Three months ago, some of us were unfamiliar with the concept of furloughed employees. Because of COVID-19, however, we can read about it almost daily in the press. Further, many businesses and employees have been subject to its implementation for the past couple of months following the UK government’s announcement of the Coronavirus Job Retention Scheme back in March.
Since then, there have been question marks as to what the scheme exactly will entail, who is eligible for the scheme, when it will end, and how and when to apply for it. Though many questions have been answered in the meantime, and businesses have successfully applied for and received their first grants, there are still perceived uncertainties regarding what the next step will be.
The most recent announcement made by the Chancellor on 12th May, extended the end date of the governmentally supported furlough period from end of June until end of October, along with some variations made to its format starting in August. With that in mind – what does the extension mean for UK employers and their furloughed workers? And when furlough ends – what are your options and liabilities? We have outlined some key aspects to consider below.
Coronavirus Job Retention Scheme – the Basics
The Coronavirus Job Retention Scheme was initially announced back on 20th March, as a support scheme for all UK businesses who have been severely, negatively affected by COVID-19, in order to protect millions of jobs and businesses.
Through the portal which went live on April 20th, employers can claim back 80% of furloughed workers wages, capped at £2,500 per month per employee. Additionally, the employer can claim for associated Employer National Insurance contributions (NIC) and minimum automatic enrolment employer pension contributions.
In order to qualify, the Company applying for the scheme must have been negatively affected by Covid-19 and the employee must either be at risk of being made redundant or have stopped working for their employer. Further, the employee must have been on PAYE payroll on 19 March 2020. Claims can be backdated until 1 March and submitted at least every 3 weeks, which is also the minimum period that an employee can be furloughed for. Employees can be taken off furlough if there is work to do and then placed back on furlough again, as long as each furloughed period lasts for a minimum duration of 3 weeks, which is good for Companies who perhaps need to rotate their employees.
Read more about the Coronavirus Job Retention Scheme and FAQs, such as how and where to claim, here.
Furloughed employees – what’s the latest?
Update on 1st June:
On 12th May, almost two months after its first implementation, the government announced an extension of the current furlough period, which was previously set to finish by the end of June. Employees can remain on government supported furlough until the end of October, though under different circumstances.
In June, the scheme will operate under the existing rules but from 1st July, employers can bring previously furloughed employees back to work part-time – this change will take place a month earlier than previously announced to help people get back to work. The government will continue paying 80% of wages for any normal hours not worked but the employee will be responsible for paying the employees in full for the hours they have worked.
Between August and October, the amount that the employer has to contribute towards the furloughed employee’s wage will increase gradually.
Extending Existing Furlough – What to Consider
Since the extension is no longer simply speculative but rather a fact, employers need to consider whether they want to keep furloughing current employees. If so, this needs to be communicated clearly and promptly to the employee, and the employer must consider what was initially stated in the original furlough letter/documentation, such as changing the end date of furlough. If any further changes need to be made, this has to be completed in agreement with the employee – remember that you are changing their terms and conditions of employment.
Employers should also consider how they communicate with employees, and make sure to keep them informed of both their own and the business’ situation. The most recent announcement might awaken some questions among your workforce who are currently on furlough – don’t leave them out in the dark but keep them updated on your plans going forward. If you are intending to keep some employees on furlough and some not, explain to them why and make sure you have valid and fair reasons for your selection. If not, you could be subject to unlawful discrimination.
When Furlough Ends – Employer’s Options
Fundamentally, the idea of the scheme is to save jobs and for furloughed employees to come back to their normal duties. However, reinstating all employees is the most costly option for an employer, and requires expectations of your business to go back to normal within the near future. If so, the employee goes back to their normal salary and other conditions as before furlough, unless jointly agreed differently, and the company’s payroll function must be informed to make sure the employee receives the right pay.
If business-as-usual is not anticipated within the foreseeable, employers might want to consider other options. Among those, employers can choose to reduce working hours for all or some staff, though this has to be done in agreement with the affected employees. Further, any changes to employment contracts need to be in writing. It is also important to take things like discrimination into consideration when choosing whose contracts to alter.
Employers can also choose to continue to furlough staff at its own expense, or worst case scenario, consider redundancies. In cases of redundancies, normal procedures for terminations must be followed. Depending on the outcome, the right to redundancy payments could be particularly important once the government ends the scheme, as well as things like payment in lieu of notice, holidays and other entitlements, since these are costs payable by your business and not the government.
What Can Employer’s Do Today?
To prepare your employees for one of the possible scenarios described above, it is firstly important for employers to keep a transparent and ongoing dialogue with employees. This can be a stressful time for many, with concerns about their future employment and income. With possible changes happening in their private lives on top of that, it becomes even more crucial for employers to bring more clarity to an uncertain situation. Keep your staff informed about your current situation, and your plans for times ahead.
Regardless of the outcome, employers should also review existing contracts and company policies to avoid possible breaches. For example, redundancies/lay-offs will require timely preparations in order to give employees their entitled notice period as per employment contracts.
In order to avoid the “last resort” scenario of redundancies, companies might find other financial support measures provided by the UK government useful. We have outlined the ones currently available in our blog post here. Further, a review and forecast of your company’s financial situation and understanding your cash position and liquidity, are actions that employers should take in order to get more clarity about their situation and as a possible consequence save jobs.
Generally, employers should make sure to keep their paperwork in place. HMRC has reserved the right to audit Furlough grant claims over the next 5 years, and so you are required to hold documents for this long. The documents should show clear agreement of the change of terms and under what condition each employee has been furloughed. Such documentation could become crucial in order to avoid possible discrimination claims or accusations of unfair treatment in the future.
For more support or advice about managing furloughed workers, or for support in making changes to your UK employees working arrangements, please contact our HR department on firstname.lastname@example.org