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Coronavirus Job Retention Scheme (Furlough Agreement)


31st March, 2020

What is this; who is eligible and what should employers be doing?

The Chancellor has put in place a series of emergency measures in order to assist public services, individuals and businesses during COVID-19. One of the measures includes a Coronavirus Job Retention Scheme (“Scheme”).

The Government has now published further guidance in relation to the claim for wage through the Scheme:

What is the Scheme?

The Scheme is a temporary measure to assist employers to continue paying all or part of their employee’s wages, with a view to avoiding redundancies or laying off the employee whose operations have been severely affected by coronavirus (COVID-19).

HMRC will reimburse 80% of furloughed workers usual monthly wage costs, up to a maximum of £2,500 per month, plus the associated employer NIC’s and minimum automatic enrolment contributions on that wage.  Commission, fees or bonuses are not included and it seems likely – although the guidance does not address this point – that tips and gratuities may also be excluded.

Can employers top up wages?

Employers can also choose to top up wage costs to 100% but they are not obliged to do so.  For employees earning more than £2,500 per month, employers can choose to fund the differences between this and their normal salary, but they are not obliged to do so.  However, employers should consider the contracts of employment in place.  For most employees on a salary with a guaranteed minimum number of hours, the employer will remain obliged to pay the employee in full if it cannot offer work and therefore the furlough scheme does not replace an employer’s obligation to pay wages.

If there is a clause in the contract which allows employees to be laid off without pay then the payments made under the furlough scheme will be in addition to the employee’s contractual entitlement and there will be no obligation to pay the full amount.

If there is no lay off clause, employers should seek a temporary reduction in salary so that the amount paid by the furlough scheme represents their full entitlement during the period of furlough leave.  The employee’s consideration for agreeing the reduction of salary is that they are being furloughed rather than making them redundant.

What is the amount paid and how is this calculated?

The amount payable will be based on the employee’s normal gross salary (as employees will still have tax and national insurance deducted from income) as well as employer pension contributions and national insurance contributions. Employees or workers who are not on fixed hours or their pay depends on their hours, their monthly pay may vary. It is understood that the 80% grant is applied to the higher of:

(1) the earnings in the same pay period in the previous year; or

(2) the average earnings in the whole previous 12 months (or fewer if they have worked for less time than this, including a part month calculation if they were taken on in February).

The Government will pay cash grants to employers, providing they keep the employees employed and this will be received from HMRC.

Can employees work for anyone else whilst on furlough leave?

Employees will remain employed whilst on Furlough Leave but they cannot work for anyone else whilst furloughed. The concept of Furlough Leave seems similar to “lay off” in that the individual remains an employee but is provided with no work. However, the key difference between Furlough Leave and “lay off” is that in the former the employee is provided with no work but will receive some or all of their pay; whereas in the latter, the employee is not entitled to wages (but they may be entitled to a statutory guarantee payment).

If the employee or worker already has two jobs they would still be able to work for another employer, provided it is not the employer who furloughed them.

How to access the Scheme?

Employers need to designate affected employees as “furloughed workers” and submit information to HMRC about the employees to be furloughed, and their earnings, through a new online portal. The portal is not yet open and the exact information to be submitted is not yet known.

HMRC is currently setting up a system to facilitate payments to employers.

Who is eligible?

All UK wide businesses, irrespective of size, that had started and created a PAYE Scheme on 28 February 2020 and have a UK bank account are eligible for the Scheme and can self-certify that they have furloughed employees.  Any UK organisation with employees can apply, including businesses, public authorities, charities and recruitment agencies (agency workers paid through PAYE).

Where a company is under the management of an administrator, the administrator will be able to access the Scheme.

The government does not expect the Scheme to be used by many public sector organisations as the majority of public sector employees are continuing to provide essential services at this time.

Employers (public or private) who receive public funding for employees or workers and that funding is continued should not use Furlough Leave and instead should pay staff covered by funding in the usual way.

The Scheme does not apply for any employees who were taken on after 1 March 2020.

How to implement the Scheme?

If employers wish to put in place the Scheme, they will need to keep employees on the payroll rather than lay them off.

The limited Government guidance states that “changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation”.

