Guide to furlough leave - what it is and how it works

5th November 2020

Some businesses are unable to operate (either partially or fully) during the coronavirus lockdown. The Coronavirus Job Retention Scheme (CJRS) provides that HM Revenue & Customs (HMRC) will reimburse 80% of an employee's salary to their employer, so that workers can be paid to stay at home.

The furlough scheme has now been extended until 31 March 2021.

How does the coronavirus job retention scheme work?

The Chancellor announced the implementation of the CJRS on 20 March 2020. The aim of this scheme is to provide financial support to businesses during the coronavirus pandemic.

HMRC will pay the employer 80% of the employee's wages, up to £2,500 a month. The scheme can be applied retrospectively and backdated to 1 March 2020. The Government originally announced that CJRS would last for 4 months from 01 March 2020 to 30 June 2020, but this has since been extended until 31 March 2021. All UK businesses are eligible to apply for it and to do so employers need to make an online application through a government portal.

The CJRS is therefore a mechanism through which employers can claim money from HMRC. It will not change any pre-existing Employment Law rights or obligations between the employer and employee.

Key features of the coronavirus job retention scheme

  • HMRC have confirmed that the online portal opens on 20th April 2020, with the first reimbursements due to be made by 30th April 2020.
  • To be eligible, an employer must have set up a PAYE payroll by 19th March 2020 and submitted real time information payroll data by this time and workers must be paid through the PAYE payroll.
  • The Scheme applies to any employees who are furloughed "by reason of circumstances as a result of coronavirus or coronavirus disease".
  • Employers can claim 80% of a furloughed worker's wages, up to £2,500 per month. In addition, employers can claim a grant to cover associated Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions (not including non-monetary benefits or salary sacrifice schemes).
  • Salary or wages must be regular and anything that is conditional or discretionary will not be included in the calculation e.g. discretionary bonuses or tips.
  • The Scheme applies to people who have been asked to stop working but are being kept on the payroll. It will only apply to those employees who have stopped working altogether. An employee cannot do any work for their current or associated employer whilst they are furloughed.
  • Unless employees have a "lay-off" clause in their contracts of employment, employers will need to agree to furlough employees, as this will be a variation to their existing employment terms. It seems unlikely that employees will object in the circumstances.
  • An employer must designate a worker as furloughed in order to be able to reclaim the 80% salary. There must be an agreement in writing of their furlough status and the employer should keep the document for at least 5 years. This can be in electronic form such as an email.
  • Workers can do volunteer work or training whilst they are furloughed, providing it does not provide a service to or generate revenue for their employer.
  • Whilst a worker is on furlough leave, they will remain employed and continuity of service should be preserved (although Government guidance is silent on this point).

As previously stated, the scheme allows the employer to claim back 80% of the worker's salary and if the employer wishes to, they can top up pay. However, if an employer does not wish to top up pay, they will need to reach agreement with the employee that their salary will be reduced by 20%.

It seems likely that workers will agree, bearing in mind the alternative options which are likely to be redundancy or being laid off on nil pay. In the event an employer is seeking an agreement with employees to pay them 20% less, then it is likely they will ask them to sign a written agreement.

Can I work for a new employer while on furlough?

The Government guidance for employees says that workers are able to work for a new employer whilst they are on furlough and this will not affect their existing employer's ability to claim under the CJRS. However, they will need to comply with their existing contractual terms and obligations and are advised to discuss this with their current employer.

How does an employer decide which employees to furlough?

The employer may implement a matrix system but should ensure that decisions are not made based on any potential protected characteristics, unless this can be justified.

For example, the employer may decide that elderly or vulnerable employees should be furloughed. In light of the guidance to businesses that the over 70's are more vulnerable, making the decision to furlough over 70's is likely to be justified, but employers should do this is consultation with employees. Ultimately, a worker must agree to be furloughed because this is a variation to their existing terms and conditions.

Can the furlough scheme be rotated?

Yes. Whilst a worker must be placed on furlough for a minimum period of 3 weeks, it is possible for them to be placed on furlough more than once.

Can workers eemand to be furloughed?

No. The decision to furlough a worker rests with an employer. Workers who wish to be furloughed due, for example, to having caring responsibilities at home do not have the explicit right to place themselves on furlough.

Can vulnerable workers be furloughed?

The Government has adviced clinically extremely vulnerable people not to go to work if they cannot work from home. If a person is deemed to be incapable of work because they fall within the vulnerable category, they will be entitled to Statutory Sick Pay (SSP).

Workers who are shielding can be designated as furloughed but only if they cannot work from home and would otherwise have been made redundant. If a worker has a disability within the meaning of the Equality Act 2010, the employer will need to consider whether furloughing the worker amounts to a reasonable adjustment.

How is the 80% calculated If employees don't have regular weekly earnings?

For salaried workers, wages will be their regular salary. If a worker's pay varies and they have been employed for a full 12 months, their pay will be the higher of:

  • Their earnings in the same month in the previous tax year, or

  • Their average monthly earnings for the 2019-20 tax year.

If a worker has not been employed for a full 12 months, their wages will be their average monthly earnings since they started work. If a worker began work in February, their earnings will be pro-rated to determine their monthly wages.

Does holiday continue to accrue during furlough?

Yes it does. Also, employers can require employees to take holidays during furlough leave providing they give them the requisite notice under the Working Time Regulations.

The question will be whether workers will be entitled to full pay or 80% of pay during their holiday. The Government have now updated the Employee Guidance to provide that it is possible to take annual leave during Furlough but it should be topped up to 100%. They have also said they will keep it under review.

Can an employer carry out redundancy warning and consultation during furlough?

Yes. If the employer believes that they will need to make redundancies (notwithstanding the furlough scheme) it is likely they can begin the warning and consultation process during the furlough period.

If an employer contemplates making 20 or more redundancies within 90 days, then they have an obligation to start the collective consultation process as soon as is reasonably practicable. If there are more than 20 and up to 99 roles being made redundant at the same place, then consultations will need to start at least 30 days before the first redundancy is made. If there are 100 roles or more being made redundant, then the consultation will need to start at least 45 days before the first redundancy is made.

If I'm made redundant when the furlough scheme is available, is this unfair dismissal?

This is a new area of Employment Law and it is likely to depend on the individual circumstances. Employees with 2 years' continuous service continue to be protected from unfair dismissal.

If there is a reduction in the need for employees to do work of a particular kind because a business or workplace has closed, then this is likely to be a redundancy. However, an employer has the obligation to act reasonably and a Tribunal must have regard to the resources available to the employer at the time of the dismissal.

In addition to the furlough scheme, employers can access the Government's Business Interruption Loan scheme. The question will be whether an employer can withstand the impact of coronavirus on their cash flow throughout 2020.

Once the scheme is up and running, then if an employer refuses to consider furloughing staff as a way of avoiding redundancy, this could potentially render any dismissal unfair.

The difficulty is that we are unlikely to see any Tribunal decisions on this for over a year because many Tribunal Hearings have been postponed and there will be a backlog.