Ultimate Furlough FAQs – Updated 27 May 2020
On 12 May 2020, Chancellor Rishi Sunak announced that the furlough scheme in its current form will be extended until 31 July 2020. From 1 August 2020 until 31 October 2020 the furlough scheme will remain in place but there will be some changes to enable staff to return part-time and for employers to share the cost. Further details on this stage of the furlough scheme are expected by the end of May.
This is an update to our previous Ultimate Furlough FAQs article, published on 27 March and then 6 April 2020, following an update to the Government’s guidance to date, the latest published on 14 May 2020. This is an ever-changing landscape and if the position changes further we will update you.
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Your questions answered
The legal infrastructure around furlough is changing on a daily basis. The content of these answers have been sourced from the government’s update on 14 May 2020 and may continue to change. Please contact a member of our team for bespoke legal advice.
1. What is furlough leave?
Furlough leave is a type of paid leave which the government announced on 20 March 2020 to help businesses retain their staff during the coronavirus crisis. It is a scheme where the business can opt to send their staff home and whilst they are not working, recover 80% of wages (up to a maximum of £2,500 per month) from the government’s Coronavirus Job Retention Scheme (“Scheme”).
Employers can top up to 100% or agree with staff to accept the lesser rate.
The business must furlough staff for a minimum of three weeks. The 80% (or £2,500 cap) is paid by businesses and then will be refunded by HMRC via their online portal.
2. How do I furlough someone?
Employers should seek the agreement of their staff to make the temporary variation of the contract required to place someone on furlough. To be eligible for the grant employers must confirm in writing to their staff members that they have been furloughed and keep a record of this for five years.
3. When does the scheme run until?
The Scheme backdated to 1 March 2020, for any staff already on lay off or made redundant as a result of the crisis. The scheme is currently intended to last in its present form until 31 July 2020, however, is expected to change from this point until 31 October 2020. The way in which it will change has not yet been announced by the government as at the date of this article.
4. Who is entitled to furlough?
Full-time employees, part-time employees, employees on agency contracts, employees on fixed-term contracts and employees on flexible or zero-hour contracts, that were on the payroll as of 28 February 2020.
Apprentices can also be furloughed but must be paid at least the Apprenticeship Minimum Wage, National Minimum Wage or National Living Wage (as applicable) and so the employer must make up any shortfall.
For the purposes of this note “employee” covers all these individuals.
5. I am an employer in the public sector – can I furlough staff?
The government expects most public sector organisations to not require furlough for staff as they continue to provide essential public services. Where employers receive public funding for staff costs and that funding continues, they should use that money to pay staff in the normal fashion and not furlough them.
6. What can individuals do whilst furloughed?
Individuals cannot perform any work for the organisation that has furloughed them. They can, however, complete training or voluntary work for the organisation, so long as it does not provide services or generate revenue for the organisation. If individuals are carrying out training they must be paid 100% of their normal salary on these days.
Individuals can continue to work other jobs (as each organisation has its own responsibility to furlough if necessary) and can volunteer for other organisations.
If contractually allowed by the furloughing employer, the individual can take on another job during the furlough period. If you are taking on new staff that has been furloughed from elsewhere they should complete Statement C of the new starter checklist.
7. What is the 80% (or £2,500 cap) comprised of?
The 80% will be based on the employee’s regular salary plus their associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on the subsidised wage.
The government has confirmed that you can claim for any regular payments you are obliged to pay your employees.
Discretionary bonuses (including tips), discretionary commissions, non-cash payments, and non-monetary benefits should not be included, however, the compulsory commission can be reclaimed from HMRC as well as basic salary, overtime, and fees. The amount of compulsory commission paid should be backdated to past sales as furloughed employees cannot be completing new sales when on furlough. Benefits provided through salary sacrifice schemes should not be included in the reference salary.
The calculation is based on an employee’s actual monthly wage, before tax, as at the last pay period before 19 March 2020. If the employee has variable earnings then:
- for those employed for 12 months prior to the claim – the claim is for the higher of either the same month’s earnings last year, or the average monthly earnings for the 2019/20 tax year
- for those employed for less than 12 months – the claim is an average of monthly earnings of their period of work.
Employees are only entitled to National Minimum or Living Wage if they are working. If the 80% will drop them below that threshold you can pay the lower rate if they are not working. However, if they are required to complete any training (including online training) during this period they will have to be paid NMW / NLW even if that includes the employer topping up. The current rates and rates applicable from 6 April 2020 are here.
8. What about deductions?
The employee will still pay income tax, National Insurance and (if applicable) pension contributions on the reduced salary. The employer will be able to recover the employer’s National Insurance contributions and pension contributions at the auto-enrolment minimum through the Scheme. If you pay enhanced pension contributions above the auto-enrolment minimum, you should top up as per the contract, unless you have agreed to a variation with your employee or worker.
