What Your Business Needs To Know About Furlough Leave

Estimated Read Time: 7 Minutes

Jessica Lambert, 2 April, 2020

If your business is struggling to cover staff wages as a consequence of COVID-19, utilising the newly introduced Coronavirus Job Retention Scheme will help ease the burden and enable your firm to retain its workforce.

For those that have looked into the scheme, read on if you are looking for additional information on what a furloughed worker is and how to approach accessing the funding available on behalf of the government. If you are still unsure about what the Coronavirus Job Retention Scheme entails, read more about it in our blog: What Government Support Is Available for My Small Business?

Why Would Your Business Want To Designate Furloughed Workers? 

The UK's economic output has plunged since the Coronavirus epidemic started spreading and businesses across the country are finding it difficult to continue daily operations due to a slump in demand. For those businesses that still have high levels of demand, there is then the struggle to deliver on those demands to contend with due to a lack of essential materials and products.

The UK’s Purchasing Manager’s Index has dropped to a record low and Coronavirus is not the only challenge businesses have to contend with currently, as cash flow issues are arising due to supply chains drying up.

Furloughing your workers might be the only way in which your business can realistically afford to retain its workforce during and after this worldwide pandemic. It might not be possible for your business to cover 100% of staff wages, but thanks to government intervention, your company can either supplement the final 20% or pay nothing at all.

Alternatively, your business might be struggling to allocate its usual workload to some of its employees due to a fall in demand - rather than making redundancies that your business will need to eventually refill, there is the option of having employees take a temporary leave of absence instead.

Which Businesses Are Covered? 

Any UK business, regardless of size, can access help in paying wages through the Coronavirus Job Retention Scheme, providing:

  • Any employee being furloughed was on the business's PAYE payroll on or before the 19th March 2020.

Which Employees Can Be Furloughed? 

As long as the employee has been on your business’s PAYE payroll on or before the 28th of February, they can be furloughed. It does not matter which type of contract the employee has, so all of the below will be covered as part of the Coronavirus Job Retention Scheme:

  • Full-time workers
  • Part-time workers
  • Workers who are on either zero-hour or flexible contracts
  • Workers who have agency contracts

How Much Can Your Business Recover Using The Scheme?

HMRC will grant your business 80% of each furloughed worker’s regular wage costs, up to a cap of £2,500 each month – this will not cover any commission structures, bonuses or fees. Your business can choose to provide either 80% of each furloughed employee's salary using government funds, or it can top up the remaining amount.

As an employer, you can backdate payments from the day in which you placed any workers on furlough, starting from the 1st of March.

Can Your Business Reverse a Redundancy Decision Made Due To Covid-19?

Before the government responded with its business support package, many businesses up and down the country panicked about paying staff wages and as a result, many employees were made redundant.

If your business would have retained employees if it wasn’t for the Coronavirus outbreak, it is possible to re-employ individuals, providing they were made redundant AFTER the 19th of March. Your business can then place any re-employed staff on furlough leave instead and they will be paid 80% of their monthly earnings by the government.

How To Decide Which Employees To Furlough? 

This is likely to be the most difficult part of the furloughing process and it will be an even harder task if your business is unable to top up the 80% government contribution. Ultimately, as a key decision-maker in the business, you must choose by taking into consideration the business’s needs.

Before deciding, you must identify the critical workers for your business – these will be the employees who are needed most to keep the business operating over the next three months or so. Some departments will play a vital role in business functions during the COVID-19 pandemic, so it is important to ensure that you have the employees your business needs working during the crisis.

It is also worth identifying any employees in your workforce that fall into the group who are at increased risk of severe illness from Coronavirus, including those who are pregnant, who have chronic respiratory diseases and weakened immune systems. These would be ideal candidates for furlough as it would minimise their own risk of contracting the virus and falling seriously ill due to the outbreak. 

Additionally, the general opinion so far is that employers can rotate which staff are placed on furlough leave, as long as each employee is furloughed for at least three weeks during each period of furlough leave.

Can Your Furloughed Employees Continue To Work? 

No. By furloughing employees, you are essentially asking them to take a temporary leave of absence. In order to qualify for the scheme, any individuals that are designated as furloughed must immediately stop working.

Under no circumstances can your furloughed workers continue working for your business until they are no longer considered a furloughed employee – this applies across the board, so that also means that furloughed workers cannot take partial furlough leave either.

If your designated furloughed workers continue to work, even on a part-time/reduced hours basis, they will no longer be eligible for the scheme.

Despite not being able to work for your business, furloughed workers can take part in volunteer work, though it cannot consist of providing services and generating any sort of income for your business.

Furloughed workers are also able to complete online training, but they must be paid the national minimum wage/national living wage for the hours spent completing the training.

How Do You Start The Furloughing Process? 

Firstly, your business needs to have those all-important conversations with each employee you intend to put on furlough leave. Your employees will likely agree to be furloughed, as the alternative could mean facing redundancy.

You must explain clearly that each furloughed worker will be kept on your company’s payroll and that they will continue to remain employed during the furloughing process.

Secondly, employees MUST agree to be furloughed, as doing so will mean a temporary change of contract. Changing the status of any of your employees remains subject to existing employment law. If the employee agrees, your business must then outline exactly how much the individual will receive, whether it is the full amount they would usually expect or the 80% the government will cover.

Your furloughed employees must be aware that:

  • they are NOT being made redundant:
  • they cannot continue to work for your business whilst being furloughed

Lastly, your business will be required to submit information to HMRC to confirm which employees at your company are to be placed on furlough leave, with further information on what each furloughed employee earns. This will all be done through a portal that is currently being built as the HMRC system is currently not able to process such payments to employers.

The scheme is expected to be running fully by early April and it will initially run for three months, though this could be extended if the government deems it necessary.

* UPDATE: the eligibility cut-off date has been extended to 19th March 2020, meaning thousands more workers can now be furloughed. This is a change from the original cut-off date which was the 28th of February. 

* UPDATE: the scheme opened applications on the 20th of April. 

* UPDATE: the government's job retention scheme will run until at least the end of June. 

* UPDATE: From 1 July, employers can bring furloughed employees back to work for any amount of time and any shift pattern, while still being able to claim CJRS grant for the hours not worked.

* UPDATE: From 1 August 2020, the level of grant will be reduced each month.

  • for August, the government will pay 80% of wages up to a cap of £2,500 for the hours an employee is on furlough and employers will pay ER NICs and pension contributions for the hours the employee is on furlough.
  • for September, the government will pay 70% of wages up to a cap of £2,187.50 for the hours the employee is on furlough. Employers will pay ER NICs and pension contributions and top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500, for time they are furloughed.
  • for October, the government will pay 60% of wages up to a cap of £1,875 for the hours the employee is on furlough. Employers will pay ER NICs and pension contributions and top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500, for time they are furloughed.

* UPDATE: the Coronavirus Job Retention Scheme will close on 31 October 2020.

For more SME advice regarding the Coronavirus situation, take a look at the additional resources on our Coronavirus Hub

BY Jessica Lambert

2 April, 2020