What we know and what we do not yet know about Furlough leave

The newly announced job retention scheme, which applies to all UK companies, allows employers (subject to eligibility) to access financial support to continue paying their employee’s salary for those who would have otherwise been laid off (made redundant) during this crisis.

The word Furlough is not a currently recognised concept as such and employment law principles still apply in the normal way. The government hopes that the first grants should be paid within weeks. The scheme will apply in respect of all employees on PAYE, including those on casual/ zero hours contracts.

As expected, due to the fast-paced nature of the developments, at the moment the guidance is sparse and, as such there are a lot of unanswered questions from an employment law perspective.

What we do not know yet / unanswered questions

1. The eligibility rules – for example will there be a requirement to follow a redundancy/selection process and be able to evidence this or is the beginning of a consultation process sufficient;
2. We expect there to be stringent anti-fraud measures in place. We are awaiting guidance on this. The government are very likely to give heavy penalties for companies who abuse the system (if any);
3. It is unclear whether employees who have already been made redundant as of 1st March onwards are eligible for this scheme. The scheme is backdated to cover from 1st March 2020 however the government have not provided definitive guidance on this as yet.

Steps for furlough leave

1. Designate employees that are considered as furloughed employees. You should also consider whether you need to consult with employee representatives or trade unions where the employer intends to vary the contracts of 20 or more employees, and it intends to dismiss employees who do not consent to the change in their terms. We would recommend seeking legal advice if this is the case.
2. Consider the contractual position- is there a contractual right to lay an employee off? If there is not, you would need to obtain consent from the employee. You should also consider whether you need consent if you are not going to top up the contribution up to 100% of the employee’s salary (which is a reduction in salary and may lead to employment claims being issued).
3. Once you have agreement from them in respect of the 80% salary (subject to the cap of £2500) being paid as a furloughed worker you should send them home and then submit to HMRC information about the furloughed staff members and submit this to portal when it is set up which we suspect will be set up very shortly. Your accountant should be able to assist with this.
4. HMRC will reimburse 80% of wage cost up to £2,500 per month. As mentioned above, HMRC are setting up a system to allow employers to do this. The cap will include NI and pensions contributions. We are currently waiting for further guidance. Employers can choose to top up the remaining 20% if they wish. Please note that employers are not obligated to top up the wages to 100% under the scheme, however, this may give rise to employment claims by the employee if they do not agree to the reduction as mentioned above. We would advise seeking legal advice if you envisage having difficulties.
5. Employee’s employment rights continue including right to accrue holidays. Employees are able to obtain to take their annual leave if they wish to receive 100% salary (subject to employer agreement though this cannot be unreasonably withheld). Depending on how long this period continues for, the rules in respect of being allowed to carry holidays forward may need to be relaxed.
6. An employee can ask you to put them onto furlough leave however you do not have to agree. It is the employer’s decision which employees to place on furlough leave, if any.

The information contained in this article is for information purposes only and is not intended to constitute legal advice.