One in four UK workers, or more than nine million people, are expected to be furloughed during the coronavirus crisis as businesses struggle to survive.
Two-thirds of British businesses have already used the government’s scheme since it was announced last month and one in three companies have put at least 75 per cent of their workforce on furlough, according to a survey published by the British Chamber of Commerce. If this pattern is repeated across the economy, then at least a third of private sector employees (between seven million and ten million people) will be furloughed, according to analysis from think-tank the Resolution Foundation.
Since the coronavirus pandemic caused thousands of businesses across the UK to close overnight in March, millions of people have been left perplexed and concerned about where their next pay cheque will come from. The word “furlough” – which until now has never been used in English employment law – is the go-to term for employers in crisis who want the government to foot their staff salaries during the crisis.
But the speed at which the package was announced last month, and the complexity of it, has left many confused as to where they stand and who qualifies for the scheme. What amounted to a giant safety net for businesses to weather months of crippling reduction in income has large enough holes for tens of thousands of employees to slip through. And the government is constantly changing its own furlough rules. The latest development is significant: on April 15, the government decided to extend the cut-off date to qualify for the scheme from February 28 to March 19, in a move that it expects will benefit 200,000 employees.
To clear things up, here’s what the government’s furlough scheme means, how it can affect you and how long it will last. The government may issue new guidance around furlough schemes: the below information was correct as of April 16.
What does furlough mean?
To furlough means to “lay off or suspend temporarily”, usually without pay. It’s not a recognised term in UK employment law, although it is commonly used in the US, which is why it left many puzzled when the Chancellor used the term in his radical employment plan. Government guidance says someone is furloughed if they remain employed but are not undertaking work.
How does the UK’s furlough scheme work?
Under new rules from March 1 and running for at least three months, companies can now furlough employees rather than fire them. Through this scheme, the government will pay up to 80 per cent of people’s wages, up to a maximum of £2,500 per month. Anyone working in a full time job (or on a PAYE basis) on March 19 can be furloughed. This includes people on zero hours contracts or those working flexibly. Unfortunately, it does not apply to people that might have switched jobs between the end of February and the government announcement.
Being placed on furlough is similar to gardening leave. You would still be paid by your employer and will still pay taxes from your income – but you would not be able to continue working for your employer for the duration of the furlough. In this case, you would effectively be paid not to work until the end of June.
The grant, which will not start paying out until April, can be backdated to March 1, according to government guidelines. The minimum time that an employee can be furloughed is three weeks, and companies cannot rotate furloughed workers – which is problematic if someone still working becomes ill, according to a blog by employment law firm Farrer & Co. Lawyers said that those already self-isolating cannot be furloughed (and must be paid statutory sick pay) until they return to work. Once they return, they can be furloughed. And people who are “shielding” and vulnerable to severe illness caused by coronavirus can still be placed on furlough.
There is no guarantee that your employer will keep you on after the scheme ends. And if you are furloughed, you will not qualify for 80 per cent of your salary if you earn more than £2,500 per month. In that case, an employer could choose to “top up” your salary, or you could be eligible for support through the welfare system, including Universal Credit.
If you receive a regular salary, the 80 per cent should be calculated based on an employee’s actual salary before tax (their gross salary), as of March 19.
If your pay varies (because you are on a zero hours contract or flexible working contract, for example), the 80 per cent limit will be applied to the same month’s earnings from a previous year, the average monthly earnings for the 2019/20 tax year or an average of their monthly earnings since they started work – whichever is highest.
This situation will not affect employees’ entitlement to statutory maternity or shared parental leave pay. However, employers who offer enhanced contractual maternity, paternity or shared leave pay can furlough these employees to receive support with the cost of that enhanced payment.
Being furloughed will not affect your pension contributions. You can choose to reduce your contribution level or opt out to the scheme if you want to, but employers will be able the statutory minimum employer pension contribution as part of the scheme. The Pensions Regulator has more guidance on this here.
How can you apply?
Any UK employer can apply to the scheme to temporarily cover people’s salaries, including businesses, charities, agencies and public authorities. Employees have to agree to be put on furlough – and an individual can’t apply by themselves.
The guidance also states that “if sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment”.
There is no requirement for the business to be considered “essential” in order to access the scheme. Nor it is necessary for employers to show that they are suffering any sort of financial hardship. If employers are already receiving public funds, they are expected to use them to cover the staffing costs rather than also applying for the furlough scheme.
