10:00 am, April 25, 2020
Furloughing – or the Coronavirus Job Retention Scheme to give it its official name – has raised possibly the most questions of the current crisis.
Here we bring you up to speed with it, with the help of our good friends at Lawgistics…
What is ‘furlough’?
It’s a leave of absence. Normally it’s unpaid, but in this instance HMRC is giving grants, backed by HM Treasury, to cover 80 per cent of a person’s salary up to £2,500 a month.
This also covers an employer’s National Insurance contributions and minimum auto-enrolment pension scheme contributions. Anyone furloughed is still employed by their company and remains on the company payroll.
How do I put a staff member on furlough?
There either has to be a clause allowing it in their employment contract or you have to have their agreement to be furloughed if there isn’t one.
This is important, as you are essentially varying the terms of their employment contract and so need their agreement. Lawgistics has made available templated letters for either scenario – they can be downloaded for free here.
How long is the scheme running for?
Until October 31, 2020. It was originally due to run until the end of June but that was open to review and the chancellor extended it on May 12. At the moment, the 80 per cent is fully covered by the Treasury, but from the start of August firms will be asked to share the cost, allowing furloughed workers to come back on a part-time basis.
What’s the eligibility cut-off date?
You have to have been on the company’s payroll on March 19, 2020 and were notified to HMRC on an RTI submission on or before then, which was the day before the scheme was announced.
Originally, the cut-off was February 28, so the extension – announced by HM Treasury on April 15 – means thousands more people can now be furloughed, although in practice the change is likely to benefit more weekly-paid staff than monthly-paid.
If you were made redundant or stopped working for your employer after February 28 but before March 19, you can be re-employed by them and then put on furlough.
What’s the minimum length of time for furloughing staff?
Three weeks.
Can staff be rotated on furlough?
Yes. This helps prevent untaken annual leave building up. The employees have to go back to work at the end of the period of furlough and it can be done more than once so long as it’s for the minimum of three weeks running each time.
How do I claim for their money under furlough?
Via gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme.
What can I pay them?
You don’t have to pay them anything – it’s your choice. The Coronavirus Job Retention Scheme pays them 80 per cent of their monthly salary up to £2,500. You can, however, top that up to the full amount if you so choose.
What if an employee is self-isolating or on sick leave?
In these instances, they can get Statutory Sick Pay, subject to other qualifying criteria.
What about employees who are on reduced hours?
If they are working on reduced hours or for reduced pay, they aren’t eligible for the scheme.
How about if they’re on unpaid leave?
If they started unpaid leave after February 28 2020, you can furlough them instead. If they started it on or before February 28, you can only furlough them from the date on which it was agreed they would return from unpaid leave.
What if they become sick while on furlough?
A furloughed employee retains their statutory rights, which includes their right to Statutory Sick Pay (SSP), so if they fall they ill must be paid SSP at least.
Employers have to decide whether to move them on to SSP or to keep them on furlough at their furloughed rate.
If a furloughed employee is moved on to SSP, employers can’t claim for the furloughed salary and must pay SSP themselves, although they may qualify for a rebate for up to a fortnight of SSP.
What is the difference between discretionary and contractual commission?
There has been much debate over this, as lots of contracts define commission as discretionary. However, if the employer cannot choose whether to pay commission or not in a normal month, then it is hard to see how it can be discretionary, despite the wording.
Most commissions are compulsory and are included, for example, as part of statutory annual leave calculations, and so should be compulsory for furlough. Employers are advised to seek legal advice if unsure.
What commission can I include in pay?
The government says compulsory commission based on your regular, contractual pay should be included in calculating your furlough pay.
It does not, however, include discretionary commission (including tips) payments or bonuses, non-cash payments or benefits in kind.
What do I need to make the claim as the employer?
There’s a long list… You have to be registered for PAYE online, and you’ll need your UK bank account number and sort code as well as your employer PAYE scheme reference number.
You’ll also have to say how many employees are being furloughed, and provide the National Insurance number and payroll or employee number (optional) for each of them.
In addition, you’ll have to give each employee’s start and end date of the claim, the full amount you’re claiming for including employer National Insurance contributions and employer minimum pension contributions, your phone number and contact name.
You’ll also be asked for one of the following: your name (or the employer’s name if you’re an agent), your Corporation Tax unique taxpayer reference, your self-assessment unique taxpayer reference, and your company registration number.
