What is a furloughed worker

On Friday afternoon, the Prime Minister and Chancellor announced a package of measures to help businesses and during the course of doing so used the phrase “furloughed workers” which is a term known to almost nobody.

This guidance is likely to be updated/amended very quickly in line with changes to law and practice as and when it occurs during the course of the week.

The coronavirus job retention scheme

The announcement was captured succinctly, albeit probably inaccurately, by any major news outlet which almost immediately ran with “government to pay 80% of wages”. This is not quite what Rishi Sunak said and the government website says as much.

What Has Been Announced?

The Coronavirus Job Retention Scheme has been established under which the government allows businesses to access funding to meet up to 80% (to a maximum of £2,500/month) of employee costs.

These funds will be available to businesses who can designate individual employees as ‘furloughed workers’ and the information must be submitted to HMRC in order for funds to be released.

For details about support for self-employed workers during the coronavirus outbreak, please read Paul Burton's article here.

What Is A Furloughed Worker?

The Government advice describes the scheme as being paid to those who “would otherwise have been laid off during this crisis”. We have to assume that laid off is taking its common rather than legal meaning and that therefore we can read this to mean that it basically means employees who would otherwise have been made redundant.

What is the definition of a furloughed worker?

‘Furloughed workers’: This is not a legally recognised concept in UK law. An individual can be employed, an individual can be on temporary lay-off, an individual can be suspended, or an individual can be not employed.

A ‘furlough’ under US (and some ecclesiastical) law is a temporary leave of absence due to the circumstances of the individual or the business. A good example in US law is when government departments shut down due to federal budget blocking such as happened several times during the 2010s.

For the purposes of this fund, we have to assume that a ‘furloughed worker’ is an individual who has been told not to come into work for commercial reasons or other extenuating circumstances.

The guidance suggests that a reduction in working hours is not the same as a furloughed employee – the scheme is not apparently designed to protect, say, 50% of salary if someone loses half their hours. 

How Do I Designate Someone as Furloughed?

The guidance reminds us that any change to employment status is subject to employment and contract law. Furloughed status, unless your contract allows temporary layoff or short time hours, is preferably going to need to be agreed and strictly speaking requires a consultation process.

As many employment lawyers and HR professionals have been advising for some weeks now; the vast majority of employees are likely to agree to anything within reason which lets them keep rather than lose their job. The alternative is redundancies either due to financial pressure or because their business fails in the coming months. In order to protect their own job security, most employees are likely to agree.

If staff are being asked collectively to agree a proposal, and do so, there should be no issue implementing the change. If staff do not agree, a brief consultation period is likely to be appropriate and this could be conducted as a ‘mini-redundancy’ with appropriate selection criteria. The difficulty will be identifying staff who can be fully paid and not in the office against those who have to stay at work. Management of that could be very difficult for employers.

Coronavirus job retention scheme Advice for employers

Ensure that any agreement is set out in writing to ensure that any issues arising in the future are documented and shown as agreed.

The employer would have to offer the opportunity for this; it is not a unilateral decision by the employee. This should help assist with fairness in the workplace including for part time workers.

Am I An Eligible Employer?

Probably. The guidance refers to “all UK businesses” and this will include sole traders, limited companies, partnerships, LLPs, charities and, presumably - if necessary in the future - local authority and NHS trusts.

What Happens Next?

The information has to be submitted through an HMRC portal which does not exist at the time of writing. How long this will take or how long the subsequent steps take is not yet clear.

We will try to keep you up to date by publishing announcements, guidance and interpretations on our website, social media pages and through our newsletter.

What Do We Get?

“HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month”.

What is not clear is if this is maximum wage and workers get 80% of £2,500 per month or if workers on up to £3,125 per month will get 80% (i.e. £2,500). Either way this is approximately £30,000 per annum and that, in turn, is very roughly the median salary in the UK.

The employee advice indicates that £2,500 is what an employee will ultimately actually receive. The employer’s guide is silent on whether the employer has to top this up to normal level however the employee guide says “you will remain employed while furloughed. Your employer could choose to fund the difference between this payment and your salary but does not have to”.

The Big Unanswered Questions

  1. Is the scheme ‘all or nothing’? Guidance seems to suggest this is the case, but it is not perfectly clear if the scheme will protect a reduction in hours or if it only where the employee would otherwise have been made fully redundant.
  2. Does the employer have to make the salary payment and then claim reimbursement or will funds be available to meet salary dates?
  3. How long will the scheme take to roll out and when will employers/employees actually receive the money?
  4. Will the amounts paid include normal reductions such as national insurance and pension contributions? The government has used the word ‘costs’ in their initial guidance, suggesting they will be paid, but this is not clear yet.

Employment law updates during the coronavirus outbreak

We will post any announcements, along with advice for employers and HR professionals as soon as we are able. These will be shared on our website and on social media.

Our Employment and HR newsletter will continue to be sent out monthly, though as important information is announced by the government, we may send this to you more frequently.

Our quarterly employment seminars are postponed until further notice, though we are looking into ways of delivering these online.

We have a dedicated coronavirus page, where we will post links to all articles, fact sheets and downloads concerning the outbreak and implications for businesses.