Update on the Coronavirus Job Retention Scheme as at 5.00pm 25 March 2020
How does it operate?
Under the Coronavirus Job Retention Scheme (CJRS), the Government will reimburse 80% of employees’ wages costs up to £2,500 per month if the employer has designated them as ‘furloughed’. This applies to all UK businesses in an attempt to avoid extensive redundancies following the slump in economic output that the virus will cause.
The systems have not yet been set up, but they will pay funds directly to employers via a new HMRC portal. Employers will continue to pay furloughed staff direct. The Government guidance indicates that employers will not be required to pay the remaining 20% of furloughed employees’ wages, but some may elect to do.
The scheme will be backdated to 1 March and will initially last for a period of 3 months.
If contracts of employment do not include lay-off provisions, then changing the status of employees to being furloughed and/or reducing their pay, may require their consent. All furloughed employees should be informed of their new status in writing.
Employees cannot work when they have been designated as furloughed.
If headcount needs to be reduced but certain tasks continue, it may be necessary to furlough certain employees whilst retaining others. Where practicable, employers may decide to invite employees to voluntarily choose to be furloughed.
I want to make use of the CJRS, but cannot currently afford to pay 80% of the wages of furloughed staff whilst the scheme is established.
Unfortunately, many businesses may have critical cash-flow issues and be unable to afford to continue paying the wages of their employees. The employer may decide to designate employees as furloughed and inform them that they intend to apply for the CJRS when it is established so that, if the employer and employee are eligible for the scheme, their pay will be backdated to the time that they were designated as furloughed. It appears that employers will need the funds to pay the employees’ wage costs as the scheme provides that businesses will be reimbursed for wage costs, although this is to be clarified.
Should I make staff redundant or apply for the CRJS?
The advantage of the CJRS is that it will give businesses breathing space before deciding whether to make permanent changes, such as redundancies.
Although much depends on the detail of the scheme, employers who have already laid off staff or made them redundant may be able to retrospectively designate them as furloughed and claim back their wage costs.
Will furloughed staff remain entitled to benefits in kind, or employer pension contributions?
This is currently unclear, although in the US the concept of furlough usually implies continuation of benefits in kind. Whether the cost of these and of employer pension contributions will be reimbursed under the CJRS will depend on the definition of ‘wage costs’.
Will furloughed staff accrue annual leave?
This is likely, but needs to be clarified.
Can the scheme be used to pay the wage costs of those on types of leave, such as long-term sick leave or maternity leave?
It is not yet clear, but probably not (although see the next paragraph). As employees in these categories have the statutory right to not be required to work, it seems inaccurate to categorize them as ‘furloughed’ and temporarily not working as, even if economic conditions improve, they cannot be brought back to work by the employer. Also, maternity pay and statutory sick pay is not discretionary and does not sit well with the 80% guaranteed payment. However, those returning from maternity leave or long-term sick leave may be furloughed upon their return and this may be advantageous for them financially.
If these employees would have been made redundant by the business whilst they were on sick leave or maternity leave, then this may entitle the business to furlough them.