Furlough: Key Issues
The pandemic furlough programme – officially called the Coronavirus Job Retention Scheme (CJRS) – is primarily about protecting businesses in the worst crisis to hit the global health and economy since the Second World War.
Few businesses are unaffected by the lockdown restrictions currently in place; and those that are carrying on as normal – at least, in terms of finances - are unlikely to escape the trickledown effects further down the line. The immediate lockdown measures outlined in the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 require that specific businesses must close. Those listed include the likes of pubs, restaurants, cinemas, shops selling non-essential goods only and hotels.
For businesses that remain open, only workers who cannot work from home can go to their place of work, though social distancing measures are to be observed at all times, until lifted. This means that both closed businesses and those who are still (legally) open face potentially serious problems with paying staff when business operations ground to a halt or – at best – a snail’s pace.
So the government quickly and admirably launched its CJRS under which employers can furlough employees and claim 80 per cent of a worker’s normal calendar pay up (to a ceiling of £2,500) from the government. However, the employee must agree to being furloughed so consultation and communication with staff is vital.
Businesses will be familiar with the headline facts but for the sake of clarity, a few points are worth stressing:
· As well as full time employees, those eligible for furlough include apprentices, agency workers, part time workers, contract staff including those on zero hours contracts.
· The scheme is only open to UK employers that were operating a PAYE payroll scheme on or before 19 March 2020 and only staff being paid under that payroll on or before that date are eligible.
· It is for the business to claim the wages from the government, not the employee as some businesses had at first thought.
· Businesses cannot put an employee on furlough, then ask them to work for them; although an employee can still undertake training.
· Theoretically, an individual on furlough can take on paid work elsewhere but, in practice, doing so may be in breach of their employment terms. So care on both sides needs to be taken.
Needless to say, the scheme was (necessarily) delivered at breakneck speed and there are a number of uncertainties, some of which are only now coming to the fore.
One tricky topic is the interrelation between furlough and annual leave, with insufficient clarity at the moment on some of the specific issues.
What we understand so far is that if a furloughed worker does not book annual leave while on furlough, their statutory minimum entitlement (5.6 weeks a year) still accrues. Employees who are entitled under their contractual terms of employment to more than the statutory entitlement can be asked not to accrue it while furloughed.
Also, HMRC has clarified that up to four weeks’ annual leave can now be carried over to the next two holiday years, presumably to mitigate the potential problem of having furloughed staff returning to work – then taking annual leave in close succession in one year along with the rest of the workforce. That scenario could cause serious problems for business operations.
What about annual leave taken during furlough? In this case, employers are required to top up staff pay to 100 per cent.
It has not been clarified whether or not a business can insist on employees taking annual leave during their time on furlough, however much in the interests of the business that might be. The general thought is that the risk of insisting on it could open the business up to an employment claim. You can, instead, communicate with workers and try to persuade them to take annual leave while on furlough – perhaps offering to pay more than the 20 per cent top up for the days of holiday taken.
The devil is in the detail, but unfortunately, some of the important detail remains unclear. Until further guidance is issued by the government, businesses are strongly advised to err on the side of the caution when there is any uncertainty as to what to expect of employees.
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you