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Furlough Leave - Advice on the Basics

View profile for Ayesha Casely-Hayford
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For those feeling in the wilderness when it comes to Furlough Leave, I’m here to help!

This article is designed for employers and employees. You can jump to the relevant headings, or read the whole lot and feel better informed.

“Know Furlough. Peace of Mind in Uncertainty”

A health warning for this article is that the UK government’s furlough leave scheme is not in action yet. Therefore, the practical application and nuances of the scheme are yet to be experienced.

What is it?

When you hear the UK government talking about “Furlough Leave ” they are referring to the UK Coronavirus Job Retention Scheme. It is not creating new employment rights, but providing a way to protect people’s jobs during the Covid-19 pandemic.

When on Furlough Leave, work cannot be carried out for the employer but wages are paid.

How does it work?

There will be an online portal for employers to use where they claim a subsidy for wages from the government: HMRC pays the employer via BACS, and then the employer pays those individuals designated as furloughed.

The wages subsidy that may be claimed from the government is 80% of “normal pay”. This is up to a maximum of £2,500. Tax is payable on the subsidy, in the usual way.

“Normal pay” excludes bonuses and commission.

Where there is no set monthly salary, there is a calculation of wages as follows:

(1)  take the corresponding earnings from the previous year (i.e. how much was earned in April 2019? Use this figure); or

(2)  take an average of earnings over the whole tax year 2019/2020; or

(3)  If there are no earnings, take the best average you can.

The scheme should be ready before the end of April. The scheme is intended to be temporary, but will last for at least three months.

Who is eligible?

All employers operating a PAYE scheme are eligible. The size of the business and whether it is private or public does not matter.

A wage subsidy may be paid for anyone on a PAYE scheme and therefore this could be an employee, a worker, an independent contractor or a zero hours worker. It is the tax situation that is relevant, rather than the nature of the contract.

The individual must have been on a PAYE scheme since 28th February 2020.  Apart from that no qualifying period of service is relevant.

Details for Employers

•   The decision as to who to offer work to and who to designate as being furloughed, is yours.

TIP: usual employment law principles still apply. Be mindful of your duty of trust and confidence, do not be irrational in how you make your choice of who to furlough or not. Be sensitive to discrimination issues and think about individual circumstances: does the individual have resources to work from home? Are there any disability needs? These considerations may help guide you to justify decision making, and also assist with placating employees who may feel aggrieved with your furlough decisions.

•  The subsidy does not affect contractual entitlement to wages.  You must check contracts and seek legal advice on the contractual position if unsure.

TIPS: There may be a contractual duty to pay 100% of wages and therefore a contractual duty to top-up the 80% government wages subsidy to 100%;

•  A contractual variation to accept 80% of wages could be agreed with the individual in return for the expectation of not doing any work;

•   If there is no contractual provision to allow for 80% of wages to be paid you must seek consent from the individual. Send a “furlough letter” obtaining agreement that the individual accepts 80%of their wages during the furlough period.You can obtain a Furlough Leave precedent letter from a legal advisor.

•  Redundancies can be made during the Furlough Leave Scheme. However, you should seek legal advice before making moves in this area. Furlough does not interfere with the normal operation of employment law and the reasonableness test still applies to dismissals.

TIP: during this time redundancy should be given particular circumstantial care in respect of the reasonableness of your decision during the Covid-19 pandemic. Why did you choose redundancy over furlough? What exploration have you done to simply continue to furlough? A Tribunal may look hard on an employer who choses redundancy rather than furlough and therefore takes that opportunity away for someone.

•  Redundancies being made after the furlough scheme has ended are subject to the usual UK Law redundancy procedures. We will have to see what economic circumstances the country is in but the current view is that redundancies are very likely and Tribunals will be sympathetic to employers in light of this.

•   Furlough Leave applies for a minimum of three weeks. If fair to do so, you can rotate individuals on and off Furlough Leave in three-week blocks.

Detail for Employees

•  The decision as to who to offer work to, and who to designate as being furloughed, is your employers not yours.

•  You do not have the right to object to being placed on Furlough Leave. However, you may object to being paid 80% and not 100% of your salary if your contract supports this. Seek legal advice on your contractual terms if you are unsure, or enquire with HR.

•  You can can still carry out charity work and/or volunteer work and/or training whilst on Furlough Leave.

•   If you are on sick leave, annual leave, maternity leave, shared adoption leave (etc) you are entitled to your relevant contractual pay entitlements and NOT entitled to be furloughed.

•    If you have two jobs, it is possible for you to be furloughed on one and not the other.

TIP: Nothing is stopping you increasing hours, and therefore your pay, on the job you are still working in, since you have been furloughed on your other job(s) and therefore have more time!

•    During furlough you cannot carry out any work for your employer. If your employer has work to offer you, even if it is less work, you will not qualify for the furlough scheme.

TIP: When on Furlough Leave, it may be impossible to not have some involvement in the business. For example being kept up-to-date here and there, assisting on emails, or taking the odd phone call to discuss matters that are relevant for protecting the business. There may be a reasonable minimum level of activity that will not violate or conflict with your Furlough Leave. If you have concerns about how much you are being asked to do by your employer when you have been furloughed, you should raise the matter with HR or seek legal guidance so that an understanding can be reached.

Congratulations, you Know Furlough!

I hope this Furlough Leave article gives you more confidence, and peace of mind, in these uncertain times.