Furlough leave – what is it all about?

Furlough leave – what is it all about?

Furlough leave has not been defined by UK statute (yet). However, it is essentially a new mechanism that the UK government has implemented to avoid employers making employees redundant during the Covid-19 pandemic. HMRC will reimburse 80% of “furloughed workers” salary, up to a cap of £2,500 per month,

How does it work and who is eligible?

All UK businesses are eligible. The employer takes the first step and will need to decide which employees they would like to designate as furloughed workers. The employer will then need to inform the affected employees of the proposed change.

Do employees need to agree?

The employment relationship is still subject to employment law and the contract of employment. So, unless the employment contracts have a lay off clause then agreement will be needed because the employer is changing the status of an employees’ contract in a way that will reduce their pay. It is anticipated that most employees will agree given the realistic alternative is redundancy.

What happens after the employee agrees to become a furloughed worker?

The employer will need to inform HMRC which employees have been designated as furloughed workers and submit a claim for their earnings to HMRC through a new online portal. HMRC will then reimburse 80% of the furloughed workers salary, up to a cap of £2,500 per month. The portal has not been created yet and this will take some time. It is anticipated it will be created in time for April 2020 payroll.

How long will the scheme apply for?

At the moment it will last from 1 March 2020 for three months. This will be under constant review and may be extended.

Do employers need to top salaries up to 100%?

No, the guidance states that an employer could choose to top up salaries however as the employee will remain employed, unless they agree to a decrease  there will be a contractual obligation to pay the employee their full salary. Therefore, when an employer is negotiating furlough leave, they may wish to negotiate the relevant decrease for the time that they are a furloughed worker. Again, it is anticipated that most employees will agree given the alternative. An employer may also have a contractual right to withhold pay so it is worth looking at the contract of employment.

Can an employee simply to choose to be furloughed?

No, an employer will need to designate the employee as furloughed.

Will this create problems with employees?

Yes, some employees may resent being made to work whilst their co- workers are not working and only earning 20% less. Employers will need to reassure all non-furloughed employees. Employees subject to furlough may also have their own insecurities for being selected as non-essential. Employer will need to think carefully about how they approach this.

This is all still very new and subject to change. It is anticipated that the government will  publish further clarification in due course.