Coronavirus: HR’s Complete Guide to Furloughed Employees
When the government announced its Coronavirus Job Retention Scheme to help businesses pay their staff during the coronavirus outbreak on 27th March, there was one word that provoked a collective raising of eyebrows from HR professionals across the country:
This employment concept has probably been unfamiliar to the majority of HR professionals working in the UK until now – but it could be a powerful method to help minimise the economic fallout of the coronavirus pandemic on your business.
To help you understand just what furlough is, how it works and how it can help your company weather the current financial storm, we’ve created a complete guide to furloughed employees and everything you need to know about the furlough process.
Table of Contents
- The coronavirus furlough scheme explained
- Which employers can offer furlough?
- Which employees can be furloughed?
- What can't furloughed employees do?
- What can furloughed employees do?
- The furlough process
- How to calculate furlough payments
- Returning to work after furlough
- Further furlough resources
Part 1: What it is
What is furlough leave?
Furlough means temporary leave from work. If you want to use the dictionary definition of the term, ‘to furlough’ means to “grant leave of absence to”.
In terms of the coronavirus outbreak, it refers to employees being asked not to work but not being made redundant.
It’s a concept that didn’t really exist in UK employment law up until the current pandemic, when large numbers of people have been unable to work, hence why there’s so much confusion about what it is and its implications. Furlough is relatively common as employment concept throughout the rest of the world though, notably in the United States, where there are periodic ‘furloughs’ of government staff during Federal budget negotiations.
It has been temporarily introduced by the government in their Coronavirus Job Retention Scheme – an attempt to save the jobs of millions of workers across the country that are threatened by the crisis. In general, UK employment law has not changed – it has just been adapted slightly. And even then, only temporarily.
When a worker is designated as being ‘furloughed’, they are kept on the company’s PAYE payroll but are placed on a temporary leave of absence. They do not work but will be paid. Under the government’s scheme, employers will receive a grant to cover up to 80% of an employee’s wage (capped at £2,500). The employer are expected to pay the remaining 20% themselves, but there is no legal obligation to do this.
Furlough isn’t the same as working from home – furloughed employees are not allowed to undertake any work for their employer, or make money for them, whilst they are on this type of leave, although they are allowed to undertake training.
As national lockdowns and restrictions on which businesses could trade were introduced, there was widespread worry about how businesses could continue to pay the wages of employees if they were unable to trade.
In late March, as the scale of the pandemic became clear, some businesses, particularly in the hospitality and retail sectors, took matters into their own hands and started to terminate the employment of their employees.
In response, the government introduced furlough leave, and also financial support for employers. This is designed to encourage employers to keep staff on their payroll without terminating their employment.
Part 2: How it works
The coronavirus furlough scheme explained
- The scheme will pay up to 80% of the total cost of an employee’s wage, if an employer cannot afford to
- Most types of full-time, part-time and flexible workers qualify for furlough, but the self-employed don’t
- Furlough lasts for a minimum of three weeks and up to three months (but this will likely be extended)
So, how does the coronavirus furlough scheme actually work?
If a company cannot afford to pay the wages of employees during this crisis, they can officially designate employees as ‘furloughed workers’, allowing the business to access grants to cover the cost of keeping them employed. Workers must be consulted about being furloughed and must give their consent in order to move forward with the process.
By designating employees as ‘furloughed workers’, employers can access an ongoing grant from the government that covers 80% of the furloughed employee’s wages for three months from 1st March 2020. Employers can choose to pay their furloughed employees 80% of their usual wage, or they can supplement it to the full amount. Ministers have stated that this scheme can be extended if required.
There is a £2,500 cap on the amount that can be claimed per employee, per month, but furlough costs can be backdated to 1st March 2020 as long as you have relevant evidence to support the claim.
Which employers can offer furlough?
All UK employers are eligible for the scheme, regardless of their size. Those eligible include:
- All private sector businesses based in the UK, that were trading as of 28th February 2020
- Not-for-profit organisations
The public sector is not able to offer furlough leave to staff – most are expected to be able to work from home instead, or use their reserves to support their employees.
Which employees can be furloughed?
Most types of worker, and employment status, qualify for furlough. Types of worker who qualify for the scheme include:
- Full-time workers
- Part-time workers
- Agency workers
- Flexible workers
- Zero-hours-contract workers
This sounds welcome, but there is some small print to be aware of – not all workers qualify for the scheme.
Self-employed workers are not eligible, but they can access similar financial help through the government’s Coronavirus Self-employment Income Support Scheme.
Dividend payments are not covered by the scheme either, but owners of businesses and partners who pay their salary through PAYE are eligible.
Furloughed workers will need to have been on the company’s PAYE payroll since 28th February 2020 to qualify. Those workers who were laid off before this scheme was announced are also eligible to claim for furlough – providing that they are rehired by their employer first.
Employees who are currently on sick leave can be placed on furlough after they return to work, as can high-risk workers who are currently shielding at home.
Recently, the government has also announced an extension to the scheme, allowing any employee who cannot work because of caring responsibilities caused by the pandemic to be eligible for furlough.
A useful way to work out if an employee qualifies for the scheme is to find out if they contribute PAYE. If they do, there’s a strong likelihood that they’ll be covered by the scheme.
What can’t furloughed employees do?
There are strict restrictions on what furloughed employees can do whilst they’re not at work. According to the government advice, they cannot provide services or help the employer to make money whilst they’re furloughed.
This obviously means that employees cannot expect their employees to carry out work for them if they’re furloughed. Treat furlough as one big pause button on the day-to-day operations of your furloughed staff.
