Introduction to the Coronavirus Job Retention Scheme
Chancellor of the Exchequer Rishi Sunak has announced a new package to help employers retain staff during the Coronavirus pandemic, such as the new Coronavirus Job Retention Scheme (“CJRS”), under which government grants (as opposed to loans) will be used to help employers cover 80% of the salary of PAYE employees who would otherwise have been laid off as a result of the downturn created by the ongoing Coronavirus crisis.
The CJRS is open to all UK businesses that have employees and pays them via a PAYE scheme and will enable such employers to cover the cost of wages backdated to 1 March 2020. HMRC have indicated that they are working urgently to set up a system for reimbursement and is expecting to have this done before the end of April 2020. The CJRS will initially be open for three months, but will be extended if necessary, and can be used to claim back salaries of employees who were in employment on 28 February 2020.
For notifying employees of their ‘furloughed status’ (as detailed below) we have developed a useful template furlough notification letter that can easily be adapted by any employer and is available for download from our shop (together with detailed guidance notes).
What employers will need to do in order to claim under the CJRS
Employers will need to do the following:
- designate affected employees as ‘furloughed workers’, and notify employees of this change. Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation. This is a reminder to employers that, where the employee is on a fixed salary, it will not simply be a case of the employer informing them that they are now furloughed and are only entitled to 80% of their salary. Employers will need to either top up the salary, or negotiate a reduction (presumably based on the threat of redundancy if the employee refuses);
- submit information to HMRC via the new online portal (once this is live) about the employees that have been furloughed and their earnings. HMRC will set out further details on the information required in due course; and
- HMRC will reimburse 80% of each furloughed employees’ wage costs, up to a cap of £2,500 per employee, per month. The Chancellor’s announcement does not say how the CJRS will deal with employees whose earnings fluctuate. It is possible that there will be some system of calculating an average based on past earnings. There is also no mention of what will happen in respect of employees who have no guaranteed earnings (such as casual or zero-hours employees) or those whose contracts already contain an express right for the employer to lay them off without pay during a downturn.
Demystifying employee furloughs
The term “furloughed” is not commonly used in the UK, and no express definition has been set out in the Chancellor’s announcement or in the government guidance on support for businesses.
Put simply, an employee furlough is when an employer requires its staff to take unpaid leaves of absence. In other words, they won’t work, they won’t get paid, but they’ll still technically be employed even though they have been furloughed and therefore will/must remain on the company’s payroll as opposed to being made redundant. It is not yet clear whether anything can (or will) be done in respect of employees who have already been dismissed as redundant or given notice of redundancy.
It is important to note that these are different from layoffs. Furloughs are meant to be temporary — employees are expected to return to work full-time when the organisation is ready — whereas layoffs are permanent. The concept of furlough seems similar to “lay off”, in that the individual remains an employee but is provided with no work. However, the key difference is this: “lay off” in section 147 of the Employment Rights Act 1996 refers to a situation where the employer provides no work and, due to the nature of the employee’s contract, the employee is not entitled to any wages. “Furlough” is being used in this context to describe a situation where the employee is provided with no work but will nevertheless receive some or all of their pay.
The CJRS will apply to individuals who have been designated by their employers as “furloughed employees”, and who have been notified of this by their employer. It is key therefore that the employer makes any employee that is to become a furloughed employee aware of this. It is advisable that the employer prepares notification letters to give to the employees that will be designated as furloughed.
The term “furloughed” means that the employee is still employed but will not do any work at all for the company during the entirety of the period which they are placed on furlough leave. On this point, the government’s employee guide states as follows: “To qualify for this scheme, you should not undertake work for them while you are furloughed”. Consequently, employees who have had their hours reduced but who are still working will not be eligible under the CJRS.
For the avoidance of doubt, the CJRS does not apply to self-employed individuals or contractors, although the position regarding agency workers remains unclear and needs clarification.
There is also ambiguity regarding the status of people who are sick or self-isolating, and whether employers can designate them as furloughed so as to enable such employees to receive more than statutory sick pay (which is currently £94.25 per week), or to cover the cost of company sick pay.
How do employee furloughs work?
When facing tough financial times, as many businesses will be as a result of the Coronavirus pandemic, employers will need to identify which jobs can temporarily be terminated by placing such employees on furlough leave and determine when the period of furlough leave will commence and finish.
Sometimes furlough leave is for a set period and the employee will know when they are expected to return to their normal work schedule. Other times the duration of leave is open-ended, which will be most likely under the circumstances that employers currently find themselves in given the level of uncertainty as to how long UK’s lockdown will last and how circumstances will change.
The main purpose of furloughs is for businesses to be able to save money by reducing staff and labour costs. This means they could put employees off work “until further notice”, or they could cut back expenditure on staff costs in other ways, for example, they could require employees to take unpaid leave one day per week or one full week per month.
Advice and guidance for businesses intending to take advantage of the CJRS
If businesses intend to take advantage of the CJRS, they should talk to the employee about being classified as a furloughed employee.
Once considered a furloughed employee, the employee will remain on the payroll and not lose their job.
Where an employee’s contract of employment provides provisions pertaining to redundancy or lay-off, employers will likely be in a strong position to benefit from the scheme. Employers are advised to check the precise rules on how an employee is designated as “furloughed” once these are published by HMRC. The employer should also use objective (rather than subjective) criteria for deciding who should be furloughed. Employers should therefore ensure that they have objective reasons for selecting who is furloughed and who is not. Using an objective selection process should provide a strong defence to claims from employees such as breach of trust and confidence or discrimination.
Where there are no such contractual provisions, the employer will need to obtain the employee’s consent to being furloughed. Without that consent, the employee could technically claim breach of contract or unlawful deduction from wages to recover the lost income if the employer does not top up to full pay; constructive dismissal; and potentially a protective award for failure to consult in the run-up to dismissal.
Taking the above into consideration, employers should contemplate how they could secure the necessary consent from their employees so as to mitigate the legal risks. The most straightforward route would be to run a voluntary scheme and perhaps offer to top up the scheme payment so as to incentivise employees to volunteer to be classified as “furloughed”.
Given that many people are now nervous about leaving home and a large proportion of workforces are facing childcare issues, voluntary schemes should be successful.
Employers will therefore need to carefully consider how they would implement furlough if there is no contractual term permitting it. Whilst the practical legal risk is relatively slim, it still exists and when everything returns to normality the employer will still want an engaged workforce who feel that they are valued and have been fairly treated.
If an employer still wants to implement redundancies then they should err on the side of caution and consider whether the option to furlough is a reasonable alternative to dismissal, in order to reduce the risk of unfair dismissal claims.
Finally, employers will need to decide whether they will top up the remaining 20% of pay not covered by the government under the CJRS, but note that employers are not required to do this. If an employee’s salary is reduced as a result of these changes, employees may qualify for support though the welfare system, including Universal Credit.