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So what's Furlough leave?
- AuthorSusan Mayall
The concept of Furlough Leave was announced by the Chancellor Rishi Sunak on Friday 20th March but many of you have been asking what the difference between this and Layoffs.
Lay off and short time working are derived from statute in the Employment Rights Act 1996 and provide for guaranteed payments of £29 per day (increasing to £30 per day from 6th April 2020) but are limited to 5 days guaranteed pay in any 3 month period. Under normal circumstances, for an employer to be able to rely on the benefits of lay off or short time working, there must be an express contractual right in the employee’s employment contract or it must be in an industry where lay off/short time working is seen as custom and practice. However, in these unprecedented Coronavirus times, I feel that lay off may be able to be used more widely. More information about layoffs can be found here.
Furlough leave is a new concept in employment law and prior to the Chancellor’s announcement on Friday was unknown in employment law. Now it is here, Furlough leave is to be used in circumstances where employees would otherwise have been laid off or made redundant.
All UK businesses are eligible to claim Furlough leave for their employees. Employers should designate affected employees as Furloughed employees and notify them of their new status. The Government guidance for employers details that the changing status of the employees is subject to employment law and therefore in contracts where there is no express lay off clause, the Furloughed employee needs to agree to this change of status. However, the employee’s realistic options are:-
1. to be made redundant and if the business fails, they may have to wait several months for redundancy money from the Redundancy Payments Office; or
2. to go home and receive no wages; or
3. to agree to be a Furloughed employee and to receive 80% of wages for being at home.
I therefore don’t think employees will object.
The Government guidance details that once employees are designated as Furloughed employees, the employer is to submit details to HMRC about the employees that are Furloughed and the HMRC will then reimburse the £2,500 per month per employee through an online portal. I understand that this portal has not as yet been set up to facilitate the payments to employers and it would seem that this is going to require some major work which may take some time.
The Government guidance to employers is that HMRC will reimburse 80% of Furloughed workers wage costs to a cap of £2,500 a month backdated to 1st March 2020.
There is also Government guidance to employees. This details that to qualify for the Furlough scheme, the employee should not undertake any work for an employer whilst Furloughed and this will allow the employer to claim a grant of 80% for all employment costs up to a cap of £2,500 a month. This suggests that £2,500 is what each individual employee will receive and that the 80% will cover pension and employer’s National Insurance contributions but this has still to be clarified by HMRC and/or the Government. The Government guidance to employees also details that whilst a person remains employed but Furloughed, the employer can choose to fund the difference between 80% and the normal wage but does not have to.
On considering the practicalities of Furlough leave, one of the major problems may be if, for example, you have three employees in one department but you only need one to carry out the work role and you can therefore Furlough two of the employees from the department who will not be able to carry out any work under the Government Furlough provisions. This scheme appears to mean that these two Furloughed employees will remain at home receiving 80% of their wages whereas the person going in will only receive 20% more for having the work to do and this may cause resentment and/or management difficulties.
To summarise Furlough leave is designed to avoid the need for laying staff off and/or making redundancies. It is a completely new route to help businesses retain workers in these unprecedented times. The employer does not need to have an express lay off clause in the employment contract to be able to use Furlough leave, however please note my comments above regarding reaching an agreement with the employee.
Susan Mayall, Head of Employment Law at Pearson Solicitors and Financial Advisers, “It is a worrying time for anyone. I hope that you and your loved ones are keeping safe at this difficult time. I am sure most employers want to do the right thing by their staff, the news is changing daily and I would recommend ACAS for updates. https://www.acas.org.uk/coronavirus
Finally, we wish that you all stay safe and if you do have any queries, please contact either Victoria Schofield or myself Susan Mayall on 0161 785 3500 or firstname.lastname@example.org”
Much of the information shared from Susan has been provided by the eminent Employment Law Barrister