Thousands of employees are being told that their jobs are reliant on the Government’s furlough scheme as the coronavirus crisis collapses businesses. But what does that even mean?
WHAT DOES FURLOUGH MEAN?
‘Furloughed worker’ is not a recognised term in UK employment law, although it is commonly used in the US. Government guidance says someone is furloughed if they remain employed but are not undertaking work. To furlough means to “lay off or suspend temporarily”, usually without pay. In the UK, the legal term would be “laid off”. While furloughed employees still technically retain their jobs, the furlough itself means that they cease working for their employers and do not earn a salary. The idea is that this is a temporary arrangement, and workers will one day be able to return to their jobs.
When the Chancellor used this term in his radical employment plan, it left many puzzled. Over the past week, employers and employees have been trying to work out whether the scheme applies to them.
WHAT IS THE UK FURLOUGH SCHEME AND WHAT DO YOU GET?
Earlier this month the government set in motion a plan to avoid mass redundancies across the UK, and encourage companies to put jobs on hold during the disruption caused by the lockdown.
Under new rules from March 1 and running for at least three months, companies can now “furlough” employees rather than fire them. Through this scheme, the government will pay up to 80 per cent of people’s wages, up to a maximum of £2,500 per month. Anyone working in a full-time job (or on a PAYE basis) on February 28 can be furloughed. This includes people on zero-hours contracts or those working flexibly. Unfortunately, it does not apply to people that might have switched jobs between the end of February and the government announcement.
Being placed on furlough is similar to gardening leave. You would still be paid by your employer and will still pay taxes from your income — but you would not be able to continue working for your employer for the duration of the furlough. In this case, you would effectively be paid not to work until the end of June.
The grant, which will not start paying out until April, can be backdated to March 1, according to government guidelines. The minimum time that an employee can be furloughed is three weeks, and companies cannot rotate furloughed workers — which is problematic if someone still working becomes ill, according to a blog by employment law firm Farrer & Co. Lawyers said that those already self-isolating cannot be furloughed (and must be paid statutory sick pay) until they return to work. Once they return, they can be furloughed. And people who are “shielding” and vulnerable to severe illness caused by coronavirus can still be placed on furlough.
There is no guarantee that your employer will keep you on after the scheme ends. And if you are furloughed, you will not qualify for 80 per cent of your salary if you earn more than £2,500 per month. In that case, an employer could choose to “top up” your salary, or you could be eligible for support through the welfare system, including Universal Credit.
If you receive a regular salary, the 80 per cent should be calculated based on an employee’s actual salary before tax (their gross salary), as of February 28.
If your pay varies (because you are on a zero-hours contract or flexible working contract, for example), the 80 per cent limit will be applied to the same month’s earnings from a previous year, the average monthly earnings for the 2019/20 tax year or an average of their monthly earnings since they started work — whichever is highest.
This situation will not affect employees’ entitlement to statutory maternity or shared parental leave pay. However, employers who offer enhanced contractual maternity, paternity or shared leave pay can furlough these employees to receive support with the cost of that enhanced payment.
HOW CAN YOU APPLY?
Any UK employer can apply to the scheme to temporarily cover people’s salaries, including businesses, charities, agencies and public authorities. Employees have to agree to be put on furlough — and an individual can’t apply by themselves.
The guidance also states that “if sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment”.
Government advice explains that employees that are “shielding in line with public health guidance” should ask employers if they plan to place staff on furlough during the crisis.
There is no requirement for the business to be considered “essential” in order to access the scheme. Nor it is necessary for employers to show that they are suffering any sort of financial hardship. If employers are already receiving public funds, they are expected to use them to cover the staffing costs rather than also applying for the furlough scheme.
For many, this scheme came too late. In the weeks leading up to the government’s economic rescue package, thousands of jobs were lost as retailers, pubs, restaurants, shops and offices lost major contracts and revenue. That’s why in a government update, Sunak said that people made redundant after February 28 could be reemployed under furlough if employers are willing to do so — otherwise they would have to claim unemployment.
Companies can find out whether they are eligible to claim furlough for their employees in relatively simple steps. First, prove that its employees cannot do their jobs due to the coronavirus measures put in place by the government. Second, notify employees of their new ‘furloughed’ status. And finally, submit information to HMRC about furloughed employees to set up a system for reimbursement.
The information given throughout the blog is correct at the time of writing, for more up-to-date information please see the gov website to remain informed. Stay safe.