We had over 750 people register and join us for the second of our informal webinars, this week with special guest, Jennifer Smith, an employment law Partner at top 100 law firm JMW. The session focussed on furloughing workers, using the government’s hastily-put-together Job Retention Scheme, and looked at how to manage both the practical and emotional impact of furloughing employees — something that many of us hadn’t even heard of prior to the Covid-19 outbreak.
We’ve tried to capture some of the main discussion points in an easy-to-digest FAQ format below. Please note, this content is for general guidance only and was correct as of 6 April 2020, however, the legislation is being updated regularly so please cross-reference with the very latest legislation at the time of reading, and consult with an employment lawyer before taking any action (we recommend Jen!). This guidance should not be used for any other purpose. It does not constitute and should not be relied upon as legal advice.
Do employees have to agree to be furloughed? What if they refuse?
Furlough can only be imposed on an employee if their employment contract permits it (which is extremely unlikely). The guidance states that employers should make any changes to the employment contract by agreement, and therefore confirms that employers should agree (rather than impose) furlough with their employees. Where an employer forces an employee to take a pay cut, the employee would be entitled to make a claim for unlawful deductions (and constructive dismissal if they then resigned as a result of the employer’s breach of contract). It is likely that employees will agree to such a temporary variation as possible alternatives include being asked to take unpaid leave, redundancy, or even dismissal for “some other substantial reason”. If employees refuse to agree, then employers will need to take advice as to next steps, which may include redundancies or enforcing variations to employment contracts. Both of these routes are likely to require collective consultations with employees where 20 or more employees are affected.
Which employees can be furloughed – just full and part time, or does it cover zero-hour contracts, etc?
An employer can claim for any employees who were on the PAYE payroll on or before 28 February 2020, whether full time, part time, fixed term or on zero hour or flexible contracts and who are designated by the employer as furloughed. The updated guidance as of 6 April 2020 confirms that workers on fixed term contracts can be furloughed, and that their contracts can be renewed or extended during the furlough period without breaking the terms of the scheme. Apprentices, salaried members of LLPs, agency workers and workers can also be furloughed, in addition to office Holders, including salaried company directors.
What happens to annual leave entitlement and bank holidays for those furloughed?
The position is regrettably unclear, and the Government’s latest guidance (issued on 4 April 2020) does not deal with holiday at all. The government’s guidance on the Coronavirus Job Retention Scheme states that “employees that have been furloughed have the same rights as they did previously”. It can be inferred from this that employees/workers on furlough will continue to accrue the 5.6 weeks’ leave under the Working Time Regulations 1998 while they are furloughed.
With regard to bank holidays, the updated ACAS guidance (which does not have statutory force) states that furloughed employees/workers “must get their usual pay for bank holidays”. The guidance further states that furloughed employees/workers may still be required to use a day’s paid holiday for bank holidays, including when they’re furloughed. For employees/workers who usually work on bank holidays but are currently furloughed, they need to check with their employer to see if they have to take holiday on that day, or if they can take the time off at a later date. Critically, bank holidays can be included in the 4 weeks’ paid holiday that can be carried over and taken at any time over a 2-year period.
If an employee or worker leaves their job or is dismissed during the two-year period, any untaken holiday must be added to their final pay (“paid in lieu”).
Are National Insurance and pension contributions included in the £2,500 cap?
Employers can reclaim up to 80% of wage costs up to a cap of £2,500 per month, plus (not including) the associated Employer’s National Insurance Contribution (ENIC) and minimum auto-enrolment pension contributions on that wage.
When calculating 80% of an employee’s income, can you include commission and bonuses?
Government guidance states that employers can claim up to 80% of wage costs up to a cap of £2,500 per month, plus the associated Employer’s National Insurance Contribution (ENIC) and minimum auto-enrolment pension contributions on that wage. The most recent updated guidance from 4 April 2020, includes clarification on what can be taken into account:
“You can claim for any regular payments you are obliged to pay your employees, This includes wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments should be excluded”.
There is no further guidance on how to interpret what “compulsory commission” actually covers or “past overtime” and the position is therefore not straightforward. “Regular payments” would not normally be understood to include overtime and commission, which typically varies week by week or month by month. We assume the government intends this to mean commission or overtime that has accrued but not yet been paid.
How should employers calculate the 80% figure for those that work different hours each month? And what about overtime – is that thrown into the calculation of their average earnings or is it just base salary?
See above regarding overtime. If the employee has been employed for 12 months or more, you can claim the highest of either the:
- same month’s earning from the previous year
- average monthly earnings for the 2019-2020 tax year
If the employee has been employed for less than 12 months, claim for 80% of their average monthly earnings since they started work. If the employee only started in February 2020, work out a pro-rata for their earnings so far, and claim for 80%. You can claim for any regular payments you are obliged to pay your employees and this can include ‘past overtime’. There is no further guidance on what this covers as of yet.
What if 80% of the person’s salary isn’t above the national living wage, or minimum wage threshold?
Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working or treated as working under minimum wage rules. This means that furloughed workers who are not working can be paid the lower of 80% of their salary or £2,500 even if, based on their usual working hours, this would be below their appropriate minimum wage.
What happens to those employees that have been on maternity leave or SSP – could they return from maternity leave and be furloughed immediately? And would they receive 80% of their full-time salary prior to maternity leave?
Any employee on sick leave or self-isolation will get statutory sick pay, but can be furloughed on their return to work. The same applies to an employee who comes back to work after maternity leave. If they are salaried employees, they will receive 80% of their salary, as of 28 February 2020, before tax (subject to the cap). If their pay varies and they have been employed for 12 months or more, the employer can claim the highest of either the:
- same month’s earning from the previous year
- average monthly earnings for the 2019-2020 tax year
If the employee has been employed for less than 12 months, the employer can claim for 80% of their average monthly earnings since they started work. There is no further guidance on this matter.
What happens after May 31?
The government guidance states that this is a temporary scheme in place for 3 months starting from 1 March 2020, but that it may be extended if necessary. We therefore await further guidance in this regard.
Outside of furloughing, we’ve seen firms put workers on to three or four-day weeks, enforce temporary pay cuts, etc. What do you need to be mindful of when altering employee’s normal working hours or pay?
Making unilateral changes to a contract of employment can entitle an employee to resign and complain of unfair constructive dismissal and wrongful dismissal or make a claim for unlawful deductions. It’s always sensible to speak to a solicitor prior to altering a contract of employment to ensure you’re doing it lawfully.
Where can/should employers turn to for help and advice?
If employers want to gain a deeper understanding of this rapidly changing area of law, we would recommend keeping an eye on the government website and any ACAS guidance, which is published and updated regularly. If you are seeking more concrete legal guidance relating to these matters, or have any queries about dealing with any other workplace issues linked to the Covid-19 outbreak, you can also contact Jennifer Smith and the employment team at JMW Solicitors LLP, tel: 0345 646 0342.
This note is for general guidance only and should not be used for any other purpose. It does not constitute, and should not be relied upon as legal advice. This note was correct as of 6 April 2020.
