Client Q&A, Government job retention scheme

Furlough leave has been temporarily introduced by the government to provide employers with an option to keep employees on the payroll without them working. As the furloughed staff are kept on the payroll, this is different to being laid off without pay or being made redundant.

Any employer (of any size) is eligible for the scheme. This includes:

• businesses
• charities
• recruitment agencies (if the agency workers are paid through PAYE)
• public authorities.

To be eligible the employer must have created and started a PAYE payroll scheme on or before 28th February 2020 and have a UK bank account.

The employees that can agree to being furloughed are those working for businesses that would otherwise have to be dismissed as redundant or laid off.

The furloughed employees must have been on the employer’s PAYE payroll on 28 February 2020, including:

• full-time employees
• part-time employees
• agency employees on agency contracts (provided they are not working at all)
• zero-hour contract workers (provided that they are employees albeit on flexible contracts).
• For new employees who were not on the employer’s payroll on 28 February 2020 complexities arise – see CIPD FAQs on placing new employees on furlough.

Owners of small businesses who pay themselves a PAYE salary are covered under the furlough scheme. The scheme does not apply to dividend payments so director-shareholders who are paid partly or mainly in dividends will only be covered to the extent that they receive PAYE earnings.

The Coronavirus Self-employment Income Support Scheme has been introduced to provide a similar sort of support to those not eligible under the job retention scheme. This means self-employed directors with taxable profits below a £50,000 annual threshold may be eligible to apply for support under the self-employment scheme.

Salaried partners who are paid through the PAYE payroll are eligible under the furlough scheme. Partner owners and LLP members who are treated as self-employed (and not paid through the PAYE payroll) will not be covered. Like directors, self-employed partners with taxable profits below the annual threshold may be eligible to apply for support under the self-employment scheme.

Employees must be consulted and have to agree to be furloughed.

Changing the status of employees always is subject to existing employment law so it’s important to bear this in mind. Depending on the employment contract wording there may be an ability to lay-off workers to impose a furlough period.

If there is no lay off provision in the existing contract the employer will need to agree with the employee that they going to become furloughed because no work is available. Most employees will agree to this as the alternative is dismissal by reason of redundancy (with the possibility of a delayed redundancy payment or no redundancy payment for employees who have worked for less than two years).

If employees do not agree to be furloughed then employers can dismiss them by reason of redundancy (if the redundancy definitions are met and a proper process is followed).

Length of furlough

The minimum furlough period is three weeks. The scheme is set to run for three months (until 31 May) but may be extended.

Working

People who get furloughed must not work for the employer during the period of furlough. They will usually return to their job afterwards (unless redundancies follow).

Pay

Under the scheme furloughed workers will receive either 80% of their regular wage or £2,500 per month, whichever is lower. Employers can choose to top up the employee’s salary above 80% but they are not obliged to. Regular payments of wages, variable PAYE wages, fees, and compulsory payments including commission and bonuses, are included when working out the 80% figure.

If an employee with variable pay has been employed for under a year employer can claim for an average of monthly earnings since they started work. For workers who only started part way through February 2020, the wage will have to be taken pro-rata.

If furloughed workers do not book any holiday time their statutory minimum holiday entitlement of 5.6 weeks per year will accrue while they are furloughed.

The exact amount will vary depending on how much leave the employee has already taken. Employers can ask for employees to agree to any contractual (as opposed to statutory) holiday not to accrue during furlough.

Special provisions govern the current situation which mean that workers can carry-over up to four weeks’ holiday into the next two holiday years. It is thought that employers can alternatively insist employees take holiday during the furlough provided the appropriate notice is given and that employers would then have to pay the holiday pay in full and could claim for the 80% grant towards this.