The Coronavirus Job Retention Scheme is designed to protect jobs in businesses that would otherwise be forced to make redundancies due to disruption caused by COVID-19.

In order to access the scheme, employers must change the affected employee’s status to being that of furlough.  That is to say on a period of temporary cessation of work. During this period they must undertake none of their normal duties, with a few exceptions.  For the avoidance of any doubt this is a new concept in UK employment law and did not exist before March 2020 as a legal term.  Please note that changing an employee’s status under this will not have a contractual right, and therefore will require agreement from employees to do so.

­­­­Any business (although notably not all employers) with a PAYE scheme in place on 28 February 2020 and a UK bank account, can benefit from the scheme, with the Government reimbursing employers up to 80% of the wages of their employees, up to a maximum of £2,500 per month, plus employer’s NICs and auto-enrolment pension contributions.

Employers are free, subject to the constraints of Employment Law, to pay the remaining 20% should they choose to, but they are under no obligation from the Government.  The scheme is clearly, for both employers and their employees, preferable to the alternative of the employees being made redundant.

For workers whose pay varies, the 80% should be based on whichever is higher:

• earnings in the same pay period the previous year
• average earnings in the previous 12 months

When furloughed employees are paid the minimum wage, paying only 80% of their earnings will bring their wage below the NMW, but will not contravene the legislation as they are only entitled to the NMW if they are working.

The decision to as to whether an employee is to be considered for furlough status is the employers. It is not the employee’s decision. Thereafter it is for the parties to agree a change to the contract if the employee’s status is to change or if wages are to be reduced to the level of the government grant during furlough; of course if agreement is not reached then the Employee may find themselves subject to either a redundancy or formal lay off procedure – which could be significantly worse for them.

The scheme also covers employees who have been made redundant since 28 February 2020, including potentially employees in a company placed into administration, if the business re-hires them and then places them on furlough.

Nothing else changes

These are extraordinary measures, but the basics of existing employment law remain in place during the crisis, having been augmented but not replaced by furloughing and other aspects of the Coronavirus Job Retention Scheme.

The aim of furloughing is to keep money circulating through the economy by paying employees directly – enabling them to continue meeting expenses such as rent, mortgages and food bills – at the same time as enabling businesses to remain viable and hopefully, emerge from the crisis still able to function.

It needs to be noted that the details of a scheme such as this – and similar measures to support self-employed people – are being tweaked and altered as feedback comes in and the real world roll-out uncovers any number of glitches, loopholes and potential problems.

Eligibility

In cases where the employees would otherwise have to be made redundant or laid off, they can agree to being furloughed providing they were on the PAYE payroll of the employer on 28^th February 2020.

This can include full and part time employees, agency employees on agency contracts who are not working during the crisis, and workers on zero hour contracts who are defined as employees on flexible contracts.

Employees who are currently on sick leave can be placed on furlough leave when the period of sick leave comes to an end, if the alternative would be for them to be made redundant or laid off. The same applies to employees who fall into a vulnerable group and are currently shielding themselves as per government instructions.

Many people in the current employment environment hold down more than one job at a time, of course, and employees such as these are in a position where they could be placed on furlough and receive 80% of each salary up to a total of £5,000 per month.

The rules offer a degree of flexibility, so if an employee is furloughed by one employer but not by a second, they will be able to receive 80% of the salary from the first employer, whilst continuing to receive the normal salary paid by the second.

One of the potential glitches in the system is that an employee in this position may be able to do extra work for the second employer, thus boosting their income, while receiving furlough income in respect of the first.

Although the rules drawn up around furloughing allow for these circumstances – stating only that the employee must do no work for the employer by whom they have been furloughed – it does throw up a potential breach of contract.

The employment contract in relation to the first employee may state or imply they the employee shouldn’t work elsewhere, and the sensible way forward would be for the employee and employer to negotiate exactly how the situation will be allowed to evolve.

[This is misleading. If an employee insisted on such the employer’s response, and our advice would certainly be, to look at lay off or redundancy, or it could insist upon the employee working in some capacity].  Another possible scenario is for the employer to ask for new restrictions on working elsewhere to be imposed, particularly if this prevents the employee from working for a direct competitor.

Business Owners

Other people who are eligible for support under the scheme include business owners and partners who pay themselves a PAYE salary, which may impact on director-shareholders who pay themselves mainly in dividends, as only the PAYE aspect of their earnings will be covered.

Salaried partners paid via PAYE will be eligible for the scheme, although partner owners and limited liability partnership (LLP) members, who are regarded as self-employed and not paid via PAYE, will not be.

They may, however, provided the money they earn comes below a specific threshold, be able to apply for support via the self-employment version of the 80% scheme.

Agreeing to furlough employees

It must be remembered that the change in status brought about by the furlough scheme means that it is covered by existing employment law.

In most cases, when the alternatives are considered (i.e. redundancy with perhaps the promise of a redundancy payment at some point in the future), employees will presumably be happy to accept being furloughed.

For some employers where trade has slowed but not ceased, the process may involve furloughing only a set percentage of workers, as some are still needed to carry out the available work.

This brings risks with it – some employees may be resentful that they are being seen as ‘dispensable’ and can therefore be furloughed, while other may not take kindly to having to continue to work while colleagues are furloughed with 80% of their income.

Problems are particularly likely to arise amongst employees who earn a wage in excess of the £2,500 per month cap, for whom furloughing will have a more severe financial impact.

Further an employer will have to be careful that it does not discriminate against any employee whom it decides to consider for furlough on the grounds of any protected characteristic, as such could lead to a claim before the Tribunal.

In order to minimise any ill-feeling during the furlough process, and reduce the risk of claims of discrimination being made in the future, a sensible employer would draw up a strict set of criteria for selecting employees to be furloughed, basing it on the same kind of principles used for redundancy, such as time in post, productivity, work-place appraisals etc.

The more objective measurements which can be introduced into this process, the stronger the position of an employer will be in the future.

Applying for Government Grant

The scheme will become operational via an on line portal from 20 April 2020, although any claim may be backdated to 1^st March. At the moment the scheme has been put in place for three months, until 31^st May, although this is open to review and has the scope notably to be extended.

Employees can be moved in and out of furlough for a minimum period of 3 weeks per time for as long as the scheme is in operation. Once an agreement has been reached with employees on the subject of furloughing, the employer should write to them confirming this fact and keep a record of the decision.

Once agreement has been reached, the employer can apply through an online portal, giving details of the furloughed employees, including their earnings and National Insurance number.

Before doing this, the employer will have to decide whether to pay just 80% of the salary or whether they can supplement this, and gain written consent from the employees in question.

The advice from the government is that the best time to make an application will be before they run their payroll, or when the payroll is imminent, and there is a warning that HMRC retain the right to audit and investigate any claims retrospectively.

In these challenging times, it is important as many businesses as possible continue to work as near normal and remain viable for a return to strength when the crisis passes. If you need any support to help your business continue trading.  Ansons Solicitors remain open and are continuing to advise clients.  For any employment law queries, please contact Jason Alcock on 01543 263456 or email jalcock@ansons.law