29 April 2020
Furlough scheme Q&A with BTO’s Employment Law team to get you up to speed.
Many employers have faced significant frustrations in getting to grips with the government’s coronavirus job retention scheme originally announced on 20 March 2020 (furlough scheme).
Employers have had to rely on regularly-updated government guidance, often vague in its terms and often inconsistent with previous government guidance. As such, employers had to implement the scheme as best they could per guidance at that time whilst awaiting more definitive rules.
Then, on 15 April 2020 the Treasury issued a Direction to HMRC instructing HMRC how to operate the scheme: Coronavirus Job Retention Scheme
The Treasury Direction can now be treated as a fairly definitive guide to the rules of the scheme. The Direction is long, complex, and in some areas still unclear, but we do have clarity on many points, some of which are important and some differ from what was set out in previous guidance. We address a number of the main issues here.
What is a furloughed employee?
Furloughed staff must have been on the business’ books as at 19 March 2020 (not 28 February 2020 as previously stated). A furloughed employee:
- Has been instructed to cease all work and the furlough must have lasted (or will last) for at least 21 days
- Has agreed in writing (which can be by email) to cease all work. This is a new requirement.
- The cessation of work must be due to circumstances related to coronavirus.
The furloughed employee cannot work for a connected employer or otherwise indirectly work for the employer.
For how long can employees be furloughed?
Originally the scheme allowed for employees to be furloughed until the end of May. This was then extended until the end of June 2020. This followed concerns that if the scheme closed on 31 May 2020, employers would need to start the 45 day consultation period by 18 April 2020 in respect of any collective redundancies that may ensue.
Employees must be furloughed for a period of at least three continuous weeks. It can be longer than this and employees can be moved in and out of furlough by the employer.
How do employers make a claim?
The portal allowing employers to reclaim up to 80% of a furloughed employee’s salary from HMRC opened on Monday 20 April 2020. It can be accessed through the Government Gateway. So far it is operating fairly smoothly.
What about company directors?
Company directors can be furloughed and though they cannot work they can carry out very limited statutory duties – they can “fulfil a duty or other obligation arising by or under an Act of Parliament relating to the filing of company accounts or provision of other information relating to the administration of the director’s company.”
What must be paid by an employer by way of furlough pay?
An employer must pay an employee £2500 per month, or at least 80% of “reference salary” if that is less than £2500 per month.
The calculation of reference salary based on the Direction is disappointingly complex, and in our view is not clear.
The calculation depends on whether or not the employee is a “fixed rate employee.”
Fixed rate employee
You are a fixed rate employee if you get an annual salary to work X hours (basic hours), that salary is paid in equal instalments, and you are not paid anything else for working those basic hours. This is limited therefore to salaried, not hourly paid, staff.
In terms of whether you are a fixed rate employee, it appears to be irrelevant whether overtime is paid for any hours over and above those basic hours.
Reference salary for fixed rate employees is simply the amount payable to the employee in the last before 19 March 2020, but excluding anything not “regular wages or salary”.
Non fixed rate employee
For employees who do not meet the definition of a fixed rate employee, reference salary is the higher of:
- Average remuneration in tax year 19/20
- Actual payment in the same pay period last year
But, you must only include “regular salary/wages”. “Regular” means:
- A payment which is contractually due
- Wages not benefits
- The payment must be “not conditional on anything”
- The payment cannot vary according to
a. Business performance
b. Employee’s contribution
c. Employee’s performance of duties
Unless that variation arises from a legally enforceable agreement.
This is a remarkably complex definition and careful thought must be given to the calculation of reference salary for all those who are not fixed rate employees.
Al employers should carefully consider the calculation of reference pay and ensure that this is being paid at the correct amounts. Expert advice should be taken.
What about employees who are off sick?
The Direction deals, rather confusingly, with the issue of sick leave and SSP: If SSP is “liable to be paid” at the point the furlough would start, whether or not SSP has actually been paid/claimed, then furlough cannot begin until “the original SSP has ended.” – Does that mean the employee must regain health/exhaust SSP entitlement before they can be furloughed? That is our view, but it is not clear.
In addition, there have been various updates to the Statutory Sick Pay (General) (Coronavirus Amendment) Regulations 2020. These Regulations provide that a person is deemed to be incapable of work and thus eligible for SSP from day 1 if they have symptoms of coronavirus, are self-isolating because a member of their household has symptoms, or if they are unable to work because they fall within the extremely vulnerable category and have been advised to shield. The most recent version of the Regulations providing for SSP for those who are shielding came into force on Thursday 16 April 2020.
Do we have clarity on holiday pay/annual leave?
The Direction does not mention these matters. However, government guidance issued after the Direction was published has provided some clarity on the vexed issue of taking annual leave whilst on furlough. It now states that it is possible to take annual leave whilst on furlough, with the employer having to 'top up' to 100% of normal pay. The guidance is, however, silent on whether an employer can compel an employee to take annual leave whilst on furlough, thus depleting their holiday entitlement at the government's expense.
What about redundancies?
Any business proposing to potentially dismiss large numbers of staff on the grounds of redundancy at the end of June 2020 (when the furlough scheme is due to end) must consider whether they should start now a period of collective consultation for redundancy with staff and representatives.
Where an employer proposes to make large scale redundancies of 20 or more employees at one establishment within a period of 90 days or less (collective redundancies), it must consult on its proposal with representatives of the affected employees and also notify BEIS.
Certain minimum time periods apply depending on the scale of the redundancies proposed:
- Where 100 or more redundancies are proposed at one establishment, consultation must begin at least 45 days before the first dismissal takes effect.
- For 20 or more employees, but fewer than 100 redundancies, the minimum period which must elapse is 30 days.
It may be seen to be premature to start a collective consultation process now when businesses do not know what the future will hold. However, employers who are proposing to dismiss many employees and who fail to start collective consultation soon could face the risk of claims for protective awards by any employees subsequently made redundant. Alternatively, they will have to continue consultation after the furlough scheme has ended and the government is no longer paying 80% of pay. A consultation process can always be extended beyond 30 or 45 days if required.
As the maximum sanction for breaching the obligations is a "protective award" of up to 90 days' gross actual pay for each affected employee - which can add up to a substantial amount - that is not a risk any employer will wish to take in the current financial climate.
Collective consultation is in addition to individual redundancy consultation with employees. Individual redundancy consultation will also apply where the proposed dismissals are below 20.
This is our understanding of matters at this stage. It does not constitute legal or other professional advice.
This update contains general information only and does not constitute legal or other professional advice.
Caroline Carr, Partner: E: email@example.com / T: 0141 225 5263
Laura Salmond, Partner: E: firstname.lastname@example.org / T: 0141 225 5313
Jacqueline McCluskey, Partner: E: email@example.com / T: 0131 222 2936
Douglas Strang, Senior Associate: E: firstname.lastname@example.org / T: 0141 225 5271