Thinking furlough? Here’s what you need to know

furlough-staff
Emma Swan, head of commercial law at Forbes Solicitors breaks down the legal jargon of furlough including when employers should pursue the process in light of COVID-19.

Huge numbers of people working across a wide range of sectors are affected by the disruption caused by coronavirus, with many employees now finding it difficult to work.

Companies are also contending with a decline in sales which puts the jobs of tens and possibly hundreds of thousands of employees at risk of losing their jobs as management aims to cut costs and keep companies afloat.

The Government, keen to avoid this, has introduced its Job Retention Scheme – which is why many businesses will have started to hear much more about the term ‘furlough’.

How will the Job Retention Scheme work?

The Job Retention Scheme is open to any companies experiencing financial disruption caused by coronavirus. If employers are looking to lay staff off, the message from the Government is; ‘don’t do this, we’ll help pay a significant proportion of their wages.’

This means employers can keep staff on payroll and claim payments back from the Government to help staffing costs.

What proportion of wages will it cover?

wages

The scheme will cover 80% of usual wages, capped at £2,500 per month per employee. A company would use its standard weekly or monthly payroll process to pay staff salaries and then claim back the payments from the Government.

The scheme is open to all UK employers that had created and started a PAYE payroll scheme on 28th February 2020.

Companies will be able to backdate wages for affected workers to 1st March 2020 and make claims against three months of salary. This timeframe may well be extended depending on the spread or containment of the virus.

The scheme will be up and running by the end of April and more detail about how companies will reclaim wages from the Government is still to be released, but it will probably use a designated and secure online portal.

What is furlough?

Broadly speaking, ‘furlough’ is the term applied to those workers at risk of being laid-off because of coronavirus disruption and who will be entered into the Job Retention Scheme. Companies will nominate ‘furloughed workers’ who will be deemed eligible to receive government support to help pay wages.

At this point, management should consider whether the salary of furloughed workers will be reduced in line with the 80% or £2,500 per month cap, or if they will top-up wages so that the worker doesn’t see a difference in their take-home pay. This will not be feasible for all companies and may mean an introduction of salary reductions.

Can employees refuse to be furloughed?

Yes, furlough will require negotiation and agreement with the employee. It is a change in employment terms – as is asking an employee to accept a pay cut – and staff have the right to refuse changes. It’s worth noting here that the vast majority of employees will already be well aware of the impact coronavirus is having on jobs.

Employers should be able to clearly explain to employees how their business is being impacted, the risk it poses to jobs and why they are opting for furlough to avoid having to make redundancies. This is likely to help with staff negotiations and their acceptance of being furloughed in the current climate.

What happens when an employee becomes a furlough worker?
worker

When an employee joins the Job Retention Scheme, they will stop doing any work activities and will cease their duties until they leave the scheme, whilst remaining on company payroll.

On the surface, this seems like they’re getting 80% of salary for doing nothing. However, it means a company is retaining staff, enabling them to quickly resume operation when trading conditions and the economy starts to improve, rather than having to then spend time and money on rebuilding a workforce. It also massively helps employees who would otherwise be at risk of having no income during a particularly difficult time for the country.

Who is eligible for the Job Retention Scheme?

All employees in work can be considered for furlough. Companies should think about key factors such as; can an employee work from home? Does the employee have any work to do? Can they complete work activities during lockdown? How has company revenue been affected by coronavirus? Can I still afford to pay workers?

Companies should look at these points and start determining a clear financial need for furlough and how coronavirus disruption is putting jobs at risk. The application process is being finalised, ready for the scheme to be live by the end of April, but preparing such detail should help businesses ensure they’re well prepared.

What should I do next?
Once a company has determined the financial impact of coronavirus and identified how many jobs are at risk, they should consider whether they ask employees to volunteer for the Job Retention Scheme or if they are going to take a standard approach to introducing it across designated parts of the workforce.

In particular, they need to ensure they follow fair process or could be at risk of claims, such as discrimination, from employees. Businesses should start to develop their process for selection and application of the scheme and prepare communications that clearly explain changes in employment to staff. These should outline the impact of coronavirus and why changes are necessary to avoid job losses.

The Job Retention Scheme is designed to help minimise the overall economic impact of coronavirus and help companies survive these challenging and uncertain times. Although full details of the scheme are still to be released, companies should be prepared and ready to seek help to support staffing costs.

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