On Friday 20th March the government announced an extensive package for employers coping with the commercial difficulties from Coronavirus. Below are some answers to key questions we’ve been asked over the past week:
Who can claim?
Any UK company that had a PAYE payroll on 28th February 2020 can claim.
Who can you claim for?
Only employees who were on your payroll as at 28th February 2020. So new employees post that date are excluded.
Employees with part time, zero hour, or flexible contracts are included. Employees on agency contracts can only be included if they are not working.
In addition, you can claim for employees made redundant since 28th February 2020, so long as you re-hire them.
You cannot claim for anyone who is still working but on reduced hours. Employees are classed as either furloughed and therefore not undertaking any work for you during their furlough, or employed, regardless of the number of hours they’re doing.
We understand that this will be interpreted very strictly by HMRC.
How do you furlough an employee?
You first need to discuss the situation with your employees. You then need to make any changes to their employment contract by agreement.
Even if you have a contractual right to lay off an employee, you should still seek their consent to furlough them. Furlough is a new concept and your lay clause is unlikely to cover this. Clearly though, given the option of either being laid off with no pay or furloughed with at least 80% pay, employees are likely to agree.
Always take legal advice before seeking consent. If you need guidance on how to make the required changes or template letters you can find some HERE.
Choosing some employees to furlough but not others is allowed under the scheme, but you need to ensure you use a fair selection process as equality and discrimination laws still apply in the usual way.
What if your employee had already agreed or been placed on unpaid leave?
Employees cannot be furloughed unless they were placed on unpaid leave after 28th February.
What if your employee is sick or self-isolating as someone they live with has symptoms?
These employees are entitled to Statutory Sick Pay from day one of their absence at £94.25 per week (rumour has it this may be increasing) and smaller employers can claim up to 14 days of that back from HMRC.
These employees can be furloughed after the period of SSP.
Employees that are shielding in line with Public Health Guidance because they fall into the high-risk categories can be placed on furlough.
What if an employee has a job with another employer?
You can furlough them and they can continue to work in that other job, so long as the roles are separate.
Can a furloughed worker do volunteer work or training?
A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for your organisation.
If workers are required to complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their subsidised wage.
What about those on maternity or other family leave?
Guidance on this at present is still not clear. The guidance does not prohibit women on maternity leave agreeing to return to work early and then being furloughed, or electing to change to shared parental leave and then being furloughed.
Can you put people on and off furlough?
The minimum length of time you can furlough an employee is three weeks.
It is possible to put people on and off furlough provided the 3 week minimum period of furlough is met each time.
Does holiday accrue through the furlough period?
Holiday does accrue through furlough. If you placed employees on holiday while waiting for guidance and before furloughing them, you should only claim furlough from the end of that holiday period.
Can Directors of a business furlough?
A director be furloughed provided they were paid via PAYE as at 28 Feb 2020. Furloughed Company Directors can only complete their statutory duties.
What can you claim and what do you pay furloughed employees?
Companies will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer NI contributions and minimum automatic enrolment employer pension contributions. Fees, commission and bonuses are not included.
An employer can choose to top up an employee’s salary beyond the 80% or £2,500 minimum to their usual salary but is not obliged to under this scheme.
For full and part time salaried employees you should base the payment amount on their salary before tax, as of 28 February 2020.
For employees whose pay varies, if they have been employed for a full 12 months you can claim for the higher of either:
- the same month’s earning from the previous year
- average monthly earnings from the 2019-20 tax year
For example, if you have seasonal workers who do less work over winter and more over summer, you could pay them and claim the same month’s earnings as last year, rather than an average over the year that would be considerably lower.
If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
Pay should be processed through the normal PAYE system and both tax and NI on the payment should be deducted.
Do I have to pay more to the employee than the grant will pay me?
The guidance is clear that you do not need to do this. You can pay a furloughed worker simply 80% of an employee’s regular wage or £2,500 per month (whichever is lower).
You then claim that amount plus the associated Employer NI contributions and minimum automatic enrolment employer pension contributions on that furlough wage.
If you want to pay more you can but remember you would also need to pay the additional NI and pension scheme contribution.
What if an employee on furlough is then below National Living Wage/National Minimum Wage?
This is ok provided you are paying them in accordance with the scheme.
What happens when the scheme ends?
Companies will need make the decision as to whether employees can return to their previous duties and pay or not. If not, you will then need to consider making redundancies or agreeing a reduction in pay and hours. Always seek advice at that stage to avoiding any pitfalls.