COVID-19: Furlough Leave

What You Need To Know

The government has announced the Coronavirus Job Retention Scheme as part of a package of measures to keep the economy moving, safeguard employment and alleviate the impact of COVID-19 on business.

This summary by Locate East Sussex explains how the scheme will work and what actions businesses need to take. It is based on information released on 20 April 2020. If you need further advice, we suggest you seek the help of an HR specialist.

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What are Furloughed workers?

Furloughed workers are mandatory time off from work with no pay. They generally are implemented by employers as a cost-saving measure during tough economic times or otherwise slow periods for a business. They differ from layoffs in that furloughed employees know they have a job that will resume at some point in the future.

What is the Coronavirus Job Retention Scheme and who is it for?

The Coronavirus Job Retention Scheme (CJRS) enables businesses to recover 80% of wage costs for employees on ‘furlough leave’. Furlough leave is an entirely new concept for the UK and is a type of indefinite leave where the government will reimburse the employer for wage costs.

The scheme has been introduced as an alternative for companies that might otherwise have had to implement redundancies, lay-offs, unpaid leave or other measures for employees.

All UK businesses are eligible to claim under the scheme. Those employed by the company are covered by the scheme but it does not extend to other workers such as casual staff, contractors or consultants.

The scheme is available for at least four months from 1 March 2020 to 30 June 2020 and will be extended if necessary.

Is this for only specific sectors or what the government deems 'essential' in combatting the outbreak? 

This scheme applies to all businesses which employ and pay workers through the PAYE system.

What costs can employers recover?

The Job Retention Scheme allows for 80% of the wage costs of each employee to be recovered. Companies can claim up to £2,500 per month per employee and there is no limit on the number of employees or the duration. It is expected that wage costs will include wages, pension contributions and National Insurance (NI).

What do employers need to do?

Employers and employees will need to agree on which members of staff are being designated as ‘furloughed workers’. This should be straightforward as participation will be more attractive to employees than the alternatives.

Employers will need to send a letter or email to each employee concerned and get their agreement formally in writing to the change in status. Details will need to be submitted to HMRC through an online portal which is now available to apply.

Without their employer’s express agreement, employees cannot elect to be a furloughed worker.

Does the employer have to top up the employee’s pay to 100%?

No - while some employers will want to make up the shortfall, others may not be able to. This needs to be made clear to all employees concerned. It is strongly recommended that each employer is consistent in their approach.

Can an employee be furloughed for a short period of time (e.g. several days or made to be part-time), and then re-employed?

An employee must be furloughed for a minimum of 3 weeks for the business to be eligible to claim under this scheme. The scheme was introduced to support employers asking the maximum number of employees to remain at home during the crisis.
 

What about employees that have already been dismissed or taken unpaid leave?

The scheme is backdated to 19 March 2020. The government is strongly urging employers to take back anyone already dismissed or on unpaid leave and converting them to furlough leave instead. 

Employees must have been on the employer’s PAYE payroll on or before 19 March 2020 and HM Revenue & Customs (HMRC) must have been notified of payment through Real Time Information (RTI) by that date.

What situations will this not help with?

Furlough leave is recommended for employees who would otherwise be laid off or made redundant due to the impact of coronavirus on their employer’s business.

It is not for those situations where employees have agreed to reduce their hours or take a pay cut but where they are still required to work. There is no option currently to switch to a mixture of reduced hours and furlough leave.

How will this affect the employment status of employees?

Employees on furlough leave will remain on the payroll and continue to accrue holiday and service.

Those running companies need to be aware that this scheme may create resentment between employees. Some will still be at work getting either full or reduced pay, while others will be on furlough leave getting paid at least 80% for doing nothing. Those who are off sick as they are ill or self-isolating may only be getting statutory sick pay.

There may also be an incentive for employees not to notify their employer if they become sick or need to self-isolate during furlough leave because of potential adverse pay consequences.

Likewise, the employer will also be better off as they can only reclaim 14 days of Statutory Sick Pay as opposed to indefinite furlough leave pay.

What if some or all my company's work is delivered by zero-hour/flexible/agency workers?

This scheme aims to support all those employed through the PAYE system regardless of their employment contract.

The grant will apply to the higher of their earnings in the same pay period of the previous year, or to the average of the whole previous 12 months (or fewer if they have work for less time than this, including the calculations taken in part in February)

What do I need to do to obtain the grants for my employees?

You or an agent must have:

created and started a PAYE payroll scheme on or before 19 March (originally it was 28 February)

enrolled for PAYEonline

a UK bank account.

To make a claim, HMRC says you will need:

your employer PAYE reference number

the number of employees being furloughed

National Insurance Numbers for the furloughed employees

Names of the furloughed employees

Payroll/employee number for the furloughed employees (optional)

your Self Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number

the claim period (start and end date, between 1st March and 30th June, subject to changes)

amount claimed (per the minimum length of furloughing of 3 consecutive weeks)

your bank account number and sort code

your contact name

You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.

If you have fewer than 100 furloughed staff you will be asked to enter details of each employee you are claiming for directly into the system - this will include their name, National Insurance number, claim period and claim amount, and payroll/employee number (optional).

If you have 100 or more furloughed staff you will be asked to upload a file with the information rather than input it directly into the system. They will accept the following file types: .xls .xlsx .csv .ods

The file should include the following information for each furloughed employee: name, National Insurance number, claim period and claim amount, payroll/employee number (optional).

You should retain all records and calculations in respect of your claims. HMRC cannot provide details of claims on your behalf, so you will need to inform your employees of every step.

Does a company holder have to be in control of the process?

It is whoever is authorised to act for you, so for example if you use an agent who is authorised to act for you for PAYE purposes, they will be able to make a claim on your behalf and direct the grant to be paid in your specific bank account. If you use a file-only agent (who files your RTI return but doesn’t act for you on any other matters) they won’t be authorised to make a claim for you and you will need to make the claim yourself. Your file only agent can assist you in obtaining the information you need to claim.