What can furloughed employees do?
There are some work-related activities which employees can complete when on furlough, however.
Many companies are making the best out of a bad situation and taking advantage of the pause in their operations to upskill their teams. That’s because completing training and online qualifications are all still allowed under the scheme – providing that the employee is paid for their time.
Employees are also entitled to seek work from other employers whilst they’re on furlough – there’s no expectation in law that they cannot undertake additional work.
Part 3: The furlough process
The furlough process
Here’s a summary of what actually happens when an employer wants to furlough an employee.
The employer will select employees and request, in writing, that they take furlough leave. The formal letter should include the date, reasons for the furlough, the expected duration of it, and contact details.
The employee will need to consent to the process – they cannot be forced to go on furlough against their will. In reality, most employees will accept an offer of furlough in the current situation.
If the employee accepts the offer, the employer will ask them to not come into work, but will continue to pay up to 80% of their salary. Employers can choose to pay the employee the full amount, as per the employment contract, in the usual way, whilst the employee is furloughed though. They will also continue to pay PAYE and Primary and Secondary National Insurance contributions to HMRC.
The employer will then claim claim back 80% of the furloughed employee’s usual wage at the end of April through the dedicated HMRC online portal, when it is up and running.
The furlough process
1. Choose employees to be designated as ‘furloughed workers’
The first step to furloughing employees is to decide which employees you’re going to ask to take part. This is a challenging task and calls for a lot of careful thinking, tact and patience.
Just because furlough is a relatively new concept in UK employment law, it doesn’t mean that the usual employment laws don’t apply. Be careful that you don’t directly or indirectly discriminate against particular employees or groups of employees when you’re selecting those who you would like to furlough.
In some situations, if there are more than 20 employees who are being asked to go on furlough, you may have to consult collectively. Engaging with unions and employee representatives is a good strategy to use in this case.
2. Send them a formal letter, asking for their consent
Once you’ve selected the employees that you’d like to furlough, you need to contact them officially and ask for their consent. The easiest way to do this is through a physical letter.
The letter will need to clearly lay out the reasons for the furlough, how long you expect it to last (the minimum period is three weeks and the maximum is currently three months, for example) and the date that you’re issuing the request/the date that you need a reply by.
If you don’t fancy making one from scratch, you can download and tweak our coronavirus furlough letter template to suit your own organisation.
3. Get the employee’s consent for being placed on furlough
It’s worth stressing that you can only furlough an employee if you gain their consent for the process. You cannot just place an employee on furlough leave and force them to stop working if they don’t want to.
There will be some situations where an employee might not want to accept furlough leave – for example, if they are looking to leave the role soon anyway or retire. If an employee does not want to accept furlough leave and you cannot afford to keep paying their wages, there are a number of options:
- Offer the employee redundancy
- Offer the employee unpaid leave until the crisis is over
The exact course of action you choose will depend on the unique circumstances of your employee and your company.
If your employee agrees to take furlough leave, the next steps are pretty simple – just tell them not to come into the workplace or do any work until the end of the furlough period or alternatively, until they are contacted by you with more information.
4. Continue to pay their salary as normal
During the time that an employee is furloughed, you’ll need to pay at least 80% of their salary through your payroll as normal. You can help create a semblance of normality to the situation by keeping to the same payment routine that you had before the crisis.
The government’s furlough scheme only covers the cost of 80% of an employee’s salary, so your organisation will be expected to find the remaining 20% if you want to continue paying staff the same rate.
Normal employment rules about changing contract terms and conditions still apply, so if you can’t afford to cover the 20% and need to ask your employees to take a pay cut, make sure that you follow the law by getting their approval in writing (through returning a signed letter with confirmation of agreement, for example.
You can find out how to calculate furlough payments below.
5. Provide HMRC with details about the employees who are furloughed and their wages
Businesses won’t receive the grant for paying the salaries of employees who are furloughed immediately. The online platform for claiming on the scheme is still being created by HMRC and it’s estimated to be ready by the end of April.
Until then, businesses will need to calculate and pay furlough costs themselves, keeping a note of how much they spend. They will then be reimbursed for 80% of the salary costs of employees when they claim.
How to calculate furlough payments
Calculating furlough costs for employees employed for a full year
Employers can claim for the higher of either:
- How much an employee earned in the same month in the previous year
- The average monthly earnings from the previous year
Calculating furlough costs for employees employed for less than a year or on a flexible working/zero-hours contract
Employers must claim for:
- The average of employee monthly wages since starting work
The above will also apply if the employee’s pay varies.
If the employee started work in February 2020, you’ll need to work out the pro-rata earnings from that month.
Returning to work after furlough
A worker can be furloughed from as little as three weeks to as long as necessary. That said, the government’s Coronavirus Job Retention Scheme will currently only pay 80% of the cost of employee wages for three months, so this will be the period that most companies choose to furlough staff for.
It is likely that the government cut-off point will likely be extended though, particularly if the pandemic continues to worsen.
When you’re ready to take your employee off furlough, you’ll need to contact them in advance, usually by letter and phone, letting them know of the day that they’re expected to return to work and any other details.
Further furlough resources
As furlough is a temporary addition to UK employment law, many organisations will naturally be unsure of how it works and how to get the best results from the process.
We hope our guide has given you a clearer understanding of how furloughing staff works. If you’d like further reading and to access extra advice, check out the resources below.
Furlough is a great time to work on your professional development. Take the next step in your career by studying a fully online CIPD qualification and make the most of your time. Get in touch with our friendly team today to find out more.