Coronavirus National Crisis – Furlough Leave Updates
The advice given in this article is correct as of 21st April 2020. The situation with Coronavirus is developing rapidly, so please look out for further blog posts for the latest updates.
We have been eagerly awaiting updates on the government’s furlough scheme. On 15th April 2020, the Treasury issued a Direction to HMRC. This contained authority and instructions for making payments under the Coronavirus Job Retention Scheme. Although amendments are theoretically possible, it is likely to be the definitive guidance on how the Job Retention Scheme works. The furlough scheme portal also opened yesterday and the scheme itself has been extended until the end of June.
Pattinson & Brewer’s specialist employment team have highlighted the main aspects of the scheme.
Furlough Leave – the basics
If your employer is unable to operate or hasn’t got work for you to do because of the coronavirus, you could agree with your employer to be kept on the payroll on 80% of your regular wages up to a monthly cap of £2,500. This is paid by the government through the Coronavirus Job Retention Scheme, whereby you’ll be ‘on furlough’.
Your employer will still directly pay you and your tax from your income. However, you must be careful not to work during this leave. The scheme’s payment portal is due to set up on 20 April.
Furlough Leave – Treasury Direction on 15th April 2020
1. The Furlough Leave Deadline
The original furlough eligibility deadline stated that individuals had to be employed before 28 February 2020. However, the government has now extended this date to 19 March 2020, which is the day before the scheme was announced.
In yesterday’s statement, the Treasury said:
‘Employers can claim for furloughed employees that were employed and on their PAYE payroll on or before 19 March 2020. This means that the employee must have been notified to HMRC through an RTI submission notifying payment in respect of that employee on or before 19 March 2020.’
The change will be serve as good news across the country as unemployment figures rise. However, the deadline change isn’t without its shortcomings. It’s likely that you need to have been paid by your employer by 19 March. This is because employees need to have made a payroll submission about employees to HMRC on our before 19 March.
It is predicted that over 200,000 further employees will benefit from the scheme as a result of the change.
2. Furlough Leave is not limited to employees who would otherwise have been made redundant
The Direction now makes it clear that Furlough Leave is not limited to employees who would otherwise be made redundant. It clarifies that furlough applies to anyone who ‘by reason of circumstances as a result of coronavirus or coronavirus disease’.
3. Company directors
Company directors who are furloughed can only undertake work to fulfil a duty or other obligation arising from an Act of Parliament concerning the filing of company accounts or provision of other information relating to the administration of the director’s company. This is clearly a very narrowly defined provision.
4. Written notification is required to furlough employees
The Direction now states that employer and employee must have agreed in writing that the employee will cease all work. Previous guidance only required notification, which could mean that significant numbers of employees who have already been furloughed may not fall within the meaning of the scheme.
5. ‘Pay’ and salaries under Furlough Leave
The amount of salary for the employee must disregard anything which is not “regular salary or wages”. This includes disregarding any performance related bonus or discretionary payments (including tips), any conditional payments and any non-financial benefits.
Employers cannot claim for a salary which is ‘conditional on any matter’. This, for example, may exclude any salary payments which the parties have agreed are conditional on the scheme paying out.
6. Earnings which the employer ‘reasonably expects to be paid’
The Direction states that the employer can claim for earnings which it ‘reasonably expects to be paid’ to the employee. This suggests that it includes deferred earnings, deferred until the Scheme pays out (provided they are not conditional on the Scheme paying out).
7. Annual leave
The Direction was unfortunately silent on the matter of annual leave. However, the government updated its guidance on 17th April to clarify the matter.
Furlough Leave and annual leave – updated government guidance on 17th April 2020
The government’s Employee’s Guidance now states that it is possible to take annual leave whilst on furlough.
Employees will continue to accrue holiday as part of their employment contract. If the employee gets more than the statutory amount (5.6 weeks), then they can ask their employer to agree to reduce that holiday to the statutory amount for the furlough period. Any reductions like these will need to be agreed to in the furlough agreement letter.
Employees can also take holiday whilst on furlough and should be paid as normal. Where their rate of pay varies, it should be calculated on the basis of the average pay they received in the previous 52 working weeks. The method of calculating this changed on 6 April 2020, so please be aware of this. The rule before was a calculation based on the preceding 12 weeks. Holiday pay should be based on ‘normal remuneration’ to meet legal standards. This can include overtime, commission, and standby payments.
The government also confirmed that employers can make a grant for an annual leave furlough pay in the normal fashion. This would be capped at 80% / £2,500 per month and would count as ‘topping up’ for the annual leave days by paying the difference between that and their normal pay to your employees.
Employers can compel employees to take annual leave whilst on furlough. However, employers must give twice as much notice as the time being taken off. For example, an employee is entitled to 4 days’ notice if the employer wants him/her to take 2 days of annual leave.
It is possible for employers to refuse to allow annual leave once the lockdown lifts and employees return to work. However, there must be a business reason for doing so. Further, employers can also give notice to an employee to cancel any annual leave they have already booked. If this is decided, employers must give the employee at least the same number of days’ notice as the original holiday request (so 5 days’ leave needs 5 days’ notice to cancel).
What about pre-booked holidays an employee wants to cancel? The employer can still tell its employee to take the time off. To change the holiday, the employee must agree this with the employer.
Employees who usually work bank holidays can agree that it’s included in the grant payment and not pay any extra to the employee. However, if the employee takes the bank holiday as leave, then the employer would either have to top up the employee’s pay to their usual holiday pay, or give them a day of holiday in lieu. Employers who agree for their employees to take the bank holiday as part of their annual leave entitlement should pay them their usual holiday pay rate.
Annual leave can be rolled into the next leave year, but only if the contract allows it. However, the government announced on 27th March 2020 that workers who have not taken all their statutory annual leave entitlement (up to 4 weeks) due to the Coronavirus, will now be able to carry it over into the next 2 leave years. This applies where it’s not ‘reasonably practicable’ for them to take some, or all, of the holiday pay they are entitled to due to the Coronavirus. Please note that there are some minor exceptions to this rule, such as sea-farers or trainee directors, which should be borne in mind.
How can Pattinson & Brewer help?
We receive numerous enquiries regarding the furlough scheme through our free legal advice line. Please follow our link below for more information:
Call us free on 0800 307 7660, and our team will get back to you to see if we can help.
You can also follow us on Twitter/Facebook using the handle @PB_Employment.