March 23, 2020
The Government announced their Employee Retention Scheme on Friday 21 March 2020 to deal with the impact of COVID-19 on UK businesses.
The scheme applies to all UK businesses which includes, limited companies, sole traders, charities, partnerships and LLPs. The scheme allows for businesses to designate their employees as “Furlough Employees”, the consequence of which is that they are to be sent home from work and 80% of their salary claimed from the Government.
The guidance for employer’s details that it is the decision of the employer to designated employees is made by the employer, however there is the caveat that the decision is subject to all current UK Employment Law. The term “Furlough” is not included in any UK statute and as such we therefore move to the law around contractual terms. An employer will need the agreement of the employee to designate them as a “Furlough Employee” unless there is a short-time working or lay-off clause within their employment contract.
The reality is that employees are likely to agree to being designated if a business is forced to shut during this time, as the only other options for them are redundancy or taking unpaid time off work.
Once you have decided to designate an employee as “Furlough” then the process involves informing HMRC of the employee’s details and their salary. This is proposed to be completed through a new portal however this has not yet been developed and will require a mass amount of programming.
Once registered it is proposed that the Government will then start to reimburse 80% of an employee’s wages up to a maximum of £2,500. £2,500 equates to around £30,000 per year which is the median salary for the UK and therefore explains the figure provided. The guidance has not set out whether the £2,500 is the maximum monthly salary of the employee and therefore the maximum they will obtain. It could be that £2,500 is the maximum the Government will pay and therefore employees will be able to obtain £3,125 with the extra 20% from employers.
The guidance provides that the £2,500 includes “all employment costs” and therefore can be interpreted to mean all pension contributions, national insurance and other payments required.
The guidance for employees states that it is the decision of the employer whether to pay the 20% or not. Again, this is subject to UK Employment Law and therefore if a business decides that it is not able to pay the 20% then the contract will need to provide for this by either short-time working or lay-off provisions. If there is no contractual right, then express agreement will need to be provided by the employee.
Employees are not able to just stay at home and claim 80% of their salary if they are required in work. It is the role of the employer to decide who will be a “Furlough employee” and therefore the employee will have to consult with the employer on the matter.
If you need any further help or guidance on this matter then please do not hesitate to contact the Prosperity Law Engage Employment team on 0161 667 3686 or firstname.lastname@example.org. We are providing a free initial consultation for clients on employment matters.