The scheme is temporary and open to all UK employers from 1 March to 30 June (extended from 31 May to reflect continuing social distancing measures).
It is one of many schemes being introduced by the Government to support employers whose businesses have been severely affected by the Coronavirus, and to help them to continue paying employees who would otherwise be laid off or made redundant.
We have set out below some of the key points from the Government guidance, together with answers to frequently asked question about the scheme.
1. What is the Coronavirus Retention Scheme?
It is a grant (not a loan) for employers, whereby the employer will designate an employee as a “furloughed worker”. A furloughed employee remains employed throughout the period of furlough. The employee is simply placed on a form of temporary leave of absence. Through HMRC, the Government will subsidise the earnings of furloughed employees (up to 80% of pay, capped at £2,500 per month per employee). To be eligible, employees must not undertake any work, while on furlough, for the employer that has designated them as a furloughed worker.
2. Which employees are covered?
All employees on the PAYE system on 19 March 2020 are covered (NB: the most recent update has changed the payroll eligibility date from 28 February 2020 to 19 March 2020). This includes part-time, temporary, casual workers, those on zero-hour contracts and “shielding” employees.
In addition, where an employee was made redundant prior to the scheme being announced, an employer can rehire the employee and place them on furlough.
Employers are able to rotate which workers are furloughed. Any given period must last a minimum of three consecutive weeks but there appears to be no limit on the number of times that an employee can be furloughed.
An employee cannot undertake any work whilst they are furloughed, other than training.
3. Which wage costs are covered?
An employer can claim for any regular payments that they are obliged to make, including past overtime, fees and compulsory commission. Discretionary commission is not included, and neither are discretionary bonus payments (including tips) or non-cash payments.
4. Is collective consultation required if an employer intends to put 20 or more employees on furlough?
Yes – where the employer intends to vary the contracts of 20 or more employees, it may be necessary to engage in collective consultation processes to obtain employee agreement to be placed on furlough.
5. How should an employer select employees?
Where there is an urgent need to furlough employees, a limited selection procedure may be acceptable. However, where there are no immediate financial concerns, the employer will likely need to carry out a more comprehensive selection procedure. In any event, when deciding which employee to furlough, the Equality Act 2020 will apply and an employer should have fair and transparent reasons for requesting some employees to agree to furlough but not others and ensure that their decision is not based on discriminatory criteria.
6. Can an employee request to be furloughed?
An employee can request to be furloughed but the employer does not have to agree. It is the employer responsibility to designate employees as furloughed.
7. Are employers required to top up the remaining 20%?
There is no obligation for employers to top up the remaining 20% but they may choose to do so. However, the employer must obtain employee consent if it proposes to reduce pay to the maximum HMRC grant otherwise withholding the additional 20% could amount to an unlawful deduction of wages.
8. Can furloughed employees do work for other employers?
Yes – provided that their employment contract and/or existing employer permits the employee to do so.
9. Does an employer need consent if it wishes to furlough employees and maintain full pay and benefits?
The guidance makes it clear that the best approach is to reach agreement with employees. Therefore, even if an employer proposes to maintain full pay and benefits during the furlough period, they should seek to agree as opposed to imposing furlough with their employees. Once agreement has been obtained, employers are required to notify employees of their furlough status in writing and keep the record of that written notification for five years.
10. What happens if the 80% of an employee’s wage is below the national minimum wage rate?
An employee can still be furloughed and the employee will only be paid 80% of their wage. This is because the national minimum wage rate applies to hours that an employee works. Whilst an employee is furloughed, they will not be working any hours.
11. Can apprentices be furloughed?
Yes. The apprentice can continue to train whilst furloughed but the employer will be required to pay the minimum wage whilst the apprentice is training and may therefore have to top-up the amount that is claimed from HMRC.
Redundancy and termination
12. Can furloughed employees be made redundant?
The employee guidance says that “your employer can still make you redundant while you’re on furlough or afterwards”. Once the scheme has ended, an employer will have to decide whether a furloughed employee returns to work or is made redundant. If redundancies are inevitable, employers must comply with the relevant procedural requirements. Employers should note that redundancy payments cannot be reimbursed through the scheme.
13. Can notice be served while an employee is on furlough?
Whilst the guidance does not address this question, there appears to be no reason why a furloughed employee could not be served with notice of termination (or paid in lieu).
