Furlough Leave Creates Alternative to Lay-Off

It is not an easy time for anyone, and the last two weeks have been extremely difficult and desperately worrying, for employers and employees alike. As one of my clients put it: “I’ve worked my guts out for 20 years, built an excellent business – and seen it disappear in three days.” It’s heart wrenching. It was as though the economic tap was abruptly turned off over the weekend of 14th and 15th March and the effect on the economy was dramatic. By 16th employers everywhere were faced with the bleak prospect of laying off staff, making them redundant or negotiating a reduction in hours and pay.

The potential consequences were catastrophic, so the government introduced radical steps to try to help stabilise jobs. On 20th March it announced the Coronavirus Job Retention Scheme (CJRS). It is intended to throw a lifeline to businesses which would otherwise have to lose their staff.

Coronavirus Job Retention Scheme

Short-form guidance for employers and employees is available on the Government website. However, the answers to many questions are not clear, so keep looking out for updates.

The key points are as follows.

The CJRS applies to all employers irrespective of size. There is no indication of any requirement to justify access to the scheme. It will be in place by the end of April, covering the period from 1 March to the end of May, but will be extended if necessary.

The government will pay wage costs of up to 80% of all furloughed employees in the relevant period. It is anticipated that this will cover all salary, benefits and employer’s NICs. Payment will be made via a new HMRC portal through which the employer can reclaim these costs, up to a cap of £2,500 per month per employee. The employer may choose to fund the 20% difference, but it does not have to.

The scheme applies only to employees who would otherwise have been laid off during this crisis and who aren’t working. In other words, to employees who have been “furloughed”.

In legal terms, “lay-off” means employees who are denied work and pay pursuant to a contractual lay-off provision in employment contracts. The term “lay-off” is also used colloquially to refer to redundancy. It is not yet clear which of these meanings will apply to the scheme although it is likely that since the purpose of this initiative is to save jobs the government means employees who would otherwise have been made redundant.

The CJRS only applies to existing employees who were employed at 1 March 2020 and whom the employer has designated as furloughed.

We do not know what evidence, if any, employers will have to provide to show that its employees would have been laid-off or made redundant.

The scheme requires employers to designate affected employees as furloughed workers and to notify the employees of that fact. The government has said that if an employer intends to access the CJRS, they will need to discuss with the employee about them becoming classified as a furloughed worker, which they would presumably follow up in writing. However, this is separate from the legal question of whether an employer has a right to lay-off or furlough its employees in the first place without their consent. The general rule is that an employer cannot lay-off its employees without their consent unless their contracts contain a right for the employer to do so.

Employers must submit the information to HMRC about the furloughed employees and their earnings through a new online portal. HMRC is having this set up and will also set out further details on the information required in due course. Businesses who currently have significant cash flow issues may be eligible for a Corona Business Interruption Loan.

If the employee is furloughed, they must not work for the employer.

There are several questions to which we still do not have specific answers.

  • Will the CJRS apply to those who don’t have fixed hours or wages, such as workers on zero-hour contracts?
  • Does holiday continue to accrue?
  • Is continuity of service broken?
  • Are employer and/or employee liable to pay normal pension contributions, even though pay is in fact reduced?

If you’re an employer with HR queries and problems, get in touch!

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DISCLAIMER

Although every effort has been made to ensure the accuracy of the information contained in this blog, nothing herein should be construed as giving advice and no responsibility will be taken for inaccuracies or errors.

Copyright © 2020 all rights reserved. You may copy or distribute this blog as long as this copyright notice and full information about contacting the author are attached. The author is Kate Russell of Russell HR Consulting Ltd.