Coronavirus: What the “F” does “Furloughed” mean?

By Catherine Kerr, Partner and Head of Employment Law 

The 20 March 2020 is going to go down as one of the most significant days in the history of politics and employment law because it was the day the Chancellor announced the introduction of the Coronavirus Job Retention Scheme. It was the day that, quite possibly, saved literally thousands of jobs across the UK. It was the day that allowed some sun through these dark and uncertain times.

Details of the scheme are sparse at this stage but we will try our best to tell you what we know: 

What is the Scheme?

As a measure to avoid possible redundancies, employers now have the option to furlough an employee rather than dismiss them. In other words, and probably more familiar to many employers, an employee can be laid-off but kept on the payroll. The key difference being, employers will now be able to contact HMRC for a grant to cover 80% of the wages (up to a total of £2,500 per month) of employees who are not working but are “furloughed” on the strict condition the employer can show that the employee has been furloughed “due to COVID-19”. We imagine in the current economic climate, the threshold for answering this question will be pretty low. The scheme is available to any employer regardless of size of industry.

In a furlough situation, it is critical for businesses to enforce the “no-work” rule. If an employee is doing some work some of the time, they are not a furloughed employee and cannot claim under the scheme.

However, the announcement is not without some grey areas. It is not clear what is meant by “wages” in this context. Will it just be basic pay? Or will it include benefits; commission payments; bonuses etc? We understand further guidance will be issued shortly.

By all intents and purposes, the Scheme is designed to reward employers who keep their employees on their payroll during the COVID-19 crisis as opposed to making them redundant.

When will it apply?

The Government has announced that the scheme will cover backdated wages from 1 March 2020 and will run for a period of 3 months. That said, if we get to 1 June 2020 and the UK remains locked-down and/or other COVID-19 measures remain active, such as, social distancing, we may find that the Government extends this 3 month period.

How does an employer apply?

The details of application for the scheme have not been announced yet. We are told that HMRC are working tirelessly to try and set-up an online portal for employers to notify HMRC and apply for the grant.

Does an employee have to consent?

That said, an employer cannot apply under the scheme until it has first consulted with affected members of staff and informed them that they are a furloughed employee. Employers would be wise to treat this process in a similar way to lay-off and, if at all possible, gain an employee’s express written consent to being furloughed. This will help an employer reduce the risk of future employment-related claims like constructive unfair dismissal and/or unlawful deductions from wages.

What about workers and self-employed individuals?

Workers and self-employed individuals are not covered by the scheme. It is only intended to cover employees registered for PAYE purposes.

Further, it does not appear to extend to:

• subsidising wages where shorter hours or reduced pay have been negotiated in response to the COVID-19 crisis; or
• employees on sick leave or in isolation.

Having said all that, recent announcements and developments could be set to dramatically change the landscape for workers and self-employed individuals in light of the COVID-19 crisis. The House of Commons Public Bill Committee has proposed an amendment to the Coronavirus Bill called “Statutory Self-Employment Pay”. If the amendment is approved, and it very likely will be, it will provide freelancers and self-employed people guaranteed earnings of the lower of (a) 80% of their monthly net earnings averaged over the last three years; or (b) £2,917 per month. This will make the world of difference for not only the self-employed but also their families.

Does the employer have to cover the 20% shortfall?

There is nothing to suggest that employers have to cover the remaining 20% of the employee’s wages if an employee is furloughed and receives 80% of their wages via the scheme.

If you’re considering implementing a furlough, make sure your communication is clear and consistent with employees.