What will the ‘furlough’ scheme mean – and what are the possible problems?

A number of our readers have been asking for more information on the ‘furloughed’ staff scheme, whereby the Government has announced that it will foot 80% of an employee’s pay.

Definitive information is currently lacking. However, Antonia Blackwell law firm Shoosmiths has written advice which we hope readers will find useful in raising potential issues that could be considered.

It outlines gaps in knowledge about the scheme, but also suggests that it may not be a solution for some business owners and staff, particularly where cashflow is a problem.

Another big question mark is whether staff should already have been laid off before the scheme can be considered.

As always, please do seek your own professional advice.  The Shoosmiths article is below:

What we know

The government will set up a new coronavirus job retention scheme. Any employer in the UK will be eligible for the scheme.

The scheme will be available in respect of those employees that would otherwise have been laid off during the outbreak, who for the purposes of the scheme are described as furlough workers. We presume that this means both those employees who would have been made redundant as well as those temporarily laid off where the employer has the contractual right to do so.

In order to access the scheme, employers will need to:

  • Decide which of their employees are furloughed workers;
  • Notify those employees that they are furloughed workers – it may be necessary to agree this with them as it will be a change to their employment status. We presume that this will be the case where there is no contractual right to remove work, reduce pay or change their status in the contract;
  • Submit information to HMRC about the employees which have been furloughed and their earnings through a new online portal.

Employers will then be able to apply to HMRC for a grant to cover 80% of the furloughed workers salary up to a total of £2,500 a month. Employers can choose whether to top up the remaining 20% of salaries, although it is difficult to see many employers who will, in these times, be able to do so.

The employee remains employed by the employer during the furlough period (presumably accruing statutory annual leave, contractual annual leave unless the employer confirms otherwise and continuity of service etc) and cannot carry out work for the employer during this period.

Therefore, employees who have agreed to a temporary reduction in their hours but are carrying on working would not be eligible to be furlough employees.

Presumably full-time furlough employees will also be prevented from working for another employer during this period (particularly where they are prevented from working elsewhere under the terms of their contract of employment) or holiday.

However, whether this can be effectively policed during the crisis remains to be seen, although HMRC should have access to the necessary information to make this possible.

The scheme is to be backdated so that it can cover the costs of wages from 1 March 2020. It will initially be open for three months. Employers will then need to see whether or not the scheme is extended.

What we don’t know

  • HMRC are currently taking steps to set up the necessary infrastructure to allow online applications to the coronavirus job retention scheme with the intention that the first grants will be paid within weeks. When this will actually be completed and whether this can be achieved is as yet unknown. So what should employers be doing in the meantime? We have set out our thoughts below.
  • Given the scheme is to be backdated to 1 March, this suggests it is designed to cover the cost of any employees already made redundant from that date. However, in order to take the benefit of the scheme, does this mean employers will need to re-engage those staff? Presumably this will be the case since the intention behind the scheme is to ensure jobs are retained while this crisis lasts (or at least while the government is prepared to operate the scheme).
  • The scheme is only a reimbursement, so presumably this means employers are required to make the initial payment to employees and then claim it back through the online portal. This won’t help to ease cash flow struggles for businesses during this time, particularly if it takes several weeks for the online portal to be set up. However, the business interruption loan scheme also announced by the government may ease this burden for some businesses.
  • What exactly is reimbursed? The guidance makes reference to 80% of workers’ salaries. Is this based on net monthly income or the gross amount? Will employers have to continue pension contributions and employer NICs? If employees are not working again presumably there would be no entitlement to overtime or commission payments?
  • There also appears to be a divergence between those employees who are being made to self-isolate and who will therefore only receive statutory sick pay (SSP) (unless the contract also provides for contractual sick pay in these circumstances) and those who are furloughed and therefore will receive 80% of their wages. Could this de-incentivise employees who should self-isolate but who anticipate that they will be furloughed following the self-isolation guidance?
  • Is it possible for an employee to be designated as a furlough employee but, at some later point, to be returned to work where business needs change for a short time but then put back onto furlough leave? Again, there is no detail on this to date but we would like to think this would be possible given that any periods of work when the employee is not furloughed would reduce the bill for the government.

So what should employers do now?

The sensible approach would seem to be to start identifying who are your potential furlough employees and discuss this with them to seek their agreement, documenting this where agreement is reached.

There is no detail yet on what agreement means but if the alternative is redundancy our view is that employees are likely to accept being designated as furlough employees and that a signed letter confirming their agreement to this and their understanding of what this means for them would be a good starting place.

The option then seems to be to send those employees home paying 80% of their normal basic gross salary less deductions for tax and NI with the intention of recovering this once the online portal is open.

 

Moovshack
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3 Comments

  1. Gareth Styles MD Grants Independent

    This is very helpful, as for the last 3 days I have been scouring to find the missing information. It is reassuring to see that it is just not available as yet. Particularly the question over calculating amounts and if commission comes into effect. Lets hope for our more junior employees they take a 3 month average of Paye.

    On the subject of BUSINESS RATES, any one heard any more? who is lobbying for Estate and Letting agents we seem to not get mentioned in any lists or any update from GOV.

     

    Stay Safe Every One!

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  2. anon-mon73

    A few issues I can see

    1. Employers are supposed to take the average ‘total’ wage into consideration for both average wage – so if on holiday we have to pay a pro-rata commission and holiday pay for any overtime.

    How can the government not take that into consideration?

     

    2. How many estate agents will have a shortfall in their ‘insured’ bond account come the year end?

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  3. Bless You

    I must be stupid.. even though my house depends on it,,i cant read a govt document for more then 2 sentances before my brain blows up. Appalling govt just making fake claims and help to keep the press off their backs. In another 3 weeks the economy will be gone.

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