We understand that the COVID-19 global pandemic is a worrying time for businesses, individuals and families alike. The lockdown of large parts of our economy, along with school closures, social isolation and distancing measures are hitting us all.
We’re acutely aware that many of our clients are wondering how to mitigate the economic effect of the pandemic, particularly when it comes to their staff. The crisis is placing existential pressure on employers, forcing many to seek temporary solutions. So here we hope to provide guidance and clarification on some of the options available.
Broadly speaking, employers have four options when it comes to their staff during this critical period:
- Short time: Reducing the number of hours worked by staff and paid by employer
- Unpaid Lay-off: Enforcing periods of mandatory unpaid leave for staff but not dismissing them
- Redundancy: Dismissing staff due to a reduction in the level of work
- Furloughing: Not requiring staff to work but keeping them on the payroll and paying them – at least some – of their wage
How these four options are each implemented and the legal risks associated with each method will vary depending on the basis on employees’ contractual terms.
In this article we will address “Furloughing”, something which many employers have implemented in the last week. Furloughing can offer a financial lifeline to workers who otherwise face losing income or their job.
The Government’s Job Retention Scheme
On 20 March 2020, the Government announced their Job Retention Scheme, available to all UK employers with a PAYE scheme. It provides employers with access to financial support to continue paying part of their employees’ salary, safeguarding employees by ensuring minimal disruption during the crisis. HMRC will reimburse 80% of the furloughed employees’ wage including employment costs, up to a cap of £2,500 per month, so long as the employees remain on the company’s payroll. The employer can choose to pay the additional 20% meaning the employee sees so deduction in pay, but there is no obligation to do so.
The scheme is available to companies who have already laid off workers after 1 March 2020, so long as the employees have been reinstated into their workforce are given a leave of absence instead.
All UK businesses are eligible to access the scheme and to do so they would need to:
- Designate affected employees as ‘furloughed’ workers and notify employees of this change
- Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. More information can be found
The Government has confirmed that normal employment law still applies, therefore employers will be expected to follow proper legal processes in designating employees as furloughed. This is likely to apply as follows:
- If there is a lay off clause in the contract of employment this should be exercised and no consultation or notice period is required
- Where there is no contractual right to lay off or amend pay this will be a change in terms and conditions and would require the employee to agree a variation of contract
- It is likely employees will agree when faced with the choice of being paid 80% pay or statutory redundancy
- Employers can only furlough employees if they have no work at all for that employee. It is also the choice of an employer so, if the employee requests to be furloughed the employer can refuse to agree
- The new scheme is not intended to cover employees who are sick, however, employers will need to consider the implications on their policies for workers who are sick and self-isolating due to the coronavirus guidance
The Job Retention Scheme will initially run for three months but may be extended by the Government if necessary.
Evolving day by day
This situation surrounding the COVID-19 crisis is evolving day by day, but rest assured we will continue to keep our clients and contacts appraised with the most up to date information to help you and your business navigate the uncertainty. The government has published further guidance on the Coronavirus Job Retention Scheme, which can be accessed by clicking here.
To help support our clients during this critical period, we have put together a list of recommendations that you should be mindful of, which can be accessed here. This is frequently updated and can signpost you to the most relevant information.