Paid and unpaid leave
14. Can an employee be furloughed if they are on maternity leave?
The guidance provides that employers can claim for enhanced maternity pay through the furlough scheme. This would imply that employers can furlough employees on maternity leave. If an employee on maternity leave agrees to be furloughed, then you will be able to reclaim their SMP in the normal way. You will then be able to claim for any enhanced contractual pay on top through the furlough scheme.
15. Can an employee be furloughed if they are on sick leave?
The HMRC guidance on 9 April 2020 states that although the scheme “is not intended for short-term absences from work due to sickness”, employers can furlough employees who are off sick if they have “business reasons” for doing so. The guidance states that these employees “should no longer receive sick pay”. However, this guidance from HMRC appears to be inconsistent with the HM Treasury Direction on the scheme, which was published on 15 April 2020. It appears from the Direction that a period of furlough cannot begin until an employee’s entitlement to SSP has ended, irrespective of whether or not the employer is actually paying the employee SSP.
In respect of employees who are on long-term sick leave, the HMRC guidance states that employees can be furloughed and the employer can make a claim for them under the scheme. The guidance states that it is for the employer to decide whether or not to furlough such an employee. On the basis that the employee has exhausted their entitlement to SSP, the HM Treasury Direction appears to not have an issue with this.
16. What happens if a furloughed employee becomes sick?
If an employee falls ill during a period of furlough leave, the guidance states that there is no obligation on the employer to end the period of furlough and move the employee onto SSP, although the employer can choose to do so. Therefore, if the employee remains of furlough, the employer can continue to claim back their salary through the furlough scheme. However, if the employee is moved onto SSP, the employer will have to pay the SSP amount and cannot continue to claim their salary through the scheme.
17. Can an employee take annual leave whilst furloughed?
The updated guidance confirms that employees can take annual leave while furloughed. Employers must pay furloughed employees their normal rate of pay for a period of holiday, rather than any reduced amount they receive during the furlough period.
18. Does annual leave accrue during a period of furlough?
Yes, statutory annual leave will continue to accrue as normal during a period of lay-off or furlough during the COVID-19 crisis. This is because the contract of employment will continue to be in existence during this period.
Contractual annual leave in excess of the statutory minimum will also continue to accrue, unless the contract specifically provides otherwise.
19. Can an employee unable to take holiday due to COVID-19 carry-over their annual leave?
The Working Time (Coronavirus) (Amendment) Regulations 2020 (Regulations) will permit a maximum of up to four weeks of unused leave to be carried over into the next two leave years, where it was not reasonably practicable for a worker to take some or all of that leave in the leave year as a result of the effects of COVID-19.
The amendment to these regulations will ease the obligation on employers to ensure that employees use up their statutory amount of annual leave in the year.
20. Can an employer require that annual leave be taken once the furlough period ends?
In principle, yes. The employer would need to give sufficient notice, and would also need to consider whether such a period would be regarded as a period of rest and relaxation as is the purpose of annual leave. This would be dependent on government guidance at the time. This argument may not necessarily succeed if used. Also, if furlough were to come to an end, government guidance may also be more relaxed allowing annual leave to satisfy the rest and relaxation requirement.
21. If an employee is transferred under TUPE after 28 February 2020 or 19 March 2020, can they be furloughed?
Employees who have transferred to a new employer under TUPE after 28 February or 19 March will be eligible for furlough. The scheme can also be used if companies consolidate their payroll after 19 March 2020. The updated guidance states “A new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 28th February 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.”
22. Can an employee work for a different employer whilst on furlough?
Yes, as long as the employee does not work for the employer seeking reimbursement, or for a linked or associated business. Employees should be aware that their contracts of employment are still in force during any furlough period and therefore, restrictions will still apply. Employers may choose to relax these restrictions in the current circumstances.
Employees starting work, should confirm their furloughed status in a Statement C of the PAYE starter checklist for the new employer.
23. Can an employee be furloughed by more than one employer?
Yes. Each employer will be reimbursed for 80% of the employee’s salary up to the £2,500 cap.
24. Can a furloughed employee do volunteer work?
Yes, provided that the volunteer work is not for the employer claiming the reimbursement, a furloughed employee can do volunteer work.
25. Are foreign nationals with visas eligible for the furlough scheme?
There is no prohibition against foreign nationals accessing funds through the furlough scheme provided they comply with the requirements for all employees.
26. Are there additional issues to consider if I want to furlough an employee who is sponsored under Tier 2 of the immigration system?
Yes. These employees may be entitled to a minimum salary under the immigration rules. If their working hours or pay are reduced, there are likely to be reporting obligations to UK Visas and Immigration. The immigration rules may also restrict your ability to reduce pay.