All information contained on this site is believed to be correct at the time of going to press though it is advised that no direct reliance is placed solely on this website and that employers and individuals take advice from their usual legal advisor prior to taking any action.

The government has laid out unprecedented new measures to protect individuals during the Coronavirus pandemic. On Friday 23 March, Chancellor Rishi Sunak announced temporary measures to maintain jobs and the UK economy, these announcements came on top of announcements previously made.

The devil is always in the detail and we’ve had very little of the latter. With such a significant and fast paced change the advice to date has been rather vague giving the Government wiggle room on outlying cases or glaring errors/omissions in their announcements to date.

The detail is starting to take shape with leading Government advisors offering bread crumbs that’ll shape the legislation. The aim of this piece is to give a heads up of how the arrangements are expected to work. We stress this is not formalised but is hopefully a useful indication of expectations.

Expected detail in summary

HMRC communication and cash flow impact

Furlough will be accessed via an on line portal with HMRC that is expected to go live in a few weeks. The pessimists amongst us believe this could even be a few months.

Effectively the Government is asking employers to carry the liability for paying all wages in the short term on the promise that 80% should be covered under the furlough scheme. This is a more easy decision for businesses with the cash reserves to make such payments.

For businesses with cash flow issues there are a variety of options with a variety of impacts. In a nutshell these are:

– Borrow to pay payroll in short term through the CBIL scheme (https://www.nrbarton.co.uk/news/blog/coronavirus-covid-19-business-interruption-loan-scheme-guidance/). Whilst this may alleviate the immediate problem of paying wages it is not sustainable in the longer term, subject to the amount received under the furlough grant.

– Employees mutually agree with the employer to defer salary. This may help the business survive in the short term but does raise a number of longer term employment law issues.

– Redundancy for the staff, irrespective of employment law situation. This opens the business up to longer term employment law issues.

Other key consideration to make include a consideration of the need to top up minimum wage if 80% takes the employee below the minimum wage threshold. At this time the advice is not clear but detail will be in the legislation once released.

It is also expected that pensions will still payable in full.

Furlough is set to be offered at 80% of earnings achieved in February. The definition of earnings has not yet been defined, for example it isn’t clear if other benefits such as commissions, bonuses or company cars are included in the calculation.

Under no circumstances is it permissible to re-run February’s payroll to uplift a Furlough claim. This will be considered as fraud.

For an employee with variable hours the calculation is expected to be 80% of a weeks pay as an average of the last 12 weeks.

Employees must be furloughed on 80% of pay or above (with 80% set to be recovered from HMRC). An employer cannot furlough an employ on SSP.

Employers are not expected to top up the 80% by 20% to give a full 100% pay but they can choose to. This does not need to be shown separately on the payslip.

Operational implications

Directors can be furloughed if they are an employee but can’t work. This may present issues in itself and should be carefully considered.

The key question we are being asked surrounds part work/part furlough arrangements. This is not expected to be allowed. An employee will either be operational or furloughed, there is no half-way-house.

The employee may not complete any work elsewhere as this would go against contractual obligations and disqualifying them from furlough. Frustratingly this is also expected to cover volunteer work.

Unsurprisingly it will be criminal offence for employers to register employees for furlough and the  have the employees complete work, to any degree. It also won’t be possible to rotate furloughed staff. I.e one team on for a week and the other off, then vice versa.

No need to notify anyone other than HMRC with regards to furlough when portal goes live. There is no responsibility to insurers or H&SE.

Employment law implications

If employers have an existing clause in their contracts relating to reduced work loads then furlough is a perfectly acceptable option under the provisions of the employment contract.

Where this isn’t the case the employer has three options:

– Dismiss on redundancy but with the risk that the employee will take legal action

– Send the employee home to work from home

– Send the employee home and pay 80% in line with the furlough legislation once released

For each of the above, a verbal agreement will suffice but may be more prudent to formalise any agreed working arrangements in writing with appropriate signatures.

The employer cannot discriminate on how to furlough employees as this will give rise to potential constructive dismissal claims.

At this time the maternity leave provisions are not clear though it is expected taht employees will still accrue holiday whilst on furlough.

Calculation example

X Ltd employs Mr A at an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto enrolment.

Each month, Mr A currently receives net pay of £1,665 which is after deducting PAYE of £191 and employees NIC of £144. On this salary, the employer pays employers’ NIC of £174.

The available grant for the employer is the lower of

(a) 80% of (£2,000 + £174), and

(b) £2,500

So a grant of £1,739.

The cash required by X Ltd to furlough based on maintaining the existing salary is £435 per month. It is a matter for employment law whether the employer is required to pay this top up. Discussions with employees may have agreed that the employee has agreed to a different arrangement during their furlough.

This is an outline illustrative example and is dependant on the exact legislation once it is released.

Self employed

The self employed are not eligible for furlough. At this time the self employed are advised to claim Universal Credit where their incomes are affected. There is a suggestion that a guaranteed a minimum income up to £3,000 per month, based on the last 3 years accounts, is coming but there is nothing official on this yet.

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