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COVID-19 Employee furlough: Understanding the Government’s new job retention scheme

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Updated: 12th May 2020

The Coronavirus Job Retention Scheme was announced by the Chancellor of the Exchequer as part of a range of emergency measures to support the economy during the coronavirus crisis.

The scheme involves furloughing employees, and provides payment of up to 80% of each furloughed employee’s wages. This payment is capped at £2,500, plus the associated employer contributions to National Insurance and minimum workplace pension contributions under auto enrolment.

The COVID-19 employee furlough scheme is designed to prevent mass redundancies and job losses due to the unique health and economic circumstances we are dealing with. So what does ‘furlough’ actually mean in practice?

What happens when an employee is furloughed?

When an employee is furloughed it means they are given a leave of absence. They don’t work for the employer but are retained on the workforce and paid a proportion of their wages by the government.

If employers intend to use the employee furlough scheme they must notify each relevant worker, who once furloughed, must not carry out any work for the company. The minimum time period an employee can be furloughed is three consecutive weeks.

Considerations for the employee furlough scheme

  • Employees must have been on the payroll on or before 19th March 2020 to be eligible for furlough
  • Any staff who lost their job or were made redundant on 28th February or later can be re-employed and furloughed
  • 80% of furloughed employees’ wages will be paid out by the scheme, up to a maximum of £2,500 per employee per month
  • Employers can decide to make up furloughed employees’ wages to 100% if they wish, but this isn’t mandatory
  • Furloughing is applicable for any type of employment contract 
  • Employees in receipt of Statutory Sick Pay (SSP) cannot be furloughed, but once SSP has ended they can
  • Workers with more than one job can be furloughed by each employer

How does the job retention scheme work?

The Coronavirus Job Retention Scheme is available to all UK employers who run a payroll, and the effective starting date for claims is 1st March 2020. The scheme has been extended multiple times and is now set to run until the end of October. Employers will be expected to make a financial contribution from the end of July, but all furloughed employees will continue to receive 80% of their salary.

In some instances it may be advisable to seek professional advice to avoid contravening UK employment laws, as these remain in place when furloughing employees – if 20 or more staff members are to be furloughed, for example, collective consultation with employee representatives may be necessary.

How employees are furloughed under the job retention scheme

An employer must take certain steps before they can furlough an employee:

  • Obtain agreement from workers who have been earmarked for the furlough scheme, and notify them in writing of the change in their employment status
  • Furlough agreements should include the starting date, the new wage amount, when the arrangement will end, and the ways to stay in contact during the furlough time period
  • Claim from the date when furloughing starts using the HMRC online portal, providing information on employees and their pay - claims can be backdated to 1st March  
  • After checking the claim, HMRC will make payments into the bank account stated on the claim every three weeks (the minimum time period employees can be furloughed)

The COVID-19 employee furlough scheme is intended to save jobs and help employers survive the economic effects of coronavirus. If you would like more information about the Coronavirus Job Retention Scheme or furloughing staff, please contact our team of experts at Real Business Rescue.

We can provide reliable professional guidance on this and other government measures introduced following the outbreak, and offer free same-day consultations to quickly provide the answers you need.

Keith Tully

Partner

0800 644 6080

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