Restaurants, theatres and shops have forced to close in the UK because of coronavirus - leaving millions of people out of work
In a bid to safeguard jobs following the outbreak of coronavirus, the UK government has introduced a scheme that will enable businesses to recover wage costs for employees on “furlough leave”.
The package of measures, called the coronavirus job retention scheme, will help to alleviate the impact of Covid-19 and keep Britain’s economy moving during such uncertain times.
Since the announcement on 20 March, law firm Nelsons reported it had received a huge number of enquiries from a range companies – including retailers, restaurants and bars, manufacturers, and call centres – wanting to implement the scheme and seeking advice.
Laura Kearsley, partner and solicitor in the employment law team, explains how it will work and what actions businesses need to take.
What is furlough leave and who can participate in the coronavirus job retention scheme?
The scheme will enable businesses to recover 80% of wage costs for employees on “furlough leave”, which is an entirely new concept and a new class of indefinite leave where the government will reimburse the employer for wage costs.
This has been introduced as an alternative for employers who might have otherwise implemented redundancies, lay-off, unpaid leave or other measures for their employees.
All UK businesses are eligible to claim under the scheme. It seems that employees will be covered, but not other workers – such as casual staff or contractors – or the self-employed.
The government has announced that the scheme is available for at least three months from 1 March 2020 and will be extended if necessary.
What costs can employers recover from the coronavirus job retention scheme?
The coronavirus job retention scheme allows for 80% of wage costs – which are expected to include wages, pension contributions and employer national insurance contributions – to be recovered up to £2,500 per month per employee.
There is no limit on the number of employees or the duration.
What do employers need to do in furlough leave?
Employers and employees will need to agree the members of staff being designated as “furloughed workers”.
This should be straightforward because this route will no doubt be more attractive to employees than redundancy, lay off, unpaid leave or a reduction in pay.
We are recommending employers send a letter or email to each employee concerned and get them to agree to the change in status formally in writing.
Employers will then need to submit details to Her Majesty’s Revenue and Customs (HMRC) through a new online portal, which is being set up urgently.
It’s also worth noting that employees cannot elect to be a furloughed worker without their employer’s agreement.
Does the employer have to top up the employee’s pay to 100%?
No, they do not. Some employers may wish to make up the shortfall, while others may not be able to.
This just needs to be made clear to all employees concerned. We do recommend that each employer adopts a consistent approach.
What about employees that have already been dismissed or taken unpaid leave?
The scheme is backdated to 1 March 2020 and employers are being urged by the government to take back anyone they had already dismissed and convert them to this leave instead. Likewise, with anyone who is on unpaid leave.
What situations will the coronavirus job retention scheme not help with?
Furlough leave is recommended for anyone that would have otherwise been laid off or made redundant due to the impact of coronavirus on an employer’s business.
It does not help with any situations where employees had agreed to reduce their hours or to a pay cut but where they are still required to work.
There is currently no option to do a mixture of reduced hours and furlough leave.
How will this affect the employment status of employees?
The employees concerned will remain on the employer’s payroll and continue to accrue holiday and service.
It is also important for businesses to acknowledge this scheme may create resentment between employees.
Some will still be at work getting either full or reduced pay, while others will be on furlough leave getting paid at least 80% for doing nothing, and those who are off sick – as they are ill or self-isolating – may only be getting statutory sick pay (SSP), which, at around £95 per week, is likely to be less than 80% of full pay.
There will be an incentive for employees not to notify their employer if they become sick or need to self-isolate during furlough leave because of these adverse pay consequences.
Likewise, the employer will also be better off as they can only reclaim 14 days of SSP as opposed to indefinite furlough leave pay.