What do we know so far?
The announcement on Friday 20 March explained that the Government would guarantee 80% of the wage costs of any employees “furloughed” as a result of the pandemic, subject to a cap of £2500 per month. This payment would be backdated to 1 March and would last for three months, subject to review
On 26 March, the Government published additional guidance on how the Scheme would operate. More details may emerge in the coming days and weeks, but this is the best source of information we have at the time of writing.
Who is eligible to claim?
All UK employers that have created and started a PAYE scheme on 28 February are eligible. This includes businesses, charities, recruitment agencies and public authorities, though the Government expects that the use of the scheme by the public sector will be limited.
What employees can be furloughed?
Both full-time and part-time employees can be included in the scheme, regardless of the type of contract, as long as they are paid via PAYE, and were on the payroll on 28 February 2020. The Scheme can also cover employees made redundant since 28 February, as long as they are re-hired by the employer.
However, the scheme is not available for:
- Those on sick leave (though they can be furloughed once their sick leave ends)
- Those who are doing any kind of work for the employer (eg those on reduced hours or working for reduced pay)
- Those who are on unpaid leave, unless they were placed on unpaid leave after 28 February
A separate scheme was announced on 26 March for self-employed individuals.
How will the cap on the Government’s contribution be calculated?
The Government will cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included. The Scheme does not provide finance for pension contributions over and above the legal minimum under the automatic enrolment regime.
The guidance explains what can be claimed for employees whose wages vary. In most cases this will be the higher of the same month’s earnings from the previous year or the average monthly earnings for the 2019-20 tax year.
An employer can choose to top up the employee’s wages beyond this contribution, but will not be obliged to do so.
Must employees agree to be furloughed?
In most cases, employees must agree to be furloughed, since the arrangements will normally amount to a variation of their employment contracts, for which their consent is required.
It is important to realise that no features of the Scheme override the normal principles of employment law, or the requirements of the collective consultation regime.
Is there a minimum period of furlough leave?
The minimum period for which an employee can be furloughed is three weeks.
What are the issues employers need to consider before implementing furlough leave?
There are a number of issues that need to be addressed including:
- How employees are to be selected for furlough leave, ensuring that the selection process is fair and free from discrimination
- What variations of their contracts of employment will be required to implement the period of leave
- How holidays and pension entitlement should be treated
- The extent to which making these arrangements will trigger collective consultation requirements
In all these cases, what is appropriate and legally feasible will vary significantly from employer to employer, depending on the precise contractual arrangements, any occupational pension scheme and whether there is a recognised trade union. Specific legal advice on these issues is recommended.
Also, if any employees selected for furlough leave hold Enterprise Management Incentive (or “EMI”) share options, we’d recommend that you check with your tax advisers whether this will amount to a “disqualifying event” (meaning the option may lose some of the tax breaks available to holders of EMI options).
How soon will the Government’s contribution be paid?
The Government has promised that the Scheme will be up and running by the end of April.
What other sources of Government help for businesses are available?
There are a number of other sources of support being developed by the Government. More information is available here.