Coronavirus has had a detrimental impact on the business landscape globally. In order to survive, preserve jobs and protect livelihoods, many companies are having to put their employees on furlough leave.
In the UK, the government recently announced that it will pay 80% of employee wages (up to a gross salary of £37,500 or £2,500 per month) through the Coronavirus Job Retention Scheme. While this is a crucial lifeline for businesses and staff, it will be new to many.
There are lots of things employers need to be aware of and do when placing employees on furlough leave. Employers must particularly take into account important legal considerations. They can’t simply tell employees not to come into work, as that would be in breach of their employment contracts. So what do employers need to know?
1. Be honest with staff
Firstly, it’s important to make employees aware that putting them on furlough leave wasn’t an easy decision. Be open about the fact you’ve made this decision in order to protect their job and the company during unprecedented times. Don’t just tell employees they’re being “furloughed”. They’ll appreciate honesty and transparency when it comes to reasoning.
2. Required paperwork
As well as formally notifying employees about your decision to make them furloughed, you’ll also need special paperwork in the form of a contract that allows you to go ahead. For an employer to place employees on furlough leave, they must do so in a way that “remains subject to employment laws”.
3. Tweaking contracts
You’ll need to make several amendments to employees’ employment contracts if they’re to be placed on furlough leave. As part of this process, you must reduce their salary and ensure they don’t undertake any work for or on behalf of your business. Of course, you will have agreed formalities like salaries, a termination period and annual leave with staff in their employment contracts. So you’ll need to amend these to add in the ability to reduce salary and offer no work.
4. Varying each contract
When it comes to varying employment agreements so that you can furlough employees, you’ll need to create new legal agreements outlining the furlough conditions for every member of staff (i.e. don’t try to modify the wording in their existing signed employment agreement – that stays as is).
The new Furlough Notice that you create will contain a formal notice that explains why you’ve furloughed them and a contract variation agreement that allows you to vary existing contracts. Again, you need to be clear that this is a decision not to be taken lightly and that furlough is an alternative to making redundancies.
5. Topping up salaries
For any business affected by Coronavirus, the government will pay 80% of an employee’s salary. But what about the remaining 20% and any payments for salaries above £37,500 a year? Employers have the option to top up the remainder, although it’s not mandatory. If a business can afford to pay the remaining 20%, or some of it, they can choose to do so.
To illustrate this, take Alice, a software developer. Her salary is £48k or £4000 a month, and you have decided to furlough her. If you were unable to pay her a top-up, she’d get £2,500 from the government every month. That represents a 37% decrease in income. However, if you were to top this up, perhaps you’re unable to pay £48k and you go with £40k instead. You end up paying £833 a month, while the government covers the rest.
6. How to get furlough payments back from the government
Before you can qualify for the 80% reimbursement from HMRC, your employees will need to agree to be furloughed and receive a reduced salary in writing (along with a new contract). You’ll have to continue paying them through payroll until the scheme kicks in, which is likely to be at the end of April. HMRC is currently developing an online portal to facilitate these payments. To help businesses in the meantime, VAT payments have been deferred and there are different support packages available.
It’s also worth mentioning that the scheme will apply retrospectively from 1 March 2020. Employees must not undertake any work for or on behalf of your company during this time, because that would be fraud. When the portal is set up, companies are expected to notify HMRC that they’re furloughing their workforce and make a single claim. To do this, companies will need information such as the employees’ ePAYE reference number, number of furloughed employees, claim period, amount claimed and bank details.