What does it mean to be furloughed?

COVID-19, coronavirus, virus

Article by Kate Palmer, Associate Director of Advisory at Peninsula

Recently, Chancellor Rishi Sunak announced a package of support to help employers survive the coronavirus lockdown and continue to pay their staff.

The Chancellor said any employer in the UK would be eligible for the coronavirus job retention scheme and that Government grants will cover 80 per cent of the salary of furloughed workers up to a total of £2,500 a month.

But what does it mean to be furloughed? Kate Palmer, Associate Director of Advisory at global employment law consultancy, Peninsula, explains below.

What is the Coronavirus Job Retention Scheme?

The Government has announced its plans for financial assistance to help employers retain employees during the coronavirus outbreak, although offering no work, and avoid lay-offs. It is called the Job Retention Scheme. Under the scheme, employers place their employees on ‘furlough’ This isn’t a term we use in UK employment law, and it seems to originate in the USA. It essentially means putting employees on a temporary leave of absence where they do no work, but they are retained on company books to be brought back in when needed.

The guidance sets out that organisations will need to designate which of their workforce will be furloughed employees and then submit that information to HMRC, along with each employee’s earnings.

Information will be able to be submitted through an online portal. Employers who furlough staff will be able to obtain a grant from the Government to cover 80 per cent of furloughed employees’ wages, to a maximum of £2,500 per employee per month. Chancellor Rishi Sunak has stated he hopes the first grants will be paid by the end of April 2020, and they will be backdated to 1 March 2020. The scheme is initially intended to run for three months but may be extended.

Who is covered by the Coronavirus Job Retention Scheme?

All businesses can access the scheme, whether the virus has severely impacted the company or not. This is true regardless of the size of the business and the sector it operates within. Workers must have been on the organisation’s PAYE from at least 28 February 2020 to benefit from the grant. However, all workers in this position are eligible, including those on zero-hour or temporary contracts.  Workers who were made redundant prior after 28 February can be re-employed and placed on furlough instead. The grant will still cover their wages for this period.

What is the process for furloughing?

The guidance states that the ability to furlough an employee depends on their contract. It is not likely that employee contracts will include a specific right to use furlough. However, contracts may contain a right to lay off employees on no pay already so are expected to make the discussions around furlough a little smoother.

In any case, even when there is a right to lay off, it is still advisable to gain the employee’s agreement to furlough to avoid any confusion in the future. When faced with potential redundancies, a period of leave with 80% pay may seem an attractive option to employees. If an employer has already taken the step to utilise lay off, they can get in touch with those employees and agree to change their current status from lay off to furlough. They still wouldn’t be provided with any work, but their pay arrangements would be changed from nothing, or the payment of statutory guarantee pay, to 80% wages.

Workers should not undertake any work for the organisation while on furlough that amounts to making money for it or providing services to it. If workers are asked to undertake training while on furlough, they should be paid in line with the national minimum wage even if this is above the 80 per cent.

Can I force an employee to be furloughed?

Employers need to designate employees as furloughed, which means it is their choice. However, if businesses are not placing everyone on furlough, they should consider carefully who it should be and whose skills will continue to be in demand through this challenging period. While it may be assumed that the best thing to do is furlough those employees labelled as high risk by the Government, forcing them on to furlough without their input, and therefore forcing them on to 80 per cent wages, may result in discrimination claims from those who allege they were made to do it because of their age, disability or pregnancy.

Where employees need to be selected for furlough, it may be best to ask for volunteers across the workforce. If any high-risk employees, who had previously been risk assessed as fine to still be in work, put themselves forward, it may well be appropriate to choose them first.  There does not appear to be a maximum or minimum number of employees who can be furloughed

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