What furlough means for workers and their bosses
I’M fairly certain I never used the word “furlough” before last Friday afternoon – I certainly never said it out loud – but I’ve used it hundreds of times since.
I’ve now used it almost as often as I’ve used the phrase “unprecedented times” in recent weeks.
The word “furlough” burst into our collective vocabulary last Friday afternoon, when the Chancellor of the Exchequer of the UK Government, Rishi Sunak, announced the Coronavirus Job Retention Scheme involving furloughing.
The Welsh Government has adopted the same scheme for businesses in Wales. And it’s a game-changer.
Employers who would ordinarily be needing to make redundancies very quickly due to the immediate and dramatic fall in business caused by Covid-19 can instead look to furlough their employees.
The word furlough is an American term meaning a temporary lay-off of employees.
I suspect the term “furlough” has been chosen even though it is not familiar here because employment legislation in England and Wales already has the concept of “lay-off and short time”, often called LOST.
But furlough is brand-spanking new for us and it’s far more generous for employees than our previous system of lay-off, which provided for only five days’ pay in a three-month period, and even then at only £29 per day.
The new scheme means employers can designate employees as being on furlough – meaning still employed but required not to do any work – and can claim a grant for 80% of the wage costs of those furloughed employees up to a maximum of £2,500 per month per employee.
This is for an initial period of three months, but may be extended. The employee must not carry out any work, so this is not a grant to help employers meet the wage costs of working employees.
Payments will be administered via HMRC, which is busy developing a portal that will allow refunds to be made to employers. No grant payments can be made before the end of April so employers still need to cashflow employees’ wages until then. Employers can, but don’t have to, top up salaries above the grant available.
There’s no absolute right to put employees on furlough and pay them less – that still in principle needs to be agreed with employees. However, as the alternative is either redundancy or any combination of unpaid leave/taking holiday/cuts in pay/ reduced working hours/employer going under, my advice to my employer clients so far is to be robust and just tell employees that the furlough scheme is being operated and that more information will be shared once further detailed guidance is available to employers.
For my clients based in London and the South-East, where salaries and the cost of living are higher than in Wales, £2,500 per month does not feel as generous, but it’s still a lot better for employees than universal credit or statutory sick pay.
A package of support for selfemployed people is going to be announced but the UK Government is working on the details.
And that’s about all we know right now. Employment lawyers are torturing themselves on Twitter trying to think through what the details are likely to be.
Will holiday accrue while employees are on furlough?
Will employers have to pay employers’ NI?
Will pension payment still be due? The Institute of Chartered Accountants of England and Wales considers that the grant will be calculated based on 80% of salary plus pension and employer’s NI, and published guidance on March 25, 2020, with a worked calculation.
This method of calculation would mean the employee would not get 80% of their usual salary and therefore the safe option would be for employers to tell employees they will pass on the sum they receive in grant from the Government, whatever that eventually turns out to be.
Is the maximum £2,500 on a gross or net basis? Again, we think it is likely on a gross basis because that works out at a salary of £30,000 and the median annual salary for full-time employees is around that figure. The ICAEW worked calculation is based on gross pay.
Will employers be able to rotate employees in and out of furlough so that some employees are working and some are not and then they switch?
The bad feeling between colleagues that is likely to be caused if elements of the workforce are getting paid most of their pay but not having to work at all, while other elements are required to work full-time for normal pay, would fester.
Will employees who were signed off sick or had taken unpaid leave to care for children sent home from school now want to come back to work to get the furlough pay? Probably – who wouldn’t? These are questions we don’t have definitive answers to yet and we may not get the answers for some days.
This is not helpful when employers are having to make decisions overnight about whether they should start a redundancy process or put their employees on furlough, but at least they know there will be some support.
My advice to both employers and employees over the course of the last few weeks is that this is a time when everyone needs to come up with collaborative, constructive solutions to balance the needs of the business and the needs of employees so that we all get through the other side.
If employers take a haircut alongside the employees, that goes a long way to building that approach.
The Government putting a sizeable amount of cash into the wages pot is a huge help for both employers and employees alike.