Cannot cover staff costs due to COVID-19? – How to access Government support

In order to avoid redundancies the government has established the Coronavirus Job Retention Scheme whereby Government grants will cover 80% of PAYE employees’ salaries, up to a monthly maximum of £2,500. In order to access the scheme employers will need to designate affected employees as ‘furlough workers’.

Who is eligible?
All UK businesses including limited companies, limited liability partnerships and sole traders.

What is a ‘furlough worker’?
This is a term which has been coined in the wake of the Coronavirus outbreak and effectively means those workers who remain on the payroll and in employment, yet do not carry out any work due to the COVID-19 outbreak.

How to designate workers as furlough?
Employers need to designate affected employees as furloughed workers and notify them of this change. Their status will need to be changed and their terms of employment varied. Any changes to the status and terms of employment will be subject to existing employment law. As such, the contract of employment and relationship between the parties should be reviewed. Subject to the terms of employment negotiation between the parties may be required.

Can a furlough worker still work?
No, in order to qualify for the scheme employees should not undertake work for the employer whilst they are furloughed.

What will employees get paid?
Employees may receive up to 80% of their wage subject to a monthly maximum of £2,500.* Employers may pay the difference between this payment and your usual monthly take home salary but this is at the employer’s discretion. Employees may still be eligible for support through welfare systems such as Universal Credit following reductions in salary.

What will employers be reimbursed?
As an employer you can claim reimbursement of up to 80% of the employees wage for all employment costs, up to a monthly maximum of £2,500*. HMRC are in the process of creating an online portal system to deal with this. The employer can choose to pay the difference between the 80% payment (or the maximum) and the employees usual salary but currently this is not obligatory. If you are unable to or do not intend to pay the additional 20% the variation to contractual terms should deal with this to avoid any breaches of contract.

*HMRC have published further guidance stating that employers can claim 80% of furloughed employees’ usual monthly wage costs, up to £2,500 per month plus the associated Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions on that wage. Fees, commission and bonuses should not be included in the monthly wage costs. Employee National Insurance Contributions, Income Tax and pension contributions will be deducted. Consideration of this should be had when the parties are negotiating contract variations. These calculations are general and application is on a case by case basis. Further guidance from the Government/HMRC in this regard is awaited.

What else do employers need to do?
Employers will need to inform HMRC about furloughed employees and their earnings through a new online portal. At the moment HMRC are working on setting up a system and we will know more and can provide updates when this is setup. HMRC are anticipating that this will be around the end of April.

Can employees be forced to go on furlough leave?
This is subject to the terms of employment. If the contract of employment does not permit the employer to designate an employee a furlough worker then this needs to be negotiated and agreed between the employee and the employer.

What if employees refuse to go on furlough leave?
This needs to be dealt with on a case by case basis. However, subject to terms of employment, employees can have a right to work and could resist on this basis. In this case, it may be that lay off, short time working or redundancy options need to be considered.

Length of the Scheme
The scheme will be initially open for a minimum of three months but this is under review and will be extended if necessary. Grants will be backdated to March 1st 2020.

Other Employer Considerations
Employers should ensure that the period during which employees are designated as furloughed workers is flexible. Consideration must be had as to other payments such as commissions, bonus and pension contributions as these are not to be included when calculating wage costs. Currently, it is likely that annual leave will continue to accrue and continuity of service will continue. It is unclear at present whether annual leave entitlements can be varied so that only statutory leave entitlements will be accrued.

How can we help?
Please get in contact with us if you need assistance in relation to this scheme. In particular, we can assist with considering your employees’ current terms of employment and whether any negotiation or agreement by employees is required. We can also help with variations to terms of employment, redundancies and necessary documentation.

For more information on the above please contact commercialdept@woodfines.co.uk

-Anastasia Whitlock

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