All UK businesses will be able to apply for assistance to support paying part of their employees’ salary for those employees that would have been made redundant, laid off or asked to take unpaid leave during this pandemic. The scheme will be available for a period of three months from 1 March 2020.
Here, Hopkins Solicitors, answer some key concerns and pressing questions for businesses regarding the scheme.
What does the scheme mean for businesses?
HMRC will reimburse 80% of ‘furloughed’ workers wage costs, up to a maximum cap of £2,500 per month. HMRC are currently working on setting up a system for reimbursement and will also backdate wages to 1 March 2020.
This means businesses that are unable to operate and would be thinking about making redundancies or laying off staff could take advantage of this scheme to help both retain employees for when this is over and to ensure your employees are being paid something.
What does the term ‘furloughed’ mean?
This is a new term which has been introduced to describe a new type of employment status.
To be a ‘furloughed’ worker the employee must not be required to undertake any work for the business and remain home. This status is an alternative to them being made redundant or laid off.
How do businesses take advantage of the scheme?
Select the affected employees and class them as ‘furloughed workers’ – Employers must notify the employees of this as this will change the status of their employment. Employers should obtain consent as this will be a contractual variation.
Once the employees’ status has changed the employer must submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (we await details on this and how it will be done in practise);
Ensure that the furloughed workers are not continuing to work.
Best practise would be to also confirm the employees’ new status in writing. Employers may wish to put employees on Furlough leave for an initial period, subject to review or for a fixed period up to a maximum of 3 months from 1 March 2020.
It’s important to note that an employee can request to be put on furlough leave, but it is ultimately the employer’s decision. The employer may just decide to make redundancies, but this relief will hopefully allow businesses to continue.
Who is eligible for the scheme?
All businesses are eligible no matter the size, sector or turnover, this includes but not limited to:
- Sole traders;
- Charities; and
- Employees that are on PAYE would be eligible for the scheme. This therefore would not include self-employed workers or contractors.
What about the remaining 20%?
Businesses can decide to pay the 20% that the employees will be missing out on, but they are not obliged to do so. It is, however, important to note that not paying that 20% of an employee’s salary could amount to breach of contract and unlawful deduction of wages unless the employee gives their consent.
Paying some employees, the 20% and not others could also cause difficulties and could give rise to claims if businesses are not careful. It is also worth thinking about those employees that are still having to work whilst others may not be but receiving full pay.
Other important factors to note:
- Furlough leave will not be eligible for employees that have had their hours reduced or agreed to a reduce in pay or are working from home;
- Think about a selection criteria if you have some employees that can work but can’t afford to keep all employees on full pay;
- Employees will continue to accrue holidays and retain their employment rights and continuity;
- The 80% wage contribution is likely to include wages, pension contributions and Employer NI contributions but official guidance is awaited on this point;
- We all need to help each other and therefore we encourage businesses not to exploit this scheme and only use if required during this difficult time.
As you can see, although there is a scheme offered to help in these times of uncertainty, there is a lot of thought and risk analysis to be done in the background to ensure it is used correctly.