Companies can find out whether they are eligible to claim furlough for their employees in relatively simple steps. First, prove that its employees cannot do their jobs due to the coronavirus measures put in place by the government. Second, notify employees of their new ‘furloughed’ status. And finally, submit information to HMRC about furloughed employees to set up a system for reimbursement.
But as the government grapples with understanding its own rules, many people have been left in the dark about their rights. We asked a team of employment experts to tackle some of the tougher questions to arise from the furloughing scheme.
I left my job before the scheme was announced and my new job has been pushed back, what can I do?
Kirsty says: I am between jobs at the moment. Having handed in my notice on February 19, I left my company on March 26. I was due to start at a new company on April 6, but due to Covid-19 my start date has been pushed back to June. My old company is refusing to furlough me, and my new company can’t help – is there something else I can do?
David Hunt, employment partner at law firm Farrer & Co, responds: There are three main issues raised in Kirsty’s case: can she be furloughed within the Coronavirus Job Retention Scheme, what can she do about her new role and is there any other help she can access?
To fall within the Scheme, employees must have employed on or before March 19, 2020 on the relevant employer’s PAYE payroll. Unfortunately, Kirsty’s new employer does not therefore have the option of paying her and seeking reimbursement via the Scheme as she is due to commence employment after March 19.
Although Kirsty was employed by her old employer on and before March 19, 2020, she has since left that employer having resigned to take up her new job. However, subject to an important caveat, the government published updated guidance on 4 April which offers Kirsty some glimmer of hope, as it now confirms that if employees were made redundant by their employer or otherwise stopped working for them since March 19, they can be rehired by their old employer and placed on furlough instead. This will cover situations like Kirsty’s, where someone has voluntarily left their job after March 19.
We therefore suggest Kirsty approaches her old employer to ask if it might be willing to rehire her. Her best argument is likely to be to say that she is willing to accept the minimum 80 per cent payment, with no top up, so her employer could get full reimbursement of her wage costs under the Scheme. However, unfortunately, even within the new guidance, the decision whether to re-employ still lies solely with Kirsty’s old employer, and there is no obligation for it to agree to take her back. Given the economic uncertainty caused by coronavirus, and the fact that the Scheme isn’t yet up and running (meaning there will be an inevitable delay in being reimbursed for wage costs at a time when a lot of companies are experiencing cashflow issues), we fear that a lot of companies will be unwilling or indeed unable to rehire employees, despite Saturday’s new guidance.
Turning to Kirsty’s new job and her delayed start date, if Kirsty hadn’t signed any offer letter or contract of employment with her new employer (and hopefully she has), the employer is free to withdraw or amend the job offer (including changing the start date) at any time without her consent as any offer made has not yet been formally accepted.
If Kirsty had signed an offer letter or contract of employment and the relevant agreement contained a fixed start date, then any change to that start date would need to be agreed with Kirsty. However, in considering whether to agree to such a change, she will need to weigh up what the alternative might be if she doesn’t agree to the change. For example, is there a risk the new employer could simply give notice terminating the employment altogether (which it would be permitted to do)? If so, Kirsty would be entitled to a payment for at least some of her notice period under the contract but obviously no longer have a potential job to go to once the current crisis starts to subside.
Unfortunately, a lot of people like Kirsty are finding themselves slipping through the gaps in terms of the help available. There is no real satisfactory solution available. If Kirsty is unable to persuade her old employer to rehire her, of the alternatives that are available, she may be best served seeking a temporary job in a sector that is still recruiting (albeit this may be on far lower pay). If this is a possibility, we suggest she mentions it to her new employer so it is aware what she is doing. The only other option, which the government guidance points employees towards, is exploring what support might be available via the welfare system, such as Universal Credit, though we appreciate this is again far from a satisfactory solution.
I’ve been furloughed but my employer still wants me to work. Is this allowed?
Laura* says: I’ve been furloughed but my employer still wants me to work and has said he’ll “pay on the side for work completed”. He also claims an association okayed this. This isn’t right, is it? I learnt today that all of my colleagues have been working full time since being furloughed. I expressed my concerns and he said “we can either keep clients happy or I can make everyone redundant”. My boss is taking away annual leave despite the new two year government rollover scheme and has said it will be pro rata when we get back to work. I queried that too. My boss wants me to carry on working today and I don’t know what to do.
