Coronavirus Update: 24th March

On the 24th March, in an effort to keep the economy moving and safeguard UK jobs, the government announced it would be introducing the coronavirus job retention scheme as part of a package of measures to alleviate the impact of COVID-19 on businesses across the UK. We have laid out a Q&A below to explain as much as we now know about how this will operate. The term “Furloughed Agreement” has no legal status in UK law (it is an American concept) but is being used by the government in the same context – any references to this agreement below are from the government.

What is the coronavirus job retention scheme and who can participate?

  • The scheme will enable businesses to recover 80% of wage costs for employees on ‘furlough leave’ – which is an entirely new concept and is a new class of indefinite leave where the government will reimburse the employer for wage costs.

  • This has been introduced as an alternative for employers who might have otherwise implemented redundancies, lay-off, unpaid leave or other measures for their employees.

  • All UK businesses are eligible to claim under the scheme. It seems that employees will be covered, but not other workers (such as casual staff or contractors) or the self-employed.

  • The government has announced that the scheme is available for at least three months from 1 March 2020 and will be extended if necessary.

  • The company has the option to either pay 80% of the wages or to top up the balance of 20% but please be aware of the HR consequences of not topping up and we would strongly advise you take specialist HR advice if you intention is to only pay the 80%


What costs can employers recover?

  • The coronavirus job retention scheme allows for 80% of wage costs to be recovered up to £2,500 per month per employee. There is no limit on the number of employees or the duration. Wage costs are expected (but not confirmed) to include wages, pension contributions and employer national insurance (NI) contributions.

  • Definition of salary. Current understanding is that for people with an employment contract the employer should use that definition of “salary” for the purposes of this calculation. What is unclear is people who are on “zero hours” contracts or variable ones – we have seen a number of third party sources stating different answers but nothing on the official government websites so not stating anything here at present but will update as soon as we can.


What do employers need to do?

  • Employers and employees will need to agree the members of staff being designated as ‘furloughed workers’. This should be straightforward because this route will no doubt be more attractive to employees than redundancy, lay off, unpaid leave or a reduction in pay.

  • Employers should send a letter or email to each employee concerned and get them to agree to the change in status formally in writing.

  • For those people who use MHR as their payroll provider please confirm the exact details of the Furlough Agreement by employee and we will deal with the recovery of the 80% accordingly once the government portal is opened

  • For those not covered by MHR’s payroll services you should contact your provider to establish if they will do this for you, or submit details to Her Majesty’s Revenue and Customs (HMRC) through a new online portal, which is being set up urgently.

  • The government’s guidance for businesses acknowledges that if an existing employee is to become a furloughed worker it will require a change in their employment status, which remains “subject to existing employment law” and that “depending on the employment contract this may be subject to negotiation”. This suggests that employee consent will need to be obtained unless the employment contract provides for this situation. In most cases, it is likely that consent to the terms of furlough will be needed. Depending on what payments are covered by the new scheme, employers may also need to factor in to these negotiations what benefits and payments an individual will not receive during furlough leave.

  • The employee guidance confirms that “to qualify for the scheme you should not undertake work for your employer”

  • Employees cannot elect to be a furloughed worker without their employer’s agreement.

Does the employer have to top up the employee’s pay to 100%?     

  • No, they do not. Some employers may wish to make up the shortfall, while others may not be able to. This just needs to be made clear to all employees concerned. We do recommend that each employer adopt a consistent approach.


What about employees that have already been dismissed or taken unpaid leave?

  • The scheme is backdated to 1 March 2020 and employers are urged by the government to take back anyone they had already dismissed and convert them to this leave instead. Likewise, with anyone who is on unpaid leave.


What situations will this not help with?

  • It does not help with any situations where employees had agreed to reduce their hours, or to a pay cut but where they are still required to work. There is currently no option to do a mixture of reduced hours and furlough leave.


How will this affect the employment status of employees?

  • The employees concerned will remain on the employer’s payroll and will continue to accrue holiday and service.


Will Sole Directors be eligible?

  • Where the only employee is a sole director it is not yet clear as to whether this will be covered by the scheme – MHR will advise once official facts are known.