On Friday 20 March 2020, the Chancellor announced an intervention to protect the jobs of those facing likely redundancy as a result of the impact Coronavirus is having on the UK. The unprecedented intervention from the Government was initially thought to cover only those business forced to shut by the various restrictions that have been implemented to restrict movement in an attempt to slow the transfer rate of the virus. However, the Government website confirms that this is applicable to all businesses even those able to continue trading even at a much-reduced capacity.
Unfortunately, there is still very little confirmation on how the scheme will work and how to apply for it. The Treasury have put forward a likely implementation date of April as they have to effectively reverse the current PAYE payment system to pay out, rather than take receipt of employee’s monthly salaries.
The current guidance can be found at the following:
The main aspect of this new schemes is it only covers employees who have been ‘furloughed’. There has been some confusion about what this means as it is a more common term in the USA than it is in the UK. It effectively means placing the employees on unpaid suspension from duties. This is more often referred to as a ‘lay off’.
The employees have not been ‘sacked’ or made redundant and they are still employed and remain on the payroll but there is no work to do.
What is the scheme?
The Job Retention Scheme is aimed at stopping employers from making redundancies following a downturn in their businesses during the current pandemic. Instead, it allows them to send employees home (furlough) with up to 80% of their salary up to a maximum of £2,500 per person per month.
The scheme is intended to cover salaries from 1 March to 1 June 2020.
The employer applies each month to HMRC to cover the 80% of the salary.
During the period of furlough, the employee is not allowed to do any work for the employer during that period – this includes email, telephone calls or working from home. If they do, furlough is broken and it is likely the employer will have to cover the full daily cost of that employees workday, regardless of how long they actually worked for.
This is both to stop abuse of the system and also to stop well intentioned employees from trying to ‘help out’ during the furlough period.
A list of the furloughed employees will be sent to HMRC via the new online system (when it is ready).
Who is covered by the scheme?
All that has been announced so far is that it covers furloughed employees. Therefore, it does not cover:
- Self-employed individuals whether working as a sole trader or through a partnership or LLP.
- Workers who are working on personal contracts but do not satisfy the conditions to be an employee (those with no holiday or sick pay entitlement)
These people will have to rely on the benefits system to assist them during this period.
There is uncertainty on whether these rules apply to sole director sole shareholder owner managed businesses and similar companies. This is because of the need to be able to be furloughed. It will be a question of law under the Companies Act 2006 as to whether a controlling shareholder and director of the business can suspend himself/herself indefinitely without pay. The single step needed to qualify for the scheme.
It will be necessary to wait for further detailed guidance from HMRC on this point.
Which employees can be furloughed?
Again, this is a question of law and it will be necessary to review the employment contracts of all staff members to see whether they contain the necessary clauses in their employment contracts to allow them to be furloughed. Our employment advisors at QUEST have confirmed that it is not a standard clause in most employment contracts unless the business is involved in a cyclical industry such as manufacturing, agriculture and the airline industry.
To send an employee home without pay in the absence of this clause could be a breach of contract and could lead to a claim of constructive dismissal or unlawful deduction of wages under existing employment law. It will therefore be necessary to do this only with the agreement of the employee.
If you would like further information or advice on the Job Retention Scheme, please call us on 0333 2401 208.