David Hunt responds: The government guidance on the Job Retention Scheme is absolutely clear that if an employer wants to fall within the scheme for any furloughed employees, those employees will not be able to do any work for the employer. Moreover, any training or volunteering carried out by employees on furlough must not make money for or provide services to their employer either.
So, in Laura’s case, her employer is acting against the rules of the scheme by asking furloughed employees to carry on working. The government has the right to audit the scheme at any time, and if they find signs of deliberate abuse, have the right to claw back any payments reimbursed to the employer. Laura’s employer therefore runs the risk of either not being eligible for the grant once the portal opens or being asked to repay it once it has been paid (and possibly being subject to further sanctions as well).
If HMRC were to seek clawback from an employer for the reasons above, this should not, however, then allow the employer to then claw back payments made to its employees as an employer’s ability to seek reimbursement from the scheme should be separate issue to its obligation to pay its employees under their contracts of employment. To guard against this, employees should, however, try and ensure that wages during furlough are not stated in any furlough letter or agreement to be conditional on the employer receiving reimbursement under the scheme.
In terms of her options, we would suggest that employees like Laura direct their employers to the government’s actual guidance (rather than the employer relying on the advice of third parties), drawing their attention to the section on “employees you can claim for”, which sets out the relevant details on this point. If employees are unable to persuade their employer to changes its approach, the government’s guidance for employees suggests that employees should raise this with the Advisory, Conciliation and Arbitration Service (Acas). An alternative option would be to contact HMRC’s fraud hotline (details can be found here). This is a confidential phone line, and so could be used without the employer finding out who made the report.
Otherwise, employees like Laura who are asked to work in breach of government rules are placed in a horrible situation. If they raise this as an issue with their employer, they will have protections afforded to them under “whistleblowing” legislation if they are then dismissed or subjected to any detriment. The charity Protect has a confidential whistleblowing advice line which Laura could contact for further information on her rights.
In relation to holiday, employees are entitled by statute to 5.6 weeks’ paid annual holiday, and potentially more under their contracts of employment. It is not possible for employers to take this away from employees, although they are able to require employees to use holiday at particular times (by giving notice which is twice the length of the holiday to be taken).
Where employers are struggling to allow employees to use all their holiday entitlement in this holiday year, Laura mentions a two year rollover scheme, which refers to a new rules recently introduced by the government. Under these new rules, up to four weeks’ annual leave may be carried-over into the next two holidays (rather than lost by employees). If Laura’s employer refuses to allow her to take or carry-over her statutory holiday, she may be able to bring an employment tribunal claim against her employer and she should be able to seek further support from Citizens Advice in relation to any such claim.
Most of my earnings are commission and my basic salary is too low. What are my rights?
Curtis says: I work in sales so my basic annual salary is £10,000. Almost all my earnings are commission based yet the company is only paying me the £833 basic. We are used to earning anywhere from £3,500 per month. Are they supposed to conclude commissions during furlough pay or not? Is there anything I can do? Bearing in mind I have monthly outgoings that match my usual monthly income, how I was expected to drop down to £833 per month is beyond me.
David Hunt responds: The government published updated guidance on the Scheme on 4 April, which changed the position on commission payments. Previously, the guidance stated that, in calculating the wage costs to be reimbursed for employees on furlough, commission should not be included (similarly fees and bonuses were also expressly excluded from the calculation of any reimbursement).
The new guidance has changed this and now says that commission payments can be included if they are regular “compulsory commission payments” which an employer is obliged to pay. Similarly, regular payments such as past overtime and fees can now also be included. Discretionary commission remains excluded by the Scheme.
Hopefully this will be good news for people, like Curtis, who are in roles where pay is heavily dependent on things like commission. However, we haven’t yet been given any guidance on how to interpret what “compulsory commission” actually covers. I anticipate it will cover contractual commissions (as opposed to discretionary schemes) and the position for Curtis will very much depend on the terms and nature of his specific commission scheme and whether he can say that his commission is indeed contractual and something his employer is obliged to pay.
If Curtis’ entitlement to commission is discretionary, unfortunately, the position remains that it will not be taken into account when calculating his wage costs under the Scheme. In that situation, we suggest he tries to understand as much about the furlough scheme and his employer’s plans before he agrees to being furloughed. This will include things like how much he will be paid and how long his employer envisages any time on furlough lasting at this stage.
