I am being asked a lot of questions about furlough leave and the government’s Coronavirus Job Retention Scheme which has been announced over the past few days. The purpose of this newsletter is to give you an outline of the information which is available at present, although you will see that some of the details are not yet available. I will be providing a further update later in the week. Please note that this is not to be relied on as advice for specific legal issues, but just an overview.
Furlough Leave
The first thing to say is that this is not a legal term and there is no "magic" to it. It is the phrase which the government has chosen to describe the Coronavirus Job Retention Scheme. This entails government financial support paid to employers, so that they can continue paying part of their employees’ salary for those laid off. You may be aware that "laid off" can in itself be a legal term, where some (probably not many) have in their contracts specific terms giving the employer entitlement to lay off. However, it appears that, in the present circumstances, "laid off" is being used in a more general sense. It is being used to describe workers who would otherwise have been made redundant because the business could not continue to support them when there was not work available because of the coronavirus crisis.
What is clear is that all UK businesses are eligible, provided they employ staff. This would include sole traders, partnerships, companies, LLP's etc.
The government guidance states that the employer must designate affected employees as furloughed workers and notify the workers of this change. However, changing the status of a worker in this way is still subject to employment law and may have to be negotiated. In other words, it is not necessarily the case that you can simply tell employees that they are going to be laid off. However, it seems that most employees will inevitably agree to be furloughed. The alternatives would be:
be made redundant, but by a business which may well not have the money to pay them and so they would be left either to sue the employer or to have recourse to government funds;
go home on no pay; or
agree to become a furloughed worker and get 80% or even 100% of their salary for sitting at home.
Some employers might find that they have the odd "militant" employee who insist that they have a right to be a work. I can advise about those, but inevitably they are going to face redundancy.
Once an employee has designated workers as furloughed workers, the employer must submit information to HMRC about the employees who are being furloughed and their earnings. This will be done via a new online portal, but you will understand that this is still being developed as the provisions have just been devised. There may be more information about this later in the week.
HMRC will reimburse 80% of the wage costs of furloughed workers up to a maximum of £2,500 per month. Given that this scheme has been drafted very quickly, it is not initially clear whether the £2,500 per month is the 80% (i.e. 80% of the total salary of £3,125 per month) or 100%. There is more guidance to come, but provisions in the employees’ information suggests that it will result in £2,500 going to the employee.
£2,500 per month is equivalent to a salary of £30,000 per annum, the national median salary. The system is still being set up to deal with this and is not yet ready. The government has also provided guidance to employees, which states that they must not work whilst they are furloughed, otherwise the employer cannot claim the grant.
The employer can choose to fund the difference between the 80% and 100%, but this information appears only in the employee guidance at present. It is clear that the employer does not have to, but again, it seems obvious that most employees would rather sit at home doing nothing for 80% of their usual salary, than face redundancy or not being paid at all.
If the employer chooses to withhold the remaining 20% of wages, they will have to have the employee's consent to do so, but again, this is unlikely to be withheld.
Two questions have arisen already:
What if an employee says he would rather take 80% of his salary than go to work? That is not an issue, as the employer has to agree that the employee is on furloughed leave. An employee cannot say that he just wants to stay at home. There will possibly be some resentment, as it is likely to be the less capable or essential employees who get the “benefit” of being furloughed by not having to go to work, whilst their colleagues, who might be more capable or committed, have to go to work.
Is the system open to abuse as an employer might claim to have sent employees home, whilst in fact keeping them working the employee might not know that the employer is doing this. At present, we have no idea how abuse will be prevented or policed.I will be producing a further update as the arrangements become clearer.
If you need advice about a specific issue, please contact me at syeomans@mslaw.co.uk or on 07712 81317.
