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Furlough – what does it mean and how does it work?


The Chancellor announced a package of measures to help businesses, which, among other things includes the “Coronavirus Job Retention Scheme”.

The information available is limited at present but the outline of the plan/scheme can be discerned, with a little more flesh of the bare bones to come in the next day or two.  

The plan is to allow employers to access financial support in order to retain in employment employees who would otherwise have been dismissed. The central plank of the plan is the provision of up to 80% of affected employee salaries (with a cap set at £2,500 per month) for the period that the employees are not able to work.

NOTE: if (and only if) the cap relates to the 80% portion of salary, then £2,500 is 80% of £3,125, which means that the maximum salary covered (to 80%) is £37,500 per annum.

Employers may top-up the 80% in respect of some or all of the deficit, but this will not be financed by the Government. For example, if the employer wishes to top-up and if the above assumption about the cap proves to be correct, a salary of £50,000 per annum (gross) will now cost the employer £20,000 (gross) if the duration that’s the employee is placed on furlough leave.

(Wording below taken from the government website).

Eligibility

All UK businesses are eligible under the plan. (Including limited companies, sole traders, LLPs, partnerships, charities etc.)

How to access the scheme

  • First ‘designate’ potentially furloughed employees; then
  • Notify the employees of this (re)-designation; then
  • Comply with existing employment law; and, 
  • depending on the terms of the employment contract, conduct negotiation*; then
  • Notify HMRC of all furloughed employees and their earnings.

* many businesses are familiar with the basic requirement that changes to contract be subject to negotiation and therefore, agreement. Unless already expressly provided for in the contract (for example, a provision which gives the employer to discretion to remove work), this basic requirement remains. In essence, the requirement for negotiation means that an employer cannot force an employee to be furloughed and equally employees cannot insist on it. Agreement is the key.

NOTE: it is difficult to envisage anything other than most (perhaps all) employees/workers giving their agreement because the alternatives may be considerably more unpalatable, such as redundancy or even a simple dismissal with no redundancy or other compensation.

HMRC notifications will be through a new online portal, yet to be made available.

Some additional details:

The grant/reimbursement is to cover ‘all employment costs’ – so one assumes this must include benefits, pensions etc.

If your business needs short term cash flow support, then the “Coronavirus Business Interruption Loan” scheme is also a means by which businesses can mitigate cash-flow impact, so it may be that a two-pronged approach is most suitable for businesses hit by the fall-out from Covid-19.

And finally - ACT QUICKLY AND BE SAFE

You can find more information on the Covid-19 support for businesses from the Government here.

For more information please contact Simeon Spencer, Senior Partner Simeon@spencer-west.com