Ultimate Furlough FAQs – Updated 18 August 2020
On 12 May 2020, Chancellor Rishi Sunak announced that the furlough scheme in its current form would 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.
This is an update to our previous Ultimate Furlough FAQs articles, published on 27 March and 6 April 2020, following an update to the Government’s guidance to date, the latest published on 7 August 2020. This is an ever-changing landscape and if the position changes further we will issue a further update.
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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, claim up to 80% of wages (up to a maximum of £2,500 per month) from the government’s Coronavirus Job Retention Scheme (“Scheme”) using an HMRC portal. Employers can top up to 100% or agree with staff to accept the lesser rate. They must pass on the wages recovered to their staff.
20 March 2020 – 30 June 2020
During this time, furloughed employees had to be on furlough for a minimum of three weeks and were not able to work whatsoever during leave. “Work” generally means tasks carried out for the business that generate revenue. Training, for example, fell out of this definition and therefore staff were able to engage in training whilst they were on furlough. If the 80% rate meant staff had fallen below National Minimum / Living Wage rates when training they had to be topped up to at least this rate.
During this period, employers could also recover the employer’s National Insurance contributions and the employer’s auto-enrolment pension contributions from the scheme.
The scheme in this form existed until 30 June 2020 after which it became the Flexible Furlough Scheme. Only staff that had been furloughed for a three week period prior to the end of June can be flexibly furloughed.
2. What is the flexible furlough scheme?
For details about the flexible furlough scheme, click here.
3. 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 furlough agreement for at least five years.
If an employer is looking to utilise the flexible furlough scheme they will also need to keep a record of:
- the usual hours the individual would work during any claim period;
- he hours the individual will work/has worked in that claim period
- the hours the individual was furloughed for in that claim period.
These records must be kept for at least six years.
With flexible furlough, it is possible to vary the hours someone is required to work as you wish (with their agreement) but all changes must be clearly documented. For example, they could work 50% of hours for two weeks, and then 100% for one week (for example to cover someone’s holiday) and then back to 50%.
4. When does the scheme run until?
The Scheme was backdated to 1 March 2020, for any staff already on lay off or made redundant as a result of the crisis. The Scheme was intended to last until 30 June 2020, however, it has been changed to the Flexible Furlough Scheme and will last until 31 October 2020.
The Scheme will change slightly on the following key dates: 1 August, 1 September and 1 October 2020 (see below).
5. 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 for whom employers had made an RTI submission to HMRC as at 19 March 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.
6. 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.
7. What can individuals do whilst furloughed?
Up until 30 June 2020, individuals on furlough could not perform any work for the organisation that has furloughed them. They could, however, complete training or voluntary work for the organisation, so long as it did not provide services or generate revenue for the organisation. At any stage during the scheme, 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.
From 1 July 2020 onwards, individuals on furlough are able to work for the company that furloughed them during their non-furloughed hours. For example, if a full-time employee has a contract that states they will complete 40 hours per week but the employer is only able to offer 16 hours per week of work, they will be on furlough leave for the outstanding 24 hours. During those 24 hours, the employee cannot be expected to attend work.
The only time the employee can work is during their official working hours (in this case, 16 hours per week).
8. 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.
From 1 July employers will still be able to claim for Employer’s NI and pension contributions on the 80% rate of the furloughed hours. Any hours worked will be paid at the normal contractual rate by the employer.
From 1 August, however, this will change. Employers will be able to claim 80% of furloughed hours but no longer be able to recover the Employer’s NI and pension contributions. Any hours worked will be paid at the normal contractual rate by the employer.
From 1 September, the same rules will apply as on 1 August except for the claim cap per employee will be 70% of pay up to a cap of £2,187.50 per month. The employer will still be obliged to ensure the employee receives 80% pay for their furloughed hours (i.e. the employer must top up to at least 80% of pay). Any hours worked will be paid at the normal contractual rate by the employer.
From 1 October, the same rules will apply as on 1 September except for the claim cap per employee will be 60% of pay up to a cap of £1,875 per month. The employer will still be obliged to ensure the employee receives 80% of their furloughed hours. Any hours worked will be paid at the normal contractual rate by the employer.
9. 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 up until 31 July 2020. 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.
10. 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).
11. Can I reclaim for wages if I have asked staff to take a pay cut or work fewer hours, but carry on working?
No – if the staff are working they are not on furlough leave and therefore the employee cannot gain the benefits of the Scheme.
The employer can reclaim for wages only for the time the staff has spent not working.
12. 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 the staff.
Depending on their contract you may have to top up notice pay to 100% and you should seek specific advice on this.
13. Can I rotate staff on furlough, for example, one week normal working, one week furlough?
Employees had to have been furloughed for a minimum of three weeks until 30 June 2020 (although could be rotated on a three-week pattern). From 1 July you can rotate staff as you see fit.
14. 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. 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 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.” It has now been made clear that such individuals returning from statutory leave can be furloughed even if they had not been furloughed for the three week period prior to the end of June.
15. 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.
16. 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.
17. 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 as a director.
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.
18.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.
19. 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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