From relative obscurity just weeks ago, the term furlough has suddenly dominated the public lexicon. You’ll see it splashed all over newspaper headlines, printed across Government updates and probably mentioned in workplace conversations, but what does this weird term actually mean?
In early March, the Government and specifically Chancellor Rishi Sunak, announced that it would put in place measures to ensure that the vast rate of widespread redundancies across the UK were halted as the country dealt with the initial wave of infections due to coronavirus. The solution that the Government devised essentially replaced the concept of redundancy with a ‘furlough’ – AKA the ability to keep staff on the payroll, yet for them to take extended leave as the company’s business shrinks.
The Government confirmed that for all businesses who forgo redundancies and instead place staff on furlough, it would pay up to 80% of staff wages, to a total of £2,500 per individual per month. This amount would be payable through normal monthly instalments and could be applied for via HMRC.
So essentially, furlough is the process of allowing staff to remain employed at your business yet take an extended leave of absence due to turbulent business. Workers who are on furlough aren’t allowed to actually work yet will currently receive up to 80% of their normal pay – with the option to top up the extra 20% in the hands of the employer.
The scheme will initially run for at least three months, from 1 March 2020, with all UK businesses eligible, and will be extended if necessary.
To access the Coronavirus Job Retention Scheme, employers will need to take the following steps:
Designate affected employees as ‘furloughed workers,’ and notify your employees of this change – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.
Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required).
HMRC is working urgently to set up a system for reimbursement, and existing systems are not set up to facilitate payments to employers. If your business needs short term cash flow support, you may be eligible for a Coronavirus Business Interruption Loan.
This applies only to furloughed employees (ie are not performing any work for their employer) and not those whose hours and pay reduces. An employee must be furloughed for a minimum of three weeks, and that compensation can only be claimed for employees who were on payroll on February 28.
The guidance flags the fact that the scheme does not give a ‘right’ to put an employee on furlough. If employers do not have a contractual right to furlough, they will need employee agreement, and the guidance notes that depending on the numbers of employees impacted that might require a collective consultation (typically of 30 days or more). In circumstances where businesses are facing dire cash flow situations the need to address these contractual issues will lessen the value of the scheme.