Furlough scheme explained for employers

Chancellor Rishi Sunak has put in place the Furlough scheme, where the Government will pay 80 per cent of employees wages who have been furloughed. 

Furloughed workers are those whose workplaces have been forced to close due to COVID-19, leaving them unable to work. This does not mean they have been made redundant and enables their employers to gain support to continue paying a part of their staff’s wages.


The Government guidance on furloughing include:

  • Detailed guidance confirms the rumour that it is only available in respect of employees who were on the payroll on 28 Feb
  • Furlough must be a minimum of three weeks.  Must be actual furlough (no work) – this scheme does not apply for reduced hours and reduced pay.
  • The amount of £2,500 per month appears to be gross (a reference to the employee’s wage during furlough being subject to usual income tax and other deductions), but employers can claim employer NICs and auto-enrolment pension contributions – i.e. demonstrating these should continue.
  • Also suggests that employers should make these payments in the normal way and recover them later – i.e. employer shouldn’t wait until they get the reimbursement
  • Acknowledges that employers need to discuss this with their staff – can’t just do it.  And may need to make changes to the employment contract ‘by agreement’
  • In changing the contracts of a large number of employees, employers may need to collectively consult (minimum 30 day period) – which means this isn’t a fast fix and won’t quickly help the employer’s cash flow problems.

 

Julia Wilson, a partner in the employment practice at Baker McKenzie said:

Employers will welcome this further guidance on how the Government scheme is to operate. They now understand clearly that it applies only to furloughed employees (ie are not performing any work for their employer) and not those whose hours and pay reduces. They also know that an employee must be furloughed for a minimum of three weeks, and that compensation can only be claimed for employees who were on payroll at 28 February.

The guidance flags the fact that the scheme does not give a “right” to put an employee on furlough.  If employers do not have a contractual right to furlough they will need employee agreement, and the guidance notes that depending on the numbers of employees impacted that might require a collective consultation (typically of 30 days or more).  In circumstances where businesses are facing dire cash flow situations the need to address these contractual issues will lessen the value of the scheme.

There is no requirement for an employer to top up to full pay, however employers who want to take advantage of this scheme quickly may want to consider doing so, to get agreement from employees to furlough in a short amount of time.

The scheme is expected to be up and running by the 30th April.