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What is furlough leave, who is eligible, and what can be claimed?

21st Apr 2020
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To help protect the UK economy and safeguard jobs, the UK government has announced the Coronavirus Job Retention Scheme as part of several measures to help alleviate the impact of the pandemic on businesses across the country.

So what is furlough leave, who is eligible, and what can be claimed? Dana Ewans, a Senior Associate at Vistra Corporate Law, explains.

Before we dive into detail, consider these Top Five Tips:  

  • Check both your company and employees’ eligibility
  • Register for HMRC Online if you have not already done so
  • Communicate with your employees – communication is key!
  • Agree a clear and concise written furlough leave agreement with affected employees
  • If 20 or more staff are affected, consider your collective consultation obligation

Eligibility and PAYE Online registration

HMRC has slowly defined specific eligibility criteria. Eligibility is not affected by business type and all employers with a UK payroll set up on or before 28 February 2020 are eligible. Following the most up to date guidance, employers must also register for PAYE Online, and this can take up to 10 days, so make sure you apply now if you need to.  

Similarly, employees must have been registered on the relevant employer PAYE on or before 28 February 2020 but are otherwise, generally eligible for furlough leave.

Employees who were made redundant on or after 28 February 2020 can be re-engaged and then placed on furlough leave if COVID-19 caused the redundancy, and it is practicable to do so. 

While employees who resigned on or after 28 February 2020 can also be re-engaged and furloughed, it is a good idea to seek advice before doing so.

Consider collective consultation obligations

Where you have a large workforce and 20 or more individuals are potentially affected, you may need to consider collective consultation obligations in a very similar way to a large-scale redundancy exercise. It is not completely clear at this stage what the obligations will be, so it is crucial that you seek advice and support in this scenario. 

If you are considering rotating the employees who are on furlough leave, also keep in mind that any period of furlough leave must be for a minimum of 3 weeks. It may be a sensible option if you have a downturn in work but not a complete cessation, as it will allow you to give all employees the chance to continue to work at their full rate of pay.

Communication is key

Aside from all other eligibility considerations, arguably, the most important thing to remember is to communicate clearly with your employees. Placing someone on furlough leave constitutes a change to their terms of employment, and therefore it must be agreed with them.

Agree a written furlough leave agreement 

You are required to confirm any period of furlough leave in writing and retain this written communication for five years. We recommend a formal furlough leave agreement so that both parties are in no doubt as to the terms. 

What can be claimed

The government anticipates that the Scheme will be up and running by the end of April and employers will be responsible for processing any claims that they have.

It has been well documented that employers can claim 80% of the individual’s wages, up to a monthly cap of £2,500. It will start the day the employee is furloughed and can be backdated to 1 March 2020. However, it essential to have an understanding of what can and can’t be included in your claims.

Wages – you should consider the definition of ‘wages’ under the Employment Rights Act 1996 when understanding the elements of pay that you can include in your claim. 

  • Calculations should be based on wages as at 28 February 2020.
  • Employer National Insurance contributions on wages claimed and minimum pension contributions – while these can be included, you should note that only the statutory minimum pension contribution of 3% can be added.
  • Past overtime – it was announced in the most recent guidance and perhaps referred to guaranteed compulsory overtime, but the guidance so far is unclear.  
  • Fees – another recent announcement which is also unclear. We believe that this may mean fees for professional membership such as SRA or ICAEW.
  • Compulsory commission payment – great news in the most recent guidance for estate agents and other individuals who receive the majority of their monies from the compulsory commission.

While there is still further clarification needed on exactly what can and cannot be claimed, the most recent update has provided some much-needed guidance.

Finally, another new announcement that may offer comfort to many employees is that they can now begin a new role while they are on furlough leave provided that their contract of employment permits this. It was an unexpected turn of events, but it seems that the government is mindful of the need to support key industries affected by staff shortages, with the added benefit of ensuring that furloughed workers have the opportunity to receive their full pre-COVID-19 income – if not more.

There is no doubt a lot more information still to come, and we will keep you updated over the coming weeks. If you do have any questions or require any support with your workforce at this challenging time, the team of legal and HR specialists at Vistra would be happy to help you.

Dana Ewans
Solicitor, Senior Associate, Vistra Corporate Law
E [email protected]
T +44 (0)117 918 1394

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