Furloughing employees – what does it mean for employers?

NOTE: This article has become out-of-date in the weeks since it was published and no longer accurately reflects the terms of the furlough scheme. For up-to-date guidance, please see our FAQs for employers on the coronavirus job retention scheme.

The scheme was announced last Friday, 20 March. The government has published a short overview for employers and a separate overview for employees, and we are expecting more information imminently.

In the meantime, this article summarises what we know so far, what we think are the key unanswered questions and our initial views on the implications for employers.

What we know so far

• The scheme will be available to all UK employers, of any size and in any sector.
• It involves “furloughing” designated workers who would otherwise have been “laid off” during this crisis.
• This will involve keeping those workers on the payroll instead of dismissing them as redundant or putting them on unpaid lay-off.
• HM Revenue & Customs (HMRC) will reimburse 80% of furloughed workers’ wage costs, up to a cap of £2,500 per worker per month.
• Workers cannot do any work for an employer that has furloughed them.
• The employer can top-up the 80% HMRC payment but does not have to do so.
• The scheme will be backdated to 1 March 2020 and run for three months from that date. It will be extended if necessary.
• The system will be managed through an online portal being set up by HMRC.

Key unanswered questions

Several issues concerning the scheme currently remain unclear and employers urgently need more clarity from the government:

• Cap. Is the £2,500 cap gross or net? It is most likely to be gross (and the BBC are reporting that this is the case) but we await confirmation.
• What is meant by laid off? The scheme applies to workers who would otherwise have been “laid off” – but it is not clear what laid off means in this context:
  • Lay-off (in the legal sense) involves sending workers home with no pay during periods when there is no work for them but does not involve dismissing them.
  • Employers can only put employees onto a lay-off arrangement (in the legal sense) if the contract specifically says they can, and few contracts already include this provision (although it is open for the employer and employee to agree to include one).
  • Probably the government intends that the scheme will apply to workers who would otherwise have been made redundant (which would make more sense).
• Grant conditions. It seems that the payment will be a grant from HMRC. It is unclear if HMRC will impose conditions, such as employee consultation or a commitment not to make any redundancies for a period of time as a result of Coronavirus.
• Eligibility. How will HMRC decide if the worker would otherwise have been “laid off”? Does the employer need to have commenced – or progressed through - a redundancy process?
• Consent. Do all workers need to consent to being furloughed, or can the employer impose furloughing without agreement in some cases?
  • The overview published by the government says that “changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation”.
  • If the employer proposes to maintain full normal pay for furloughed workers (whilst claiming the grant from HMRC) then employers will not necessarily need worker consent to designate them as furloughed.
  • Some employees have an implied contractual right to be provided with work (so that their skills don’t atrophy). Employers may not be able to impose furlough on those employees even on full pay. This relates to a small minority of employees, however, and in any case it is unclear how a right to keep working could be exercised if there is no work for them to do.
  • If the employer proposes to reduce pay for furloughed workers to the maximum HMRC grant, then it will need worker consent.
  • This is because reducing a worker’s pay amounts to an unlawful deduction from wages unless there is prior written consent or contractual agreement.
  • Consent to reduced-pay furlough may not be required, however, if the contract already says that the worker’s pay can be reduced or stopped when there is no work to be done.
• Fair selection. If there is some work to be done by some employees, how will employers choose which employees are to be furloughed?
  • Workers who cannot work from home and who currently have no work to do will be obvious candidates for furloughing.
  • Otherwise, employers may need to consider a process of calling for volunteers, pooling and selection – as with a redundancy process. There is a risk of claims (including discrimination claims) if the process is not handled correctly.
• Who will agree? Furloughing may be particularly attractive to carers who might otherwise need to take unpaid dependant’s leave. Other workers may only agree to furloughing as a last-resort alternative to being made redundant or put onto an unpaid lay-off arrangement.
• Process. Will employers need to follow any kind of process to demonstrate eligibility? Presumably, they will have to fund salary payments themselves until the money from HMRC comes through?
• Working for other employers. Will workers be able to work for other employers while furloughed? This seems possible, because the details released so far simply say that the worker cannot do any work for an employer that has furloughed them. If workers can pick up work elsewhere while still being furloughed, it will make it more attractive. We expect the government shortly to confirm the rules concerning working elsewhere during furlough.
• Which workers? At the press conference in which the scheme was announced, the Chancellor indicated that the scheme will cover workers on the PAYE system, and that it may include some workers on zero-hours contracts, depending on their arrangements. We await confirmation that the scheme will extend to those on PAYE with “worker” status, not just those who meet the statutory definition of “employee”.
• What about the self-employed? Self-employed independent contractors (who are not PAYE) will of course be unable to benefit from the scheme. The government has issued a separate package of support for self-employed people involving the relaxation of rules around universal credit and the minimum income floor.
• Sickness. What if a furloughed worker becomes sick? It seems likely that they would be eligible for statutory sick pay (SSP) but this could be at a lower rate than furlough pay. The position on company sick pay beyond SSP for furloughed workers is also unclear
• NICs and benefits. The employer is likely to need to maintain benefits for furloughed employees, unless it agrees something different with them. It is not yet clear whether employers will be expected to pay the employer’s National Insurance contributions due in respect of the HMRC subsidy.
• Period of furloughing. Given that there is no certainty about the position from 1 June 2020 onwards, will fixed or open-ended furloughing arrangements be put in place? Employers are likely to want to reserve the right to call employees back from furlough.
• Impact on current negotiations. Some employers are already talking to their staff about imminent temporary pay-cuts. It could now be harder to agree those, as workers may prefer to wait to see if they are eligible for furloughing and, if so, whether that would be more beneficial for them.

Next steps

The scheme is clearly welcome news for the many businesses now struggling to cope with the Coronavirus crisis. Nonetheless, there are currently many unanswered questions and employers will need to wait a little while longer for more clarity before planning their approach.