What next for furlough and beyond?

The Prime Minister has made us aware that the Government are trying to prop up the economy whilst also trying to kick start it through use of the furlough scheme. There are 10 government guidance documents on the furlough scheme along with treasury directions, each document is over 30 pages and therefore it is difficult to follow the new changes. We have therefore answered a few burning questions below:

1. “We’ve been using the furlough scheme for months, what changes do we need to know about and how will flexible furlough work?”

The key date for your diary in 1 July 2020 as there are a number of key changes from this date which need to be considered:

• From 1 July part time furlough can be used alongside gradually bringing some employees back to work. Part time furlough will allow for businesses to bring back employees on a part time basis and claim from the furlough scheme for the remainder of their contracted hours. It is important to remember that the employee must not be working during the hours which are claimed under the furlough scheme.
• The guidance does set out that the wage cap will be proportionate to the hours the employee is furloughed. Therefore, if an employee is on furlough for 50% of their contracted hours you are entitled to claim up to 50% of the cap. There is a calculator available to assist.
• It is important that you are sure of the hours you are claiming under the scheme, any difference will need to be paid back to HMRC.
• A new written agreement will be required from any employee who is placed on flexible furlough. All written agreements need to be held for 5 years.
• The option will remain open to keep employees on full time furlough after 1 July, but it will not be possible to furlough anyone who has not been furloughed before 10 June 2020.
• The only exception is anyone who is returning from family leave or unpaid parental leave. You are able to furlough an employee returning from either family leave or unpaid parental leave if they meet the general requirements for furlough leave i.e. they were on your payroll prior to 19 March 2020.
• From 1 July 2020 the requirement to furlough an employee for a minimum three-week period will also be relaxed. However, there is a minimum requirement of 7 days for the number of days you can claim for. Therefore, the maximum number of claims you can make in a month in 4.
• Another point to note from 1 July 2020, any new claims must be made within the same calendar month. Therefore, a new claim cannot span two months, this is due to the scheme changing monthly.
• Throughout July you are still able to claim 80% of an employee’s wages, up to a value of £2,500 for those on full time furlough leave. This includes pension contributions and national insurance.
• The next key date is 31 July 2020. If you have any periods of furlough which need to be claimed for which started prior to the 30 June 2020, these must be claimed for by the 31 July 2020.

 

POINT TO NOTE: If you have been furloughing staff on a rota basis previously and you now intend to make use of the flexible furlough scheme, you need to be aware that the number of people you claim for in any one period must not exceed that which you have previously claimed for. For example, if you have previously submitted three claims between 1 March and 30 June and you have submitted claims for 30 employees each month, this is the maximum number of employees you can claim for moving forward. The only exception is to add on those who are returning from family related leave.

The next key date to diarise is 1 August 2020, from this date the financial support starts to reduce, this will mean employers are responsible for the shortfall.

• From 1 August 2020 employers will be required to pay ER NICs and pension contributions which amounts for roughly 5% of gross employment costs.
• From 1 September 2020 employers will be required to pay ER NICs and pension contributions and 10% of the furlough pay which amounts for roughly 14% of the gross employment costs.
• From 1 October 2020 employers will be required to pay ER NICs and pension contributions and 20% of furlough pay which amounts for roughly 23% of the gross employment costs.

 

The scheme will close completely on 31 October 2020.

POINT TO NOTE: The guidance requires all employers to retain a copy of the calculations in relation to furlough and the wages claimed for a period of 6 years. Therefore, you should keep a note of the amount claimed, the claim period for each employee, the calculation and the claim reference. HMRC are able to audit and will require this information.

 

2. “What happens if we cannot afford to contribute to the increased costs? What if furlough is not enough to save jobs in the long term?”

As we are now aware of the reduction in the furlough scheme, now is the time to be considering the impact on your business. If it is likely to mean that more substantive changes to the work force are necessary, you will need to consider whether the number of redundancies being made are likely to fall within the realms of a collective redundancy.

If you are proposing to dismiss 20 or more employees within a 90-day period, this will trigger the collective redundancy process and will involve electing representatives, submitting form HR1 and consulting for a minimum period time. This is a very strict prescriptive regime which needs to be carefully considered as the consequence for getting it wrong are very onerous.

You can consult and elect representatives from a distance (I.e via Zoom/Skype) and whilst employees are on furlough. This is not a breach of the scheme. It therefore may be possible to plan the end of consultations to coincide with the end of the furlough scheme on 31 October 2020 or just before to save a portion of the costs of paying an employee’s notice period by utilising the scheme. You cannot claim for payment in lieu of notice.

It is not possible to claim any redundancy payments or any unpaid holidays from the furlough scheme.

It is also important to remember that if you have withdrawn job offers or made contractual changes there is a risk you may fall into a collective redundancy situation.

If you are dismissing under 20 employees, you are still required to follow a fair and full procedure. This applies to those with under two years’ service. It is important to ensure you are considering the full process when deciding to start a redundancy process.

POINT TO NOTE: In the early drafts of the CJRS papers, there was reference to it being an automatic unfair dismissal if an employee was made redundant where the furlough scheme was available. This did not make it into the final version of the act and is therefore not a matter of law. However, it is open to an employee to claim that redundancy was unfair if furlough was available. Businesses will need a clear reason for redundancy where furlough was available e.g. costs due to increased contributions or the forecast that the business is not going to recover.

For further information and assistance on furlough leave, the CJRS or redundancy, please contact Zara O’Hare on 0161 667 3697 or zara@prosperitylaw.com