As the coronavirus situation continues, employers may have had to consider making staff redundant, or laying them off, as a result. Last week, the government announced its plans for financial assistance to help employers in this situation retain employees for an extended period of time, despite offering no work, and avoid lay-offs.
The Scheme involves employers placing their employees on ‘furlough’, which means putting employees on a temporary leave of absence where they do no work and receive no pay, but they are retained on the company’s books to be brought back in when needed. Employers who do this will be able to obtain a grant from the Government to cover 80% of furloughed employees’ wages, to a maximum of £2,500 per employee per month.
The government has confirmed that all employers are eligible for the scheme and there is no restriction on size or type. The guidance outlines that employers will need to designate which of their workforce will be furloughed employees and then submit that information to HMRC, along with each employee’s earnings. Following this, they will receive the grant to cover the 80% wages. Although they can make up the remaining 20%, they do not need to.
More information is awaited from the government on the online portal to be used to submit the information and any other details that may be needed. Chancellor Rishi Sunak has stated that he hopes the first grants will be paid by the end of April 2020 and that they will be backdated to 1 March 2020. The scheme is initially intended to run for three months but may be extended.
Theoretically, any employee can be furloughed, however, they need to be on a company’s PAYE in order for that company to be able to claim the grant for their wages. The guidance states that the ability to furlough an employee depends on their contract. It is not likely that employment contracts will include a specific right to use furlough. However, contracts that contain a right to lay off employees on no pay already give employers the right to send employees home and not pay them for a temporary period and so can likely be used to furlough employees. The difference is that employees on lay-off will get, subject to service criteria, statutory guarantee pay (SGP) whereas furloughed employees will get 80% of their wages.
If contracts do not contain a right to unpaid layoff, employers can ask the employee to agree to furlough. Although 80% of wages may not be an initially attractive option next to full pay, it is likely to be more attractive than redundancy which may be the end result if alternative options cannot be found. It may also be useful for employees who are struggling to find childcare.
While the Chancellor has indicated that the intention is to cover as broad a group of people as possible, further clarity is awaited to see if the scheme will apply to atypical workers and those on zero hour contracts.