As you may have read or seen on the news over the weekend, the Government has introduced the Coronavirus Job Retention Scheme which takes effect immediately. We have summarised the information available to us below:
What does ‘furlough leave’ mean?
Furlough leave is a term which already exists in US labour law and is where an employee is granted a leave of absence, in our case due to an inability for the employee’s company to provide work to them temporarily.
Which businesses are eligible?
All UK businesses are eligible regardless of size.
How does it work?
Employers can place employees on leave, meaning there is no requirement for the employees to perform work as well as presumably requiring employees not to attend the place of work. The Government will reimburse 80% of the wage cost of furloughed workers up to a cap of £2,500 per employee per month. Employers can, but are not obliged to, make up the 20% difference.
When does the scheme take effect from?
It can be retrospectively applied back to 1 March 2020 and is currently likely to remain in effect until 31 May 2020, although this may be extended depending on circumstances in the future. As the employer, you can implement furlough leave immediately.
Is employee’s consent required given, that they won’t be working and should the employer decide not to top up their salary after the Government contribution, resulting in a 20% pay cut?
Where possible, it is advised that you obtain the employee’s written consent to a variation of their contract which includes a 20% pay cut. Given the current situation, some employers may have no alternative to implement furlough leave which brings with it its inherent pay cut. This would naturally be a decision made by the employer and without consent from the employee. The business’ financial position may dictate this.
To encourage consent, employers might point out that the only other alternative is immediate redundancy. This is not a particularly comfortable position for employers to take (as it could result in a drawn out employment tribunal), it is arguably a “least worst case” scenario if it encourages the employee to accept furlough leave.
Could this lead to constructive dismissal claims?
In theory, yes. Ordinarily, a unilateral decision to reduce the worker’s pay, with a statement that entitlement to redundancy pay being delayed is likely to be a constructive dismissal. The Government’s furlough leave guidance makes it clear that employees remain subject to existing employment law and that implementation of furlough leave may be “subject to negotiation”. However, to claim constructive dismissal the employee has to resign. The question would be why would they resign and have no job, as opposed to a job that they can return to when allowed, and 80% of salary? Furthermore, the prospect of a return to full salary in the not too distant future will hopefully be enough to persuade them not to pursue this route.
Who makes the decision to go on furlough leave?
You as the employer.
You are also able to specify which employees the leave is applied to, although this in itself opens up the debate around office politics!
If Kirkwood Wilson completes your payroll for you, then you must ensure you make us aware of the employees that you have furloughed.
Can a furloughed employee perform some work from home?
At this point in time, we expect this to be no. We hope to have some clearer guidance around this over the coming days.
When can the business expect the reimbursement from the Government?
It’s expected the reimbursement portal will be live over the next 2 to 3 weeks, at which time applications will be possible. There is expected to be some delay before the reimbursement takes place, so our best guess at this time is by the end of April.
If the employer pays the 80% of salary and do not top up the additional 20%, could employees have a claim against you for unlawful deductions from wages? And will higher paid employees have a claim for salary in excess of £2,500 per month?
Without a furlough agreement then they could. However, given the load the crisis is likely to have on the tribunal system, any claim made is likely to take several months to conclude. It is hoped that in the meantime employees can recognise the moral imperative of accepting furlough leave given the current crisis.
Does a lack of work not just mean the employee is redundant?
Under normal circumstances a reduction in work or closure of workplace would result in redundancy. Right now, this an unattractive route for most employers to take. Presumably most employers want staff to stay on with reduced pay so that they are in post when things start to return to normality. This appears a more appealing option for the employer than redundancy now and then having to incur the cost of recruiting new staff when business picks up again.
What if the employee insists they are redundant?
This answer is similar to the answer given above in relation to constructive dismissal. The employee would have to leave, bring an employment tribunal claim and then wait for a year for that claim to come to a full hearing. In the meantime they would have no job and no income, making it a very unattractive option for employees. The consideration is that taking a pay cut even for highly paid employees, for a few months is likely to be a better outcome for most employees.
What if we made an employee redundant in March? Can we reinstate them and furlough them?
This would appear to be ok. If payment of notice and statutory redundancy pay was made, the employer would presumably ask for this to be reimbursed before entering into the furlough leave arrangement.
If redundancy is the only option, do the normal rules apply?
Yes. Redundancy is only payable after 24 months’ service. Over this length of service could in theory result in legal action and a claim for unfair dismissal. It is therefore recommended that you use 23 months’ service as the barometer as notice periods can mean employees cross over the 2 years’ service line.
The information contained above is designed to give you some guidance with the new scheme. The information is generic and advice should be taken in each individual situation. There are a great number of uncertainties and assumptions included in the information above and Kirkwood Wilson accepts no liability for any action or inaction taken on the basis of this information alone.
It is important to remember that we, as your accountant, still have many questions surrounding the implementation of the help provided by the Government. As the information is released, we will digest it and pass it on to you, our client. At this time we suggest you keep an eye out for an email from ourselves, as well as following us on Facebook.
Please also remember that during this difficult time, we are here for you. Our staff are on hand to answer any of your questions, so please get in touch if anything is worrying you.
We’re in this together.
Caroline & Dan.
