Guidance notes for notification of furlough letter
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.
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.
The CJRS will apply to individuals who have been designated by their employers as “furloughed workers”, 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 worker aware of this. It is advisable that the employer prepares notification letters to give to the employees that will be designated as furloughed.
This template letter can be used to put an employee on notice that he/she is being designated as a furloughed employee.
Your input is required at the parts of the letter highlighted in yellow and the wording inside the square brackets which we have included explains clearly the information that should be inserted. You are advised to fill in the wording in square brackets in lower case unless directed otherwise. Any figures should be entered in numerical form. The brackets should be removed after the amendments are made (and before sending a final, signed and dated version to the employee).
Ideally, the letter should be on the company’s letterhead and you should insert the employee’s name and their residential address in the top left-hand corner. The letter should also be dated, which is important as the date of the letter will be the date that the furlough period will be deemed to commence (note that further down the first page of the letter you can choose a different date for the commencement of the furlough period if you wish).
It is important that you state the employee’s position within the company (and identify his/her department if applicable), making clear that their position is being temporarily suspended as a result of the ongoing COVID-19 (Coronavirus) pandemic. Please note that you can remove this as the reason for placing the employee on furlough leave if you wish.
It is important that the employer uses objective (rather than subjective) criteria for deciding who should be furloughed. Consequently, employers should 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. Therefore, it is vital that these objective criteria are identified in the notification letter itself. Objective criteria could, by way of example, include:
- Demand for product/services decreased across the business resulting in a lack of work; and/or
- Due to the reason given above, the company has come into cash-flow difficulties and therefore needs access to funds it would usually be spending on wages to direct to other parts of the business so as to enable it to continue trading.
Each company is unique and therefore a “one size fits all” set of objective criteria is not workable and so you will need to consider what objective criteria to use taking into consideration the needs of the particular business and the impact that the Coronavirus pandemic is having on the company generally/as a whole.
In order for an employee to be classified as furloughed, he/she cannot carry out any work or any such related activities for the employer during any period of furlough leave. Our letter makes this point clear and then sets out other points to note for the employee.
If the employee being placed on furlough is junior, then number one on the list could be removed.
Number two is optional and will only be applicable where the company contributes to the employee’s private health insurance (if the employer makes no such contribution then this detail can be removed in its entirety).
Number three highlights the point that an employee is open to use any annual leave they have during the furlough period if they wish (though they are not obligated to do so). If the employee opts to use annual leave during the furlough period then they will be entitled to be paid at their full rate.
Note that as the CJRS covers 80% of the employee’s wages and the employer will (in most cases) volunteer to top up/cover the remaining 20% (although they are not required to) so as to incentivise employees to take furlough leave, it is unlikely that employees will opt to use annual leave while they are designated as furloughed, however it is still appropriate to highlight this as an option.
Number four notifies the employee that he/she may be eligible for Universal Credit during the furlough period, which employees may not necessarily be aware of.
Under the CJRS, employers will be able to claim back 80% of each furloughed employees’ monthly wages via government grants, up to a cap of £2,500 per employee, per month. Employers are under no obligation to top up the remaining 20%, and so we have inserted this as optional wording in square brackets which can be either removed or left in depending on what the employer desires.
The letter should confirm the amount that the employee will continue to receive during the furlough period and it also makes clear that salary payments will be subject to the usual deductions for PAYE, NICs and pension contributions. If the employee that is being furloughed usually has other deductions taken from their monthly salary, these should be highlighted in the letter.
Importantly, the letter makes clear that the employee is not being designated as furloughed for any fault of their own or due to dissatisfaction of his/her work performance. Employees that receive this letter are likely going to be worried about job security and it is therefore vital (so as to maintain a good relationship between the parties) that the letter contains this detail.
Due to the Coronavirus outbreak, the UK has been locked down for an initial three-week period, but this period may be extended if the lockdown does not deliver the intended and desired results in terms of ‘flattening the curve’ and delaying the spread of the virus. Therefore, we have drafted the template letter on the basis that the length of the furlough period is unknown, however if the employer intends to place an employee on furlough for a definitive amount of time, the letter can be amended to reflect this.
An employer should ensure that it is available to answer any questions that the employee has regarding the furlough period, as this will make the transition for the employee much easier, will (hopefully) go towards maintaining the employer/employee relationship and will make the employee feel valued and supported.
Ultimately, once normality resumes the employer still wants an engaged workforce who feel that they are valued and have been fairly treated, and so it is important that matters such as these are handled delicately and that the notification of furlough letter contains all of the right information and strikes the right tone.