The Government is frequently issuing new guidance about how the Coronavirus Job Retention Scheme (also known as Furlough Leave) will operate in practice. The latest guidance can be found here:

The Government Guidance

The HMRC Direction

A step-by-step guide for employers

Here, we set out answers to some frequently asked questions on this new scheme based on the position as at 30 April 2020. The guidance is not legally binding and can, and has been, changed by the Government. It is therefore important to check the most up-to-date position.

Which employers are eligible to access the scheme?

Any UK organisation with employees can apply for the scheme, provided that they:

  1. have created and started a PAYE payroll scheme on or before 28 February 2020
  2. are enrolled for PAYE online (the Government states that this can take up to 10 days)
  3. have a UK bank account

However, the Government's expectation is that the scheme will not be used by many public sector organisations on the basis that the majority of these employees are providing essential services. In addition, where employers (including non-public sector employers) are continuing to receive public funding for staff costs, they are expected to use that money to continue paying staff rather than claim under this scheme.

Which employees can employers claim for?

The scheme only applies:

1. To employees who were on the PAYE payroll on 19 March 2020

Employees who have left their employment since 19 March can also be included provided they are re-employed by the employer. We would, however, strongly advise employers to take advice before re-employing employees as there are a number of less obvious consequences of doing so which need to be considered.

The definition is wide and includes employees on agency contracts and flexible or zero hours contracts. LLP members and ‘Limb-B’ workers can are also eligible. Fixed term contractors may be furloughed if they are still within their contract term.

The scheme does not apply to those who are self-employed but a separate similar scheme has been introduced for them.

Additionally, employed Directors of businesses may be furloughed; however, they are still able to act in their capacity as Director to comply with certain statutory obligations in this role.

2. If the employee is not undertaking work for the employer

The employee must not carry out any work for or on behalf of the employer. This means that employees who are working but on reduced hours are not eligible.

Employees are able to undertake training and do volunteer work, provided they do not provide services to or make any money for their employer.

3. Where employees are on Furlough Leave for 3 weeks or more

Furlough Leave must be taken in minimum blocks of three weeks to be eligible for funding.

What about employees on sick leave?

Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this period.

Employees who are “shielding” in line with public health guidance can be placed on Furlough Leave.

The guidance also states that employees who are unable to work because they have caring responsibilities resulting from coronavirus can be furloughed. This would include, for example, employees that need to look after children.

What about employees with more than one job?

The guidance on this is clear. If an employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap of 80% of wage costs or £2,500 applies to each employer individually.

Interestingly, the guidance states that employees can begin work for a new employer whilst on Furlough Leave. However, the terms of their existing contract of employment may prevent this and should be checked.

Can employees insist on being placed on Furlough Leave?

No, employees cannot unilaterally choose to be on Furlough Leave – the agreement of their employer will be needed.

Can employees and employers come in and out of the scheme?

Employees can come in and out of the scheme, provided that any periods of Furlough Leave will last for at least three weeks. So, for example:

  • Employers could rotate Furlough Leave amongst employees, provided each employee is off for a period of at least three weeks; or
  • Employers could place employees on Furlough Leave from 20 March 2020 for three weeks, then after that require the employees return to work for urgent April work for two weeks, and then back into Furlough Leave for three weeks after that (assuming the work is in categories that remain permissible).

What process will employers need to follow?

1. Decide which employees it is proposed to place on Furlough Leave

If not all of the workforce is to be placed on Furlough Leave care must be taken, and fair process followed, to determine which employees will remain at work and which will be on Furlough Leave. For example, it will be important to ensure that any decisions are not discriminatory. The guidance makes clear that equality and discrimination laws apply in the usual way in this context.

An employer could initially ask for volunteers. However, this may result in more volunteers than the employer wants to furlough.

2. Notify selected employees of the proposed change of status to “Furlough Worker”

The next step is designating employees as “Furlough Workers”. In the vast majority of cases, the employer will not be able to unilaterally impose a change of worker status to “Furlough Worker”. In most cases, employee consent will be required. This means that most employers will be required agree the change with employees to agree the designation. The guidance states that “if sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.” We can provide advice on the process to follow for your organisation.

In the current unusual circumstances, it is anticipated that many employees will agree to this change. However, employers will also need to consider what steps they will take in the event that agreement is not reached.

Negotiation and agreement might not be needed where the employment contract gives the employer the unilateral right to withdraw work. This is not likely to be the case for most employers.

3. Employee Notification

There will then be a formal process of notifying the employees in writing of their designation as a Furlough Worker. Ideally, the employer should advise how long it expects Furlough Leave, and set out the pay arrangements which will apply. We recommend that employers put Employees on Furlough Leave for an initial period, subject to review. This notice must be kept for five years.

4. HMRC Submission

The final step is submitting details about the Furloughed Workers and their earnings to HMRC. The following information will be needed:

  • the Employer’s ePAYE reference number
  • the number of Employees being furloughed
  • the claim period (start and end date)
  • amount claimed (per the minimum length of furloughing of 3 weeks)
  • the Employer’s bank account number and sort code
  • the Employer’s contact name
  • the Employer’s phone number

The information requires to be submitted through an online portal, which is accessible here.

For detailed guidance on how to claim under the job retention scheme, please see the official guide.

What payments will employees receive under the scheme?

HMRC will reimburse the employer for 80% of Furloughed Workers’ wage costs, up to a cap of £2,500 per month plus the associated employer NICs and minimum auto-enrolment pension contributions on that wage.

The guidance on the inclusion of fees, commissions and bonuses has changed since the scheme was first introduced. The guidance currently states:

“You can claim for any regular payments you are obliged to pay your employees. This includes wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments should be excluded.”

What is clear is that salary should not include the cost of non-monetary benefits provided to employees, including taxable Benefits in Kind. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included in the reference salary.

Advice should be sought if the employer pays pension contributions in addition to minimum auto-enrolment pension contributions, as such further pension payments may still require to be paid by the employer and changing those arrangements may need consultation.

HMRC has confirmed that, once a claim has been made, companies will receive money within six working days.

How will wages be calculated?

More detailed guidance, including an online calculator, provides details of how the 80% wage costs will be calculated. This can be accessed here.

Broadly, for employees with fixed salaries, the 80% calculation is based on the employee's gross salary at 28 February 2020.

For employees whose pay varies, the employer can claim for the higher of:

  • the same month’s earning from the previous year; or
  • average monthly earnings from the 2019-20 tax year.

Do employers have to pay the remaining 20% of salary?

There is no automatic right for employees to be paid the remaining 20% of salary not covered by the scheme. However, this may be a topic which may form part of the negotiations with employees when agreeing their change of status.

Is £2,500 the net amount the Employee receives or is it subject to tax and NI?

The sum paid to the employee during Furlough Leave is subject to income tax and national insurance in the usual way.

What is the position if 80% of pay is less than national minimum wage based on normal working hours?

The guidance states that employees on Furlough Leave do not need to be paid national minimum wage with reference to their normal working hours as they are not working. However, if they undertake any online training then they must be paid the national minimum wage in respect of those training hours.

How long will the scheme last?

The scheme is backdated to 1 March 2020, open for at least three months and will be extended if necessary.

Will employment rights continue to accrue during Furlough Leave?

Employees will remain employed during Furlough Leave and will retain their length of service.

If you have any questions about Furlough Leave which are not covered above, please do not hesitate to contact a member of our specialist Employment Law team.