In addition, you’ll need the Government Gateway user ID and password you were given when you registered for PAYE online.
Can staff work for me when on furlough?
Absolutely not – not even voluntarily. Nor can they do so for a linked or associated company. They can, however, undertake training, so this means apprentices can continue with their studies and furloughed staff can do online course.
The rule is that anyone on furlough can’t do anything that ‘directly generates a profit or carry out any services to or on behalf of the company’.
If, however, they have more than one employer, they can still work for any employer that hasn’t put them on furlough. If more than one employer puts them on furlough, they are entitled to the 80 per cent per month – up to the £2,500 – from each one as furlough is based on each PAYE scheme and not each individual.
How about working for somebody else? For example, I’ve seen that furloughed workers are being asked to become fruit and veg pickers because of a shortage of labour.
Lawgistics tells us that so long as there isn’t a clause in an employee’s contract or their furlough agreement stating that they can’t work for another business, they can work for a new employer while furloughed without the furlough payment being affected. And as mentioned above, they can be furloughed from two employers.
What are the penalties for making furloughed staff work?
HMRC has made it very clear that employers need to keep furloughed records for five years – something that Lawgistics solicitor and legal adviser Nona Bowkis says is a ‘big hint that retrospective audits will be undertaken’.
At the very least, payments for abuses will need to be repaid in full, while hefty fines could follow for large-scale abuses. If you haven’t done so already, you should have a written agreement with your employee saying that they will not work on furlough.
Bowkis added: ‘It’s important to remember that HMRC investigations work more on a “guilty until you prove your innocence” model and so it is very important to follow the rules, be able to justify your decisions and keep those records for five years. The more evidence you have on file to prove your furloughed employees were not working, the better.’
Will there be investigations into furlough fraud?
Absolutely, according to Bowkis. Given the money being paid for those on furloughed leave is already looking to be much higher than expected, the HMRC is set to be heavy-handed with those who bend or break the rules.
HMRC could have software set up to automatically detect unusual claim amounts, while there will likely be investigations if employees make claims or if the public report businesses they believe are behaving fraudulently.
Random checks could also be carried out. Bowkis stressed: ‘So again, follow the rules, be able to justify your decisions and keep your records.’
I’m a company director – can I be furloughed?
Yes, but only if you’re on the PAYE scheme. You cannot claim against dividends, though.
What if I don’t pay my employee their commission under the furlough scheme?
Employers have to pay all money claimed from HMRC to the employee. They can’t keep any back for themselves. If they do, that’s likely to lead to a fraud investigation.
In a scenario where the employer doesn’t claim commission because they decided it wasn’t compulsory, then those employers could find themselves in front of an employment tribunal for an ‘unlawful deduction from wages’ claim.
Employers might be able to defend such a claim by arguing that the 80 per cent payment isn’t wages (on the basis it is a furlough payment) but that’s probably not a risk they should be taking, as otherwise it could be very costly since by then it will be too late to claim from HMRC so the employer will have to pay it plus, potentially, compensation.
How do I get them back off furlough?
There is no particular practice to follow and employers will need to consider when to bring people back and talk to all of the staff, as it is likely that some will need to return before others and, in fact, some may not be needed, depending on how well the business can bounce back.
What if I need to make someone redundant on furlough?
The normal redundancy process will need to be followed with consultations, notice period and, where entitled, redundancy pay.
There is nothing in the furlough rules to prevent an employer giving notice and claiming furlough for that notice period, so it’s worth looking at this well ahead of the furlough end date.
Has the government confirmed what can and can’t be included when calculating wages?
All regular payments can be claimed and in most cases that will include commission, unless that commission can only be made at the discretion of the employer or a client and where the employer or client was under no contractual obligation to pay.
With regard to commission, employers just need to consider if there is any scenario in normal circumstances where they think they could legally not pay commission – if they can’t think of any, commission isn’t discretionary and so it is compulsory.
What’s the position regarding annual leave?
Furloughed employees will still accrue and are entitled to take annual leave – which must be paid in full or, where their pay rate varies, the average that they received over the past 52 weeks.
If any employee asks to take a week’s holiday while on furlough and the employer agrees, the employer will have to top the pay up to 100 per cent for that week but can still claim the 80 per cent through furlough.
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