Travlaw’s head of employment Ami Naru dissects the government’s recently announced Job Retention Scheme and answers key questions
On Friday March 20, the UK Government announced the Coronavirus Job Retention Scheme.
Under the new scheme, all UK employers will be able to access additional financial support from the government in order to continue paying part of their employees’ salaries. In particular, the salaries of those employees that will otherwise be laid off (or, ‘made redundant’) in light of the COVID-19 outbreak.
All UK employers are eligible for the scheme: it is irrelevant whether the employer is a sole trader, a partnership or a limited company etc.
In order to access the scheme, employers will have to designate affected employees, labelled under the scheme as “furloughed workers”. The employer must then notify any affected employees that they have been designated a “furloughed worker”.
Please note, “furloughed worker” is not a concept recognised in English law.
Does this mean that the employer can simply tell the employee that they are a “furloughed worker”?
The starting point to look at is whether the employer has the contractual right to lay off the employee under their contract of employment. If such contractual right exists, the employer will be able to tell the employee that they are a “furloughed worker”.
In the absence of such an express contractual right, the employer will need to obtain the employee’s agreement, consenting to effectively being laid off and becoming a “furloughed worker”.
Is an employee likely to agree to become a “furloughed worker”?
It is highly likely that an employee will agree to become a “furloughed worker”. This is because the alternative to agreeing to the change is likely to be redundancy – in which case the employee would be entitled to redundancy pay: such redundancy pay available only where the employer could afford to pay and where the employer has not gone insolvent.
Failing this, they would be left looking to the government to pay out their redundancy pay. Following redundancy, the employee would also be left to face a very unstable job market. Alternatively, where the employer has the contractual right to lay off an employee, they could simply send them home, without pay.
The employee’s option of receiving 80% of their earnings through the scheme and yet still retaining their employment, is therefore an attractive option to agree to.
What do employers do once they have designated a “furloughed worker”?
Employers must submit information to HMRC about the “furloughed worker” and their earnings via the online HMRC portal (which is to be set up imminently). Under the scheme, HMRC will then reimburse up to 80% of the employee’s earnings up to a maximum of £2,500. It is not yet clear whether this maximum limit refers to the employee’s take home pay, or gross pay.
Can the “furloughed worker” still do some work for the employer?
To qualify for the scheme, the “furloughed worker” must not undertake any work for their employer; otherwise, the employer will not qualify for the scheme in respect of that employee.
Does the employer have to top up the employee’s earnings to 100%?
Whether to top up the earnings of the employee from 80% to 100% or not, is entirely up to the employer, but there is no obligation to do so. However, if the employer decides against topping up the employee’s earnings, the employer must have the contractual right to do so – namely, a right within the contract of employment or, the employee’s express agreement.
But, as mentioned above, an employee is unlikely to decline the option of becoming a “furloughed worker” and receiving reduced earnings, especially where such agreement will mean that they will not have to turn up for work yet they will remain an employee (particularly where, as mentioned, the other option is redundancy).
Can employees designate themselves as “furloughed workers”?
COVID-19 is affecting the lives of many people. Those affected, particularly those who are vulnerable at this stage or are obliged to stay at home with children while schools remain closed, may find the “furloughed worker” option under the scheme very attractive. However, an employee is unable to designate himself or herself as a “furloughed worker”.
The employer must select the “furloughed worker” as ultimately, the scheme has been set up to preserve the jobs of employees that will otherwise be laid off. It is not a scheme to provide income for those employees who want, or need, to take time off.