Please see our latest update on the scheme here.
How Does the Scheme Work?
- If employers cannot cover staff costs due to the Coronavirus pandemic, they may be able to access support from HMRC to continue paying wages, to avoid laying staff off or making them redundant. All employers, irrespective of their size or sector, will be eligible to apply for the scheme.
- The scheme will apply to workers who are not working, because of the Coronavirus pandemic, but are furloughed and kept on payroll, rather than being laid off. To qualify, workers should not undertake work while they are furloughed, though they will remain employed.
- Employers will be able to ask HMRC for a grant to cover 80% of furloughed workers wage costs, up to a cap of £2,500 per month. Employers can top up the balance of workers’ salaries if they choose to do so, but do not have to.
- To access the scheme, employers will need to designate affected employees as “furloughed workers”, and notify them of this change. The government guidance states that changing the status of employees to “furloughed” remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation. The government guidance also states that, if an employer intends to access the scheme, they will discuss with their employees the prospect of them becoming classified as a furloughed worker, assumedly before this is implemented.
- Employers will then have to submit information to HMRC about the employees that have been furloughed and their earnings, through a new online portal. HMRC is yet to set out specific details of the information required.
- There will not be any limit on the amount of funding available for the scheme.
- The scheme will be backdated to 1 March 2020, and will run for at least three months from that date; after which time the government may extend the scheme if necessary.
Issues on Which We Need Further Clarification
A number of issues remain unclear, and we are awaiting further guidance:
- Will employers need to demonstrate eligibility for the scheme? For example, that staff would otherwise have been laid off or made redundant? And if so, how?
- The scheme applies to workers who are not working, because of the Coronavirus pandemic, but are “furloughed” and kept on payroll, rather than being “laid-off”.
- It is not clear whether workers will have to consent to being “furloughed” or whether an employer will be able to impose this without agreement. Presumably, in light of the government guidance that changing the status of an employee remains subject to existing employment law, the ability to change an employee’s status to furloughed will be dependent on the terms of the employment contract allowing this, or the employee consenting to it (preferably in writing). However, with the alternative options of being laid off or made redundant, it seems unlikely that many employees will object.
- It is not clear whether “lay-off” in this context will be limited solely to the legal meaning of the phrase (i.e. sending workers home with no pay during periods where there is no work for them, without dismissing them); or whether it may also apply to workers who would otherwise have been made redundant. Presumably the latter.
- Will employers need to follow any specific process to select staff for furlough? If there is some work to be done by some employees, but others are to be furloughed, how will employers choose which employees are to be furloughed?
- The Chancellor indicated that the scheme will cover workers on the PAYE system, so presumably it will apply to employees and workers (not self-employed contractors); but how will it work for those on casual or zero hours contracts?
- The scheme will pay 80% of “wage costs” up to a total of £2,500 per month.
- It is not clear whether this cap will be gross or net, but it is likely to be the former and to include national insurance contributions; possibly also pension contributions.
- It is not clear whether employers will have to fulfil any conditions to obtain this “grant” – such as staff consultation and/or an agreement not to make any redundancies for a specific period of time.
- What will happen where a furloughed worker becomes sick? What would the rate of statutory and company sick pay be?
- Employers will be able to “choose” whether to top-up salary to 100%; however, presumably they will remain bound by contractual salary provisions and (where these are higher than the maximum salary payable under the scheme) will have to top salary up to 100% unless they reach agreement with furloughed workers to waive all or part of the excess over the value of the grant. Employers will also presumably have to keep paying any other contractual benefits.
- The scheme will be in place until at least 1 June 2020, but there is no certainty around how long social distancing measures will be in place or what the position for the scheme will be from 1 June 2020 onwards. How long will the period of furlough last? Will the arrangements be open-ended or for a fixed period? How will employers call staff back from furlough?
There are clearly still many unanswered questions, and employers will need more comprehensive guidance from the government in respect of the provisions of the scheme and how it will work in practice. If you need any further advice on the points outlined above, please do contact a member of our Employment Team.
All content on this page is correct as of March 24, 2020.