As an employer you may be trying to get to grips with the Government’s new job retention scheme announced by the Chancellor recently. Here’s what we know so far:
WHAT DOES ‘FURLOUGHING’ AN EMPLOYEE MEAN?
The word ‘furlough’ is said to come from the Dutch word ‘verlof’ meaning leave of absence and was used when soldiers were sent home on leave when there was no work to be done.
In the current health crisis, It means sending an employee home when there is not enough work to do, with a guaranteed payment to them, until such time as you have sufficient work and then want to bring them back.
WHAT DOES THE JOB RETENTION SCHEME OFFER?
The government has confirmed that if an employer cannot maintain their current workforce because their operations have been severely affected by coronavirus, then the government will pay grants to employers representing 80% of their wages, capped at £2,500 a month.
This is open to businesses, charities and recruitment agencies where their agency workers are paid through PAYE and public authorities. However, if your organisation receives public funding for staff costs already then it is expected that this public funding will be used to continue to pay employees and that they will not be furloughed
WHO CAN BE FURLOUGHED?
- Full-time and part-time employees on any type of contract,
- Employees on agency contracts (who are not working, including those paid through umbrella companies)
- Employees on flexible or zero-hours contracts
- Office holders (including company directors)
- Salaried partners in an LLP
- ‘limb B’ workers which are those who work under personal contracts but who are not in business on their own account – provided that all of these are paid through PAYE
N.B it does not include the self employed
WHAT ABOUT EMPLOYEES ON A FIXED-TERM CONTRACT?
Fixed-term employees can be furloughed and their contracts can be renewed or extended during the furlough period. However, if they are not renewed or extended then the employer cannot continue to claim for them.
WHAT IS INCLUDED IN THE 80% AND WHAT ABOUT COMMISSION?
For employees whose pay does not vary, this is their actual salary before tax including fees, compulsory commission payments and past overtime as at 28 February 2020 but excluding discretionary bonuses (including tips), commission and non-cash payments.
For those whose pay varies it is the earnings in the same pay period in the previous year; or the average earnings in the 2019-20 tax year (or fewer if they have worked for less time than this, including a part-month calculation if they were taken in February) whichever is the higher. This will be subject to deductions for income tax and employee NICs in the usual way.
DO EMPLOYERS HAVE TO TOP UP THE 80% TO 100%?
The employer must pay the employee the grant it receives under the scheme (less normal deductions), but there is no obligation for the employer to make up the difference. Although, they can if they wish to do so.
DO EMPLOYERS STILL HAVE TO PAY 13.8% NIC CONTRIBUTIONS?
An employer is still required to pay NIC contributions at the usual rate. These can however, be claimed back through the scheme.
DO EMPLOYERS STILL HAVE TO MAKE PENSION CONTRIBUTIONS?
Yes, although they may agree with the employee to have a pension break so that the employee is not making their contribution and neither is the employer. Minimum auto-enrollment employer contributions of 3% can be claimed back.
CAN THE EMPLOYEE WORK FOR SOMEONE ELSE WHILST FURLOUGHED?
The ability to work whilst Furloughed is restricted by each individuals contract of employment. Most contracts will not allow this unless the consent of the employer is given so it will be a decision for each employer.
CAN WE FURLOUGH EACH EMPLOYEE MULTIPLE TIMES?
There is no restriction on how many times each employee can be Furloughed, as long as each period lasts a minimum of three weeks.
HOW DO EMPLOYERS APPLY?
The government is setting up an online portal through HMRC which they have said will be operational by early April. Employers will have to self certify that they have furloughed employees. You must have written to your employee and you must keep a copy of this letter for five years.
DO WE NEED PERMISSION TO FURLOUGH AN EMPLOYEE?
Whilst each employee must be informed if they are to be Furloughed, permission to do so is dependent on individual employment contacts. Some industries, such as manufacturing, generally use ‘lay off’ clauses in their contracts which allows you to send an employee home with or without pay when there is not enough work to do. If you have such a clause in your contract you do not need your employee’s consent to furlough them
If you do not have such a clause then you need their agreement to send them home on reduced pay as you are effectively varying the contract.
WHAT IF THE EMPLOYEE DOES NOT AGREE TO BE FURLOUGHED?
If the employee does not agree then if necessary you will have to proceed with a redundancy process, obviously considering all alternatives to redundancy before making a final decision.
IS THE EMPLOYEE STILL ALLOWED TO CARRY OUT WORK WHILST FURLOUGHED?
An employee that has been Furloughed must not carry out any work that generates an income or provides a service to their employer. However, you may allow them to volunteer or train during this period, but if they are doing on-line training they must be paid the minimum wage.
CAN I FURLOUGH THOSE WHO ARE SELF-ISOLATING?
Those who are self-isolating or on sick leave get SSP (or contractual sick pay if entitled) but can be furloughed after that.
DO WE HAVE TO TAKE BACK PREVIOUS EMPLOYEES?
If an employer wishes to take back employees who left the company on or after 28 February 2020 and Furlough them they are free to do so. They are however, not obliged to do so.
HOW DO WE SELECT WHICH EMPLOYEES TO FURLOUGH?
It is important that a fair and objective selection criteria be applied when deciding who to Furlough – decisions must not be discriminatory. If everyone in the team meets the criteria to stay working, than perhaps asking for volunteers would be a good starting point.
WHAT DATE DO EMPLOYERS CLAIM FROM?
Employers must claim from the date that the employee was first sent home, not the date that the decision was made or the letter was issued.
WHAT DO EMPLOYERS NEED TO MAKE A CLAIM?
- your ePAYE reference number
- the number of employees being furloughed
- the claim period (start and end date)
- amount claimed (per the minimum length of furloughing of 3 weeks)
- your bank account number and sort code
- your contact name
- your phone number
We know that it is a vastly uncertain time for all industries at the moment, with many small businesses struggling to survive. Developments and updates in government policy are happening at an unprecedented speed. We are all hoping that taking the tough decision to Furlough employees will aid the survival of many who are going to need it at this current time.
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