Coronavirus: Job retention scheme explained

On March 20 the Government announced the launch of its Coronavirus Job Retention Scheme, which is intended to pay employees who would otherwise be redundant or subject to a requirement to remain away from work without pay and are instead designated as “furloughed”. Some brief details have been included in the Government’s COVID-19 advice for employees, employers and employees.

The Government guidance refers to employees who would have been “laid off”. This could be confusing, as this term carries a specific technical meaning in UK employment law. We do not believe that the government mean it in the technical sense.

The employment team at transatlantic law firm Womble Bond Dickinson answers some of the most frequently asked questions.

Who does the scheme apply to?

The scheme will apply to all UK employers and will include, for example, companies, partnerships, LLPs, charities and sole traders. It is unlikely to apply to the public sector.

How long will it last?

It will commence with effect from 1 March 2020 and will last for at least three months (i.e. to the end of May 2020). It will be extended if necessary.

How will it work?

HMRC will reimburse employers for 80% of the wage costs of employees who are kept on, up to £2,500 per employee per month. Employees will stay on the payroll while they are furloughed. The payment will operate as a grant, not a loan, and grants should be available by the end of April. There is no limit on the amount of funding that can be given to an employer. Employers will have to submit information to HMRC (via an online portal that is being set up urgently) regarding employees and their earnings.

How do we furlough an employee?

Employers have to designate employees as “furloughed workers” and notify them. This is stated to be subject to normal employment law and may require negotiation, which means that their consent will be required unless there is a lay-off clause in their contract of employment. Very few contracts include such a clause.

Generally this will require employers to consult with employees and seek their agreement to be furloughed. It is likely to be necessary to advise employees as part of those discussions that an alternative would be for the employer to consider redundancies, otherwise there may be no incentive for them to accept the reduction in pay. There is debate over whether or not commencing such discussions may require collective consultation in circumstances where at least 20 employees may be furloughed at one geographical establishment. It would be advisable to take specialist advice in such situations as, depending on the circumstances, there may be options an employer can use to implement furlough quickly.

Such consultations should be followed up with a letter explaining how the scheme will apply to the employees, and asking them to sign and return a copy of the letter indicating their agreement.

Can employees make a request to be furloughed?

Employees have no right to ask to be furloughed. However, one way of employers potentially avoiding cumbersome consultation requirements would be to go out to employees and seek volunteers to be furloughed prior to entering into formal consultation.

What is included in the £2,500?

It includes “all employment costs”. Although no further details have been given yet, it is possible that this will include employer’s National Insurance contributions. The position in relation to employer pension contributions is not yet clear and we are waiting for further guidance from the Government.

If the grants are not available until the end of April, what happens in the meantime? Do employers have to continue paying furloughed employees until they start receiving grants?

If employees have agreed to be furloughed then the employer should be able to move straight to paying 80% from the date agreed. The employee will have contractually agreed to the reduction in pay so there should be no unlawful deductions or breach of contract issues.

Does the scheme cover employees on maternity leave?

This has not been explicitly mentioned in the advice to employers or employees but we do not think it would apply to women on maternity leave or an employee on family-related leave because they would not be working.

What about atypical workers?

Again, this is not covered in the advice document but we consider that an individual who has the status of an employee or worker and is on the employer’s payroll will be included. We do not consider that it will cover self-employed individuals or agency workers. However, we understand that the Government is working on a similar scheme for self-employed people and freelancers.

What happens if there is a salary sacrifice scheme in place?

Depending on the wording of the scheme, employees may be able to cancel their salary self-sacrifice arrangement in order to increase their pay and thereby receive a higher amount. This may well be the case if for example an employee has entered into a salary sacrifice arrangement in return for childcare vouchers, which they will not be able to use while their child’s nursery is closed as a result of COVID-19.

Do we have to top up wages to 100%?

Employers can top up wages if they want to but there is no requirement to do this.

How will the scheme affect employees’ entitlement to the national minimum wage?

Since an employee will not be working, we do not consider that they will be entitled to the national minimum wage while they are furloughed. However, this is yet to be clarified.

Can employees work while they are furloughed?

Employees will not be able to do any work for their employer during this time. Managers will therefore need clear instructions that they cannot just call on furloughed employees if they need them to do some work.

Can furloughing be backdated in relation to employees who have already been made redundant?

It is not clear from the government announcement whether this will be possible and we need to see what the guidance says when it is published. However, given that the scheme starts from a date in the past, we believe that it is intended to be used retrospectively for employees who have been made redundant and are reinstated or who have been formally laid off.

What happens at the end of the furlough period?

The expectation is that employees will go back to normal working hours at the end of this period. However, the period could be extended.

Will they retain their continuous employment?

We expect that they will have continuous employment throughout the period when they are not working since the period of furlough will be treated as a temporary cessation of work.

Government guidance

Employers understandably have many questions about how the scheme will work in practice.

We are waiting for government guidance that will hopefully answer these questions. In the meantime, if you have any queries get in touch with your usual Womble Bond Dickinson contact.