I thought that furlough was an American expression, describing a period of leave, typically of military personnel. I first heard of it in the 1970’s hit television series M*A*S*H. For those of you with even longer memories, in the 1949 movie musical, On The Town, the three sailors, Frank Sinatra, Gene Kelly and the other one, were on 24 hour furlough in New York.
The word was unknown in UK employment law, until the Chancellor, Rishi Sunak, announced the Coronavirus Job Retention Scheme on March 20th.
What does it mean?
As the name suggests, the scheme is designed to keep employees in their jobs who would otherwise be made redundant.
Who is it for?
Any large or small employer can put all or some of its employees on furlough leave. The employees must be sent home and not do any work for their employer.
‘Doing no work’ means just that. Employers cannot put employees on reduced hours and claim 80% of the shortfall in their salaries.
Official Guidance from the Treasury says that, before furlough starts, the employer and the employee must agree in writing that the employee will cease all work in relation to their employment. The agreement may be in electronic form, such as an email. However, HMRC Guidance, issued after the Treasury Guidance, contradicts this. HMRC’s view is that, to be eligible for the grant, employers must confirm in writing to their employee that they have been furloughed. There needs to be a written record, but the employee does not have to provide a written response. A record of this communication must be kept for five years.
We can be reassured that HMRC will accept claims without requiring evidence of the employee’s written agreement.
How much will it pay?
The employer will be able to obtain a refund of 80% of the employees’ usual monthly wage costs, up to £2,500 a month, plus the associated employer NIC’s and the employer pension contributions on that wage. For employees whose pay varies, the employer can claim for the higher of (i) the same month’s earnings from the previous year or (ii) the average monthly earnings in the 2019-20 tax year.
How will it work?
It will be administered through the PAYE scheme. It is open to all UK employers who were operating a PAYE payroll scheme on 19 March 2020. The scheme went live on 20 April. Claims can be backdated to 1 March. HMRC say that it will take 6 working days from making a claim for the money to reach the employer’s bank account.
Initial reports are that the scheme is working well. On the first day alone, 185,000 firms submitted claims in respect of 1.3 million furloughed employees, to the value of £1.5 billion.
Who does it apply to?
Furloughed employees must have been on the PAYE payroll on 19 March, and can be on any type of contract, including:
• full-time employees
• part-time employees
• employees on agency contracts
• employees on flexible or zero-hour contracts.
Company directors can be furloughed. If so, they are permitted to fulfil their statutory duties as director, but must not otherwise do any work for the company.
The scheme also covers employees who were on the payroll on 28 February and made redundant, or stopped working for their employer, prior to 19 March, if they are rehired and put on furlough leave.
How long will it last?
The Scheme will be backdated to March 1st and runs until the end of June. It may be further extended if necessary. Employers can use this scheme any time during this period. To be eligible for funding, furlough leave must be taken in minimum blocks of three weeks.
Does the employer have to top up the payments?
The employer may choose to make up the difference between the grant it receives and the full salary, but doesn’t have to. If the employer doesn’t make up the difference, they cannot insist on the employee taking furlough leave. Employees can’t be compelled to take a salary cut of 20%, even though they are staying at home. Since the alternative would most likely be redundancy, the expectation is that the majority of employees will agree.
Can employees take their holiday during furlough leave?
it is possible for employees to take annual leave while on furlough. If they do, they are entitled to claim their paid holiday and the employer will have to top up the furlough payments to 100% of normal pay.
What if the employee is on sick leave or self-isolating?
An employee who is on sick leave or self-isolating, and therefore receiving Statutory Sick Pay, can be put on furlough leave. In that event, they will no longer receive sick pay, but will be treated as any other furloughed employee.
This note is based on Government announcements and guidance issued by HMRC. There is more detail in the official guidance and this summary cannot cover everything. I will be pleased to answer any specific questions if you email me at firstname.lastname@example.org