Furlough: what it means and how it can help your business

Under the new Coronavirus Job Retention Scheme the government will pay 80 percent of the wages of furloughed employees. Simon Thomas, partner at Hutchinson Thomas, explains what this means for businesses.

Chancellor Rishi Sunak recently announced the government’s initiatives to help protect businesses and employees during the coronavirus pandemic. One of these is the Coronavirus Job Retention Scheme, under which the government will foot the bill for 80 percent of the wages of each furloughed worker, up to a cap of £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. The government has said that once the scheme is up and running, wages can be claimed dating back to March 1 2020.

Furlough is a US word that was previously largely unheard of in the UK. When an employee is furloughed, their work is temporarily suspended but they remain an employee of your company. A key point is that they will not be allowed to do any work for you during this period. The government will pay 80 percent of their wages and you can, if you choose, make up the difference. The scheme protects most of each worker’s income and enables you to easily reinstate them once business returns to normal.

Any UK employer can make use of the Coronavirus Job Retention Scheme, including businesses, charities, public authorities and recruitment agencies with PAYE agency workers. To make use of the scheme, you must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.

Employees you can furlough include full-time employees, part-time employees, employees on agency contracts and employees on flexible or zero-hour contracts. The scheme also covers employees who were made redundant since 28 February 2020, if you rehire them. Employees hired for the first time after 28 February 2020 cannot be furloughed or claimed for in accordance with the scheme.

Employers are allowed to decide which employees they furlough, and you need to remember that equality and discrimination laws will apply in the usual way, so it is wise to seek legal advice to ensure you do not lay yourself open to any claims from disgruntled employees further down the line. To furlough an employee, you need to tell them in writing. It’s advisable to include in the furlough agreement the date the furlough starts, when it will be reviewed and how to keep in contact during the furlough.

In terms of timescale, the government has said it intends to have processed furlough grants by the end of April, but if your business is in urgent need of support you may want to explore whether you are eligible for a Coronavirus Business Interruption Loan. The Coronavirus Job Retention Scheme is currently slated to run for at least three months from March 1 2020, but it will be extended if necessary. When it ends, it’s up to you whether you keep the staff on or consider redundancies.

If you need help and advice with any aspect of this scheme, the employment law team here at Hutchinson Thomas are here to help. Please get in touch to find out more.

For more information on employment law matters, contact Simon Thomas on 01639 640164 or email simon.thomas@hutchinsonthomas.com