Furloughed employees - businesses will help businesses by paying up to 80% of workers’ wages

Published 23 March 2020

On 20 March 2020 the Government announced a scheme to provide all businesses with wages for employees who are furloughed.

HM Revenue and Customs (HMRC) will reimburse 80% of employees’ wage for all employment costs, up to a cap of £2,500 per month, as many companies face collapse as a result of the COVID-19 outbreak. The employer can choose to pay the additional 20% but there is no obligation to do so.

This applies to staff who are unable to carry out their jobs as the country is put on hold to tackle the spread of the pandemic. It is also understood that the wage subsidy will also apply to those companies who had already laid-off workers, as long as they were reinstated into their workforce and given a leave of absence instead. 

All UK businesses are eligible to access the scheme and to do so they would need to: 

• Designate affected employees as ‘furloughed’ workers and notify employees of this change. 
• Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. HMRC are expected to provide further details of how this will work in due course. 

There is no definition of ,”furloughed”. We are waiting for more detail but it is likely to mean where a particular employee has no work and would otherwise be laid off or made redundant. The employer does not have to furlough the whole workforce, they can furlough part of it.

Employers must follow normal employment law requirements in designating employees as furloughed. This is likely to apply as follows:

• If there is a lay off clause in the contract of employment this should be exercised and no consultation or notice period is required;
• Where there is no contractual right to lay off or amend pay this will be a change in terms and condition and the only viable option is to agree a variation of contract. In theory the employer could follow a dismissal and re engagement process with consultation. This is unrealistic as if there are more than 20 employees whose contracts would be changed, formal collective consultation is required for up to 45 days with a contractual notice period.
• It is likely employees will agree when faced with the choice of being paid 80% pay or statutory redundancy. This is particularly the case if the employer may become insolvent and they will get no pay now and a statutory redundancy pay in many months’ time.
• Employers can only furlough employees if they have no work at all for that employee. It is also the choice of an employer so, if the employee requests to be furloughed the employer can refuse to agree.
• It is stated that employers must pay 80% of wages to a furloughed employee which they can then claim back from HMRC. Technically if there is no express lay off clause, the employer still remains liable for the remaining 20% unless there is agreement from the employee to the contrary. Consequently any letters sent to employees should seek that agreement.
• The new scheme is not intended to cover employees who are sick, however, employers will need to consider the implications on their policies for workers who are sick and self-isolating due to the coronavirus guidance.

The wage protection scheme will cover the cost of wages / employment costs, which is related to gross pay, and will be backdated to 1 March 2020.  It will initially run for three months but, will be extended by the Government if it considers this necessary. The financial support is stated to be a “grant” and therefore we understand that businesses will not be required to pay it back. The scheme is expected to make the first grants to businesses within weeks.