If there is a lay-off clause in the relevant employee’s contract of employment, then employers do not need to seek the consent of the employee to place them on Furlough Leave. Notwithstanding, we suggest that employers provide relevant employees with a Furlough Agreement, which they should sign and date, to ensure that they understand the Scheme.

However, if there is no lay-off clause in the relevant employee’s contract of employment, employers who wish to place an individual on Furlough Leave with less than their contractual pay will need to seek the relevant employee’s consent. Placing an employee on Furlough Leave, on less than their full salary and without their consent in the absence of a contractual lay-off clause, may give rise to claims for breach of contract and constructive unfair dismissal. It is likely that most employees will agree to this given that the alternative is likely to be lay-off or redundancies.

How long will the Scheme be in place for?

The Government has advised that the Scheme will initially be in place for three months from 1 March 2020, but this will be extended if necessary.

The Scheme will cover the costs of wages backdated to 1 March 2020. However, this only covers back payment for those workers who have already been made redundant or laid off. It does not include those employees who were furloughed after the date of the announcement.

If businesses re-employ staff made redundant after 1 March, those employees are eligible to be furloughed and the employer would be eligible for the grant.

When will grants be paid?

Existing systems are not set up to facilitate the grant payments to employers but the Government expects the first grants to be paid within weeks and HMRC are working at getting this done urgently and hope it to be up and running by the end of April.

Do employees still have to pay tax on this?

Yes, employees will still pay Income Tax and NIC’s on any payments received through the Scheme.

Will the grant cover the Employer National Insurance contributions and automatic enrolment pensions?

Yes, employers can apply for a grant to cover Employer NIC contributions and minimum automatic enrolment pension contributions on paying the lower of 80% of normal salary or £2,500 per month.

What if the pay takes them below National Minimum Wage (NMW) or National Living Wage (NLW)?

NMW and NLW apply to hours worked. As furloughed workers are not working during this period, the NMW and NLW do not apply.  However, if workers complete any training during a period of furloughed leave they must be paid NMW or NLW for the period they carried out that work.

What about zero hour’s workers, flexible contracts and agency workers?

The Scheme is designed to support workers who are on the PAYE system.  Therefore, regardless of the contract someone is engaged under or their working arrangement or pattern, they will be eligible if they are on the PAYE system. This includes casual, flexible, zero hour and agency workers.  For atypical workers the 80% grant is the higher of:

  1. The earnings in the same pay period in the previous year; or
  2. The average earnings in the whole previous 12 months (or a lesser period if they have worked for less than 12 months and a pro rata calculation if they commenced work in February 2020).

Does the Scheme apply to employees whose hours and salary have been reduced but are still working?

No, the Scheme is designed to help those who would otherwise be made redundant or unemployed.  The Government has announced enhancements to the benefits system which may support those whose hours have been reduced.

Is there a minimum period that employees can be furloughed for?

Yes, a worker must be furloughed for a minimum of 3 weeks to be eligible to claim under the Scheme. This supports the public health guidance for employers to request employees to remain at home.

However, there is nothing to suggest that an employer cannot rotate staff in and out of the furlough scheme provided each rotation is three weeks long. This not only allows for the employer to focus on those areas of the business that need attention at any one time, but also allows a fair distribution of work and leave among employees.

Can an employee work or train during a period of furlough?

An employee cannot undertake work for or on behalf of an organisation whilst on Furlough Leave. If an employee does any amount of work for the organisation, even on reduced hours or pay, they will not be eligible for the Scheme and the employer will need to pay them in the usual way, subject to any revised terms agreed with the employee.

An individual can volunteer or train, on the strict proviso that this does not involve any manufacture or creation of an item or part of an item that can yield revenue for a company or provide services.

Can employees be made redundant whilst on furlough leave or at the end of the leave?

Yes, whilst the Scheme is designed to help businesses and support them in bringing employees back to work at the end of Furlough Leave, if this is not possible, then employers can make redundancies during or at the end of Furlough Leave.  If an employee is made redundant during furlough leave the employer would not be eligible for further grant payments in respect of that employee.

Employers must still follow normal redundancy procedures and any contractual policies if they wish to make employees redundant, including furloughed employees.  This includes consultation requirements, redundancy payments and notice.

