We know that our entrepreneurial clients move very quickly to adapt to developments and overcome obstacles. We know that you are on top of the information that has been relayed by the Chancellor and the Government and we know you are following advice provided by your regulatory and trading bodies where appropriate.
Many of you will already be carrying out immediate cash flow forecasting, speaking to your landlords about rental holidays or revised lease terms, discussing how best to pay your suppliers and revise credit terms. Many of you will also be looking to implement the Coronavirus Job Retention Scheme (CJRS) for certain of your team members.
The focus of this briefing note is on furloughing and practical points for employers.
If you would like specific advice on how this may apply to you, please don’t hesitate to get in touch. We are taking calls daily from clients and business friends on all manner of decisions they are required to take at this challenging time.
Q1 What do the terms “furloughed” and “laid off” mean?
Furlough is a new employment status. The term “furloughed” is not commonly used in the UK, and no express definition has been set out in the Chancellor’s announcement or the government guidance on support for businesses. What we do know so far: furloughed workers are employees who have been asked to stop working but remain on payroll, rather than being dismissed for reasons of redundancy.
The government advises that the CJRS is to protect those that would have otherwise been “laid off”, to safeguard against redundancy. In employment law terms, “laying off” an employee refers to a situation where the employer provides no work and, due to the terms of the employee’s contract, the employee is not entitled to any wages i.e. they are sent home without pay, but are not dismissed (in line with contractual provisions).
Therefore, although laying off is a similar concept to furloughing, we expect that the government intends for the scheme to apply to employees who would have otherwise been made redundant (contract ending with no pay), as opposed to laid off (contract continuing with no work and no pay). We await clarification on this point.
Q2 What do employers need to do practically to take advantage of the CJRS?
Employers will need to:
· Decide which employees to designate as furloughed employees.
To avoid feelings of unfairness and any resulting fallout (legal or personal), you should use appropriate, non-discriminatory criteria.
· Notify those employees of the intended change.
This should involve an assessment of whether the employee is likely to consent, and sensitive wording, particularly if you have not yet raised this possibility with employees. If you would like any assistance, we can draft the necessary communications with your team on your behalf.
· Check the employment contract.
Most employment contracts will permit an employer to vary the contract. However, most will not permit an employer to reduce an employee’s pay, provide them with no work, and change their employment status, without agreement.
· Agree the change with furloughed employees.
Faced with the alternatives, which are likely to be hours and pay being significantly reduced (below 80%), unpaid leave, lay-off, or redundancy, the majority of affected employees are likely to agree to be placed on furlough leave. That being said, this should be managed in sensitive and appropriate manner.
· Confirm the employees’ new status in writing.
This will avoid any miscommunication and potential for future disputes. Ideally, the employer should advise how long it expects furlough leave to continue, however, this may be difficult in the current climate. The government have said that the scheme’s initial three months (from 1 March 2020) may be extended as necessary. Employers may wish to put employees on furlough leave for an initial period which is subject to review.
· Submit information to HMRC
about the employees that have been furloughed and their earnings through the new online portal. We await further details on the information required.
· Ensure that the employees do not carry out any further work while they are furloughed.
There are additional considerations for specific businesses, such as the potential need to collectively consult with employees. If you need advice in relation to this, or any other matter, we are here to assist. We can also review your contracts and draft communications to be sent to employees.
Q3 Do employers have to top-up the 80% HMRC payment?
No. Employers can choose to top-up payments, but are not obliged to do so. We appreciate that many small businesses would like to top-up their teams’ pay but in the current climate are not in a position to do so. It would be sensible to discuss salary needs with employees to see if a top up is in fact needed, employees may find that their day to day expenses have been reduced in this current climate given the reduction in commuting and other costs. Employees may also be able to seek mortgage relief or childcare cost reductions or reimbursement or suspension of other monthly expenses, such as gym subscription.
The scheme will work retrospectively, and employers should be mindful of this when running payroll. For example, if making a payment greater than a gross salary of £2,500, the employer will not be able to claim the additional sums back under the scheme.
Q4 Can furloughed employees work at all on a voluntary basis?
We understand that, prior to the announcement, many small businesses were sensibly considering initial measures such as reducing some or all of their employees’ hours, looking at part time options or job shares. Whilst the CJRS is a much-welcomed safety net, we appreciate that it also leaves employers with new predicaments – particularly with employees who want to help out during this period or where employees have lost the majority of their role but perhaps not all of it.
If an employer provides work to employees, whether on a voluntary basis or not, they are not “furloughing” those employees. The Government will retain the right to retrospectively audit all aspects of the scheme with scope to claw back fraudulent or erroneous claims.
We would urge any employer who is considering this and/or is not clear about their options to speak to us.
There are a number of matters to consider including if to furlough, when to furlough, the length of time, what happens if work picks up and how best to ensure equity across your team and changes to contracts. Please do call us and we would will talk you through the decision making process and its implementation, or if you have any other questions, you can contact us via 020 3709 9673 or firstname.lastname@example.org