Apprenticeship Levy and Student Loans should continue to be paid as usual.
9. When will my business be reimbursed for the wages paid during furlough?
You should pay wages as usual and then reclaim them via the HMRC portal (unless you have the contractual agreement with staff not to do so).
10. Can I reclaim for wages if I have asked staff to take a pay cut or work fewer hours, but carry on working?
No – the Scheme is only for staff that are not working.
11. What if someone is working their notice period right now, can I furlough them?
An employee who is working their notice period is still an employee, therefore, they can be furloughed along with the rest of staff.
12. Can I rotate staff on furlough, for example, one week normal working, one week furlough?
Employees must be furloughed for a minimum of a three week period.
The government guidance confirms that employees can be furloughed multiple times and can be rotated as long as each furlough period lasts for a minimum period of three weeks.
13. What about staff who are on unpaid leave, maternity leave, sick leave, parental leave, etc?
Staff currently on long term sick leave and in receipt of sick pay can be furloughed if you wish. This is a reversal of the previous position and was announced by the government on 9 April 2020. The updated guidance confirms that short term illness and self-isolation should be dealt with by utilising SSP in the usual way, but for longer absences, they can do so.
If an employer does furlough an employee currently on sick leave, the employee is no longer eligible for statutory SSP. The amount which the employee is paid whilst on furlough, however, must be the same or greater than statutory sick pay (SSP). It is the employer’s decision whether to furlough staff on sick leave and is an option only.
If employees are shielding pursuant to public health guidance, or are living with someone who is shielding, they are able to be furloughed if they are unable to work from home and you would otherwise have to make them redundant.
Staff on unpaid leave since 1 March 2020 can be furloughed, once they return from their period of unpaid leave. If staff are unable to work due to caring responsibilities (e.g. childcare) they are eligible for furlough even if their job is not otherwise redundant.
For staff on maternity leave, adoption leave, shared parental leave or paternity leave, the usual rules for statutory payments apply. If your staff return from these types of leave after 28 February 2020 and you wish to furlough them, the updated government guidance confirms that their furlough pay should be “calculated against their salary, before tax, not the pay they received whilst on statutory leave.”
14. How should I deal with someone on maternity or paternity leave who now wishes to return to my business to claim 80% (or £2,500) furlough pay?
Women on maternity leave must take the minimum maternity leave period off work (two or four weeks as relevant) following the birth of their child. Following this if they wish to return to work they can do so in line with the usual notice periods. This would constitute an end to their maternity leave.
15. Can I make staff redundant whilst they are on furlough leave?
The usual processes and procedures regarding redundancy remain in place. Therefore, a redundancy process can run alongside furlough leave. If you are contemplating terminating someone’s employment for redundancy prior to the end of the furlough period, there is a risk that could be unfair, although this has not been tested in the Tribunals yet.
The government has confirmed that furlough leave will be available until 31 October, however, the terms of it will change from 1 August. When the scheme does end, your business must make a decision as to whether you bring back furloughed employees, implement another form of leave that you may have the contractual right to engage (e.g. unpaid lay off), or make them redundant.
If you are making 20+ staff redundant within a 90 day period please take legal advice on collective consultation and statutory requirements.
16. I am a director. Can I be furloughed?
Yes, you can be furloughed if you are a PAYE director. You will not be able to do any work except where you are complying with your statutory duties.
We would recommend that sole directors, in particular, take specific legal advice on their obligations and ability to work if they are considering furloughing themselves.
17.What about employees who have been TUPE’d after 28 February 2020? Can I furlough them?
The government has clarified that a new employer is eligible to claim under the scheme in respect of the employees of a previous business transferred after 19 March 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.
This, therefore, means that if a new employer has employees which were on furlough leave prior to transfer, that they can continue the furlough leave. If the employees were not on furlough leave prior to transfer, they can be put on furlough leave if the new business owner chooses to do so. The decision to furlough is at the new employer’s discretion.
18. How should I deal with holiday?
Holiday continues to accrue during furlough leave for staff – please see our article on holiday here.
HMRC updated their guidance for employees’ on 12 May 2020 stating that it is possible to take annual leave on furlough. If they do, the employer will have to ‘top-up’ to 100% of normal pay.
HMRC have said that they will keep this policy under review and it may change.
For specific advice for your business, please get in touch with our specialist Employment Law team through this website or by calling 0330 404 0778.
For all of our COVID-19 (Coronavirus) advice, please visit https://www.ashtonslegal.co.uk/coronavirus/
Our partners at Ashtons HR Consulting are also on hand to assist you.
This information is correct at 09.30am on 17 April 2020.
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