Coronavirus Job Retention Scheme & Furlough Leave
The below are some of the key points in relation to the Coronavirus Job Retention Scheme, we will update as more information becomes available.
What is it?
The Coronavirus Job Retention Scheme allows all UK employers to access financial support to continue paying part of their employees salary that would otherwise have been laid off due to Covid-19. It prevents against layoffs and redundancies.
What organisations are eligible?
All UK companies are eligible: limited companies, sole traders who employee people, LLPs, partnerships, charities.
Which employees are eligible?
Furlough leave is available to all employees on a contract, including;
- full-time employees
- part-time employees
- employees on agency contracts
- employees on flexible or zero hour contracts
How does it work?
- The employer must designate affected employees as furloughed workers.
- They should notify the employee that they have been marked as Furlough. Agreement from the employee may be required.
- HMRC must be notified of the employee designated as furloughed workers as well as details of their earnings. This is done through an online portal (not currently set up).
- HMRC will reimburse 80% of furloughed workers wage costs, based on the February earnings of salaried workers, up to a cap of £2,500 per month.
- Wages for those on variable hours, can be calculated based on the higher of either:
- the same month's earning from the previous year
- average monthly earnings from the 2019-20 tax year
If the employee has been employed for less than a year, employers can claim for an average of their monthly earnings since they started work.
- Employees remain employed, their continuity of service is not impacted.
- Employer may choose to top-up the other 20% of salary. If they don’t top-up the 20% it will be a deduction in wages.
- Wages paid through the Scheme are subject to the usual income tax and other deductions.
What are the employment issues?
Changing the status of employees to a furloughed worker remains subject to existing employment law. Generally, where an employee’s contract contains a layoff or short term clause employers should be able to place employees on furlough leave. Where there is no such clause, it is best advised to get agreement from the employee.
Additionally, a 20% reduction in salary will be a change in terms and conditions of employment. Where employers are not topping up the government payment, they should also seek agreement from the employee.
Given the current situation and the alternatives for those employees should they not agree, one can expect that most employees will agree. That said, prudent employers will seek to get their employees agreement as part of their furlough leave process.
Please see a sample letter to notify your employee that they have designated as a furlough worker here.
