Rishi Sunak has only been in post a number of weeks and has already delivered a UK Budget and several other ‘mini Budgets’ following this.
The reason is that this is a fast-moving and evolving situation. Therefore, employers need to watch for announcements and further announcements.
However, on 23 March 2020, this is how things stand at the moment regarding ‘furloughed workers’ and the new ‘Coronavirus Job Retention Scheme’, something that you will have read about or heard about on the television.
It is important to remember the UK Government’s intention at this time. When workers are being laid off in all sectors, the UK Government wants to do all it can to mitigate the circumstance where employers are forced to make staff redundant.
Therefore, the overall intention is to protect employees’ jobs whilst recognising the employers will have significant costs.
The economic crisis that will affect employees and employers was addressed in a speech by the Chancellor of the Exchequer. As part of the UK Government’s ‘Plan for People’s Jobs and Incomes’ he made two announcements:
- Government grants will cover 80% of the salary of retained workers up to a total of £2,500 a month
- The Coronavirus Job Retention Scheme will cover the cost of wages backdated to March 1st
These are outlined in more detail below and covered in guidance on Gov.UK:
1 – 80% of salary
Where the employer cannot pay the ‘staff costs’ of employees, as an alternative to redundancy, the UK Government will reimburse employers in the form of a grant up to 80% of employment costs, capped at £2,500 per month. This value was selected as it represents the UK’s median salary.
To be eligible, the employer will have to agree with the employee that they can be classified as a ‘furloughed employee’ rather than an employee. A furloughed employee is one that is retained and paid on the payroll rather than being laid off / made redundant.
It is important to say that the furloughed employee will remain employed with all employment rights as now. However, a furloughed employee will not be performing work under their contract of employment.
Take steps to identify your furloughed employees and ensure that they are advised what this means. Essentially, they are still an employee with employment rights and they will still be paid through the payroll.
2 – The Coronavirus Job Retention Scheme
This will run, initially, for the three-month period from 01 March 2020. However, the UK Government has said that it will extend this if necessary (remembering that the focus is on retaining employment).
According to Rishi Sunak’s speech, the scheme will be available to ‘any employer in the country – small or large, charitable or non-profit’. Which slightly contradicts the Department of Business, Energy and Industrial Strategy (BEIS) and Public Health England (PHE) guidance which says that ‘all businesses’ are eligible.
Where the employee has been reclassified a furloughed employee, employers will submit details of the employment costs to HMRC for a reclaim. No details are known about how this will work in practice as, very honestly, guidance from BEIS and PHE says that ‘existing systems are not set up to facilitate payments to employers’.
Note that employers can continue to pay 100% wages as normal. However, the UK Government though HMRC will only reimburse 80% of furloughed workers wage costs, capped at £2,500 per month.
Look out for any information about the Coronavirus Job Retention Scheme, particularly how reclaims can be made from HMRC. Do not expect this scheme to be up-and-running in the short term. Employers will have to absorb the financial obligation now and reclaim at a later date.
What we do not know
So many questions and there will be so many more, for example:
- Will the legislation be tight enough to prevent employers abusing what is meant to be something admirable?
- When will the reclaim facility be available via HMRC? There will be employers up and down the country right now in negotiations with employees about transferring them for employee status to furloughed employee status
- What happens if an employee refuses to be reclassified as a furloughed employee? This seems to mean that the employer will not be able to access the grant
- I assume that a furloughed employee will have the same employment rights such as entitlement to maternity leave etc. Currently, many employment rights are only available to workers or employees, not furloughed employees so I assume that there will be a tweak in the law
- What about National Minimum and Living Wage increases effective April 2020? Presumably these will still apply to furloughed employees, but what about ensuring that they are paid at this rate if the employer can only afford to pay up to the amount of the grant (£2,500 of employment costs per employee)?
What about companies that cannot afford to take the financial hit in the short term? In this regard, business should look at support through the Coronavirus Business Interruption Loan Scheme