If Curtis’ commission payments are not included in, he (and employees like him) will need to weigh up the employer’s proposal around pay during furlough (and here the lack of commission), when deciding whether to give his consent. However, he will also need to weigh up what the alternative to being furloughed is. For example, depending on the circumstances of his employer, there is a risk that redundancy might be the only other option available to the employer. Is no job a worse prospect in the current climate than being furloughed on basic salary only? Furthermore, even if Curtis could remain in work for the time being, what chance is there that he could continue earning commission at the moment? This is likely to depend on the particular market and industry in which he works and the extent to which it has been impacted by coronavirus.
If Curtis thinks redundancy is otherwise unlikely or thinks he may be able to find another job during any notice period, despite the difficult job market conditions, he can always seek to negotiate with his employer as to what the employer is willing to pay during the proposed furlough period and certainly should be discussing the possibility of the employer offering some form of top up.
I’ve been made redundant recently and my company is refusing to use the furlough scheme instead. Are they correct?
Chris says: I was made redundant yesterday. There are two departments that have closed in my company, with over 150 staff being made redundant. We were in consultation from November 2019, then officially told we were being made redundant around January 25 and our last working day was March 31. We asked them to rehire us and put us on furlough scheme but no joy. They’re saying furlough is only for those who are losing their jobs due to Covid-19 and legally they can’t. Is there anything I can do?
David Jones, employment law expert and barrister at St John’s Buildings, responds: It is difficult to envisage a situation where an employee could argue that furlough leave was a suitable alternative to redundancy, especially in circumstances where the decision to dismiss was taken before the coronavirus outbreak in the UK. During the course of any redundancy process, there is an obligation to explore alternatives to job losses. If the consultation was happening now then furlough leave may be an appropriate alternative to consider. Each case is different so it’s important to take legal advice.
Are companies obliged to use the furlough scheme instead of making people redundant?
Alice* says: My friend’s business just made him redundant and refuse to put him on furlough so he can have an income. Can anything be done about their refusal, can he claim it elsewhere?
David Jones responds: Firstly, there is no obligation on an employer to put an employee on furlough leave. It is a process that only the employer can initiate in circumstances where there is no work available (e.g. in the event of a temporary business closure). Unfortunately, despite the creation of the Job Retention Scheme, inevitably there will still be cases where an employer feels there are no suitable alternatives to redundancy.
If you are made redundant, the first thing to do is check what you are entitled to be paid. This will include, your pay until the effective date of termination, pay in lieu (if you are not required to work all or part of your notice period), accrued but untaken holiday pay and any other payments your employer might owe you (e.g. outstanding bonus, commission or expenses).
Anybody that is out of work can check online if they are entitled to claim Universal Credit. The Jobcentre also provides a useful resource for getting to grips with what help is available. A final point worth mentioning – if you have a mortgage protection policy, check it. Employment disputes are often covered under the terms of legal expenses provisions, and some may even include income protection cover.
My partner is being asked to “volunteer” to work while furloughed. What should they do?
Steve says: My partner is furloughed but her employer insists that she carry on working. They are not topping up 20 per cent of her wages or paying her at all. She does not want to break the rules which clearly don’t allow any working. She is being asked to volunteer lest they look at making redundancies, and decide who stays when this all blows over. They claim they are currently paying her, after being furloughed and that she should continue working (although they will claim this expense back when the portal is live). Are they allowed to do any of this?
David Jones responds: It sounds like this employer might be in some difficulty. Furlough leave doesn’t mean an employer can unilaterally reduce an employee’s pay by 20 per cent. It only applies in a situation where there is no work. If a business is currently suffering as a result of the coronavirus outbreak, it may be necessary to review its operating costs to ensure its sustainability. Such a review may include salaries. However, this is not a carte blanche option. Changing terms and conditions of employment is complicated, even on a temporary basis. It necessitates consultation and agreement.
Employers who change terms and conditions of employment unilaterally run the employment tribunal gauntlet. If an employee resigns in response to a breach of either an express or implied term of their contract, they may have a cause of action against the employer. An employee cannot bring a claim for breach of contract claim whilst still employed. However, there are legislative provisions that prevent employers from making unlawful deductions from an employee’s wages.
There are ways to resolve matters before they escalate or cause irreparable damage. Consider the grievance process and the services offered by Acas. If you’re in any doubt, the best course of action is always to take legal advice.
*Some names have been changed
Natasha Bernal is WIRED’s business editor. She tweets from @TashaBernal
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