What rights continue under furlough?

Yes, employees will have the same rights under furlough leave, including (but not limited to), statutory sick pay, maternity rights, other parental rights and the right not to be unfairly dismissed.

Will employees accrue holidays on Furlough Leave and what happens if employees cannot take holiday due to furlough leave or the coronavirus and business needs?

We are still waiting for clarification in respect of accrual of annual leave but until we hear otherwise it is assumed that holiday leave will continue to accrue as employees will be entitled to the same rights during Furlough Leave, except for pay.

However, workers and employees who have not taken all of their statutory annual leave due to COVI-19 will be able to carry up to 4 weeks over into the next two years.   However, this is designed for those employees who cannot take leave because they are required in their role as a key worker or essential to the business and unable to take holidays, or unable to take holiday if they have been placed on furlough leave and have been unable to take all their  holiday leave before the end of the holiday year.  Depending on when the employer’s holiday year ends and whether the Government extends the Scheme, it is likely that in many cases, if an employee is placed on furlough leave, the employee is likely to be able to take some or all of their holiday before the end of the holiday leave year which will limit any carry over.

The additional 1.6 weeks must still be taken in the current holiday year.

Can I instruct employees to take annual leave while they are on furlough?

Nothing in the guidance published so far by the Government has covered this.  However, in practical terms, this is unlikely to be beneficial for the employer as they will lose out on the grant payable by the Government for the period of the annual leave.  At this stage there is no guarantee that the Scheme will be extended or how long any potential extension may be for.  An employee will be entitled to be paid in full for holiday leave (rather than the figure capped under the job retention scheme) and this would not be recoverable under the Scheme.  It would also mean having to give notice to cancel the furlough leave and potentially asking the employee to sign another agreement after the annual leave to go back onto furlough leave, which is an administrative burden

However, if requesting an employee to take annual leave, the employer must give them double the amount of notice in respect of the leave it wishes the employee to take. For example, if you wanted someone to take two weeks annual leave, the employer would need to give them four weeks notice.

Practically, it may be better to request employees to cancel their  holiday leave and take it at another time within the holiday year (if possible).  Employers can also request employees to take annual leave provided they given the correct notice, for example, if they wished to request for annual leave to be taken at the end of a period of furlough leave.

Can employees on sick leave be placed on furlough or should they be paid SSP?

The guidance states that an employee on sick leave or other form of unpaid leave will not qualify for furlough.  However, once the leave ends the employer will be free to designate the employee as furloughed.  Indeed the employer would also benefit from no longer having to pay sick pay.  This is something of an anomaly because it means that when someone is actually off sick with coronavirus they will be worse off financially than a healthy employee who is sent home on furlough.  We may see employees declaring themselves fit to work in order to be placed on furlough by their employer.

What if a furloughed employee becomes sick?

It is unlikely that an employer would be obliged to notify HMRC if a furloughed employee becomes ill. Indeed, as long as the furlough lasts there is unlikely to be any reason for the employee to even tell the employer that they have developed symptoms.

Could someone return early from maternity or adoption leave to benefit from the furlough scheme?

It is possible that they could as maternity and other family based leave is unaffected by the furlough scheme.  An employee could give notice to return early and the employer would then be free to place them on furlough leave. However, employers should bear in mind that an employer is not obliged to place them on furlough and may find work for them to do.

What process should be followed to implement Furlough Leave?

Furlough Leave must be with agreement of both parties and cannot be enforced on an employee.  Employers should seek agreement with their staff and agree written contractual changes.    Employers need to write to their staff about the changes and keep a record of this communication to be eligible for the grant. When making decisions as to who to select, usual equality and discrimination laws will apply.

Collective consultation may be necessary if an organisation proposes to change the terms and conditions of employment of more than 20 people.

How can we assist?

We have a range of discounted packages available to assist companies with placing employees on Furlough Leave. Please contact Helen Watson or Debbie Coyne for further details.

An increasing number of clients are contacting Aaron & Partners’ employment law team with issues relating to COVID-19. If you are experiencing difficulties, we have the expertise to assist you in dealing with these concerns.

Date: 31 March 2020

Helen Watson


Head of Team and Partner
Email: [email protected]
Tel: 01244 405 565

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