On Friday, the government’s new Coronavirus Job Retention Scheme was announced. This is intended to help UK businesses get through this unprecedented time of job and income uncertainty. HMRC has pledged to reimburse businesses 80% of wage costs, up to £2,500 per month, for employees who are not working. This scheme is expected to be open for at least the next three months and will be backdated to 1 March 2020. Although there is still limited information about the scheme, it does not seem that this will apply to employees with reduced income. We have set out an outline of the scheme, what it proposes to cover at this stage, and how it may assist your business in our guidance, available here.
For a business to access the Job Retention Scheme they will need to designate affected employees as “furloughed employees” and notify their employees of their new status. The guidance below is provided to assist you in what a furloughed employee is, how to designate an employee as one and the advantages of doing so.
What is a “Furloughed Employee”?
A furloughed employee is an employee that is required to take a leave of absence for either a specific or unspecified length of time. A furloughed employee will therefore not work during this time but is still an employee and remains on the company’s payroll. This is therefore not a permanent leave of absence, but only temporary, with employees expected to return to work as normal once the situation improves.
Any employee can become a furloughed employee, but it may be more appropriate to a particular industry, sector or location depending on business needs. By classing an employee as a “furloughed employee” the business should be able to rely upon the government Job Retention Scheme in ensuring up to 80% of employee income (up to £2,500) and job security, thereby helping to prevent businesses from having to close.
How can we designate an employee as a “Furloughed Employee”?
- Identify which jobs can be placed temporarily on hold.
Every business is different, and which employees are necessary for its continuation will depend on numerous factors. However, you should create a clear process to determine what, and who, is necessary to continue the essential business operations. The idea behind the Job Retention scheme is to keep on employees who may otherwise be at risk of redundancy or lay-off. Therefore when considering who may be eligible for furloughing, it is worth looking at a process akin to your redundancy process so that decisions are taken fairly, although it is likely that decisions will need to be taken much more swiftly than in a typical redundancy situation.
- Decide when employees will be furloughed, and how long this may last.
The scheme allows companies to backdate furloughed employees to 1 March and will provide a limited reimbursement of wage costs (80% of wages up to £2,500) until at least June (with a possible extension beyond this time). It is unlikely at this stage to be possible to discern a date that the employee can return back to work as normal so this should be kept under review.
- Agree the change of employment status with your employee.
Designation of an employee as a furloughed employee is still subject to existing employment laws, and therefore any change to an employee’s employment status will require their agreement and need to comply with their existing employment contract. Although agreement may not be difficult to obtain, given that the alternative may be redundancy, this can provide an opportunity for both employer and employee to negotiate a change to the contractual terms as a furloughed employee during this unprecedented time of uncertainty.
- Amend the employment contract.
An amendment to the employee’s contract will need to be made to reflect their new furloughed status. This amendment needs to be made in compliance with their existing employment contract and should also take note of any other requirements or factors which have been agreed. It is possible to vary an employment contract with a separate document or even an email, although it’s important to ensure that the employee’s consent to the contractual variation is recorded in writing to minimise the risk of a dispute arising.
- Notify the employee of their new employment status.
To ensure that you can access the government scheme you will also need to notify your employee in writing of their changed status once this has been carried out.
Why should we make our employee a “Furloughed Employee”?
There are numerous reasons why making an employee, at this current moment, a furloughed employee may be attractive to businesses and employees alike. The most important being that the business can be reimbursed for labour costs which will potentially help it survive the COVID-19 crisis whilst providing job and income security to its employees. By making employees a “furloughed employee” it should also enable businesses to go back to normal once this period is over, as they already have their staff in place without having to recruit, hire and train.
There is currently no system set up for informing HMRC or requesting payments through this scheme, although it is understood that this is currently being worked on. We will keep you updated and if you need any additional information or assistance throughout the coronavirus crisis, please contact us by emailing email@example.com.