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What you need to know about furloughing your staff

What you need to know about furloughing your staff
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What you need to know about furloughing your staff
Sandhya Iyer - HR Dept Sevenoaks Tonbridge Tunbridge Wells by Sandhya Iyer - HR Dept Sevenoaks Tonbridge Tunbridge Wells
Director - HR Dept Sevenoaks Tonbridge Tunbridge Wells

Government-funded furlough for staff – one of the emergency measures introduced to limit the economic fallout of the coronavirus crisis – may be the difference between make or break for many businesses in the current climate. Whilst many business owners will welcome it, you may be confused as to whether – and how – the guidelines apply to your specific situation. Sandhya Iyer of the HR Dept answers some of the most common questions surrounding furlough to help you understand whether it could be of benefit in getting your business through the coronavirus crisis.

Q - What exactly is furlough?

Furlough is one of the government’s job-retention strategies. It’s an American concept that hasn’t generally been used in the UK before, so we’re all feeling our way through the details of how it works but essentially it’s designed to keep open jobs when demand has fallen off to such an extent that there is no longer any work for staff to do.  The company can put employees on furlough and the government will refund you 80 percent of their salary up to a maximum of £2,500 a month (you will have to pay the 80% and then reclaim it), plus national insurance and auto enrolment pension contributions. This can be topped up to 100 percent by the employer, but this is not compulsory.  Under the scheme, you will still be eligible for associated Employer National Insurance contributions and minimum automatic enrolment employer pensions contributions on behalf of staff who are furloughed.

Q – Which businesses can apply for government-funded furlough?

Government-funded furlough is open to any organisation that employs staff, including limited companies, LLPs and LLCs, charities and recruitment agencies, but you must have had a PAYE payroll scheme set up before 28 February 2020 and have a UK bank account. It can be claimed towards the salary of full- and part-time employees as well as those on agency contracts and flexible or zero-hours contracts, and provided such workers and staff were employed on your PAYE on or before 28 February 2020. To be eligible for the grant, staff have to be furloughed for a minimum of three weeks.

However, there is a lack of clarity at the moment whether it will apply to businesses in all sectors. For some businesses it is straightforward, for others it is still a grey area as to whether you will be able to claim furlough grants:

  1. Straightforward – Businesses that have been ordered to close: If you have been directed under national guidelines to close your business during this pandemic you will be able to apply for government-funded furlough.
  2. Grey area – Businesses that have to close because staff have to be shielded: We know with certainty that staff who are required to shield - because they have an underlying medical condition and have to shield themselves for 12 weeks - can be furloughed. What is not clear is, if this leaves you with insufficient staff to keep your business open, whether you will be reimbursed if your furlough other members of your team who don’t have to be shielded.
  3. Loophole – Businesses that are still operating but with reduced demand: If you lose some clients and are able to continue trading under the social distancing guidelines (for example, if you are in the service sector and can operate your business with staff working remotely) but no longer have the demand to occupy all your staff on their normal hours – which means some staff are operating on fewer hours than their contract states, and your business is still carrying out operations albeit to a limited extent – currently there are no explicit guidelines to state your business will fall within the furlough category at all because you are still seen to be carrying out some operations; if you opt to put them on furlough, you do so at the risk that the government may not approve your furlough grant application. At the moment, your only safe options are:
  • to agree reduced hours with your staff (with an associated reduction in salary)
  • to make them redundant (something we do not recommend, due to reasons elaborated below)
  • to ask them to take unpaid leave, especially if they are on unlimited dependant care leave
  • to lay them off

These options clearly run counter to the aims of the job retention measures and is something that many are urging the government to address. (There are more details on the last three of these options under ‘What if my staff don’t want to be furloughed?’)

We are hopeful of more clarity for businesses that fall into categories 2 and 3 in the coming weeks.  

Q - What steps do I have to take to furlough my staff? 

You first have to decide which members of staff you would put on furlough. This may be someone who cannot realistically perform their role under current social distancing restrictions, for example if they can’t work effectively at home, or a job that is no longer required. In less obvious situations, choose your staff in a fair way, as you would in a redundancy situation to avoid discrimination claims down the line. Having said that, choosing elderly employees for furlough, because they are within the at-risk and vulnerable category with the sole intent to protect them, is not considered discriminatory. 

Secondly, think about whether you require staff consent – almost all business do! This is because furlough is not a part of English laws; it is an American concept and to this day we do not have written laws for furlough within England. As a result, currently, no employment contract in England draws reference to furlough. Hence, even if your contract covers you for a variation clause, it would be prudent to issue a letter to all the staff you wish to furlough, seeking their express agreement to be furloughed. According to HMRC, a contractual right only applies if you can prove that your business is ‘severely affected by coronavirus’ – this may not be the case for your business yet. As employees will be receiving only 80% of their usual wage, being furloughed puts them in a position of financial loss, so you will need to discuss the options with them. Ensure that you document this and have a solid paper trail to track that affected staff are now designated as ‘furloughed workers’ and their written consent to this.

Visit the government website to access the portal that allows you to claim for 80% of an employees’ monthly wage.

Q - What if my staff don't want to be furloughed?

This would be unlikely as the alternatives are generally less palatable:

  • Offer unpaid leave: This will require a documented paper trail and an agreement on when to review returning to work, so consider seeking specialist advice on how to do this correctly. All we know for now is that anyone who is on unpaid leave for the reasons of shielding or related to COVID-19 remains at home for 12 weeks, to be reviewed based on national guidelines at the end of the said period.
  • Make them redundant: Remember, this will incur costs of redundancy payments and notice pay. But this is an option that is not being encouraged, because it goes against the principle of retaining jobs and may put you in a more difficult situation to fill the position when the lockdown has been lifted. We currently have no guidelines to clarify whether businesses will be allowed to rehire for positions which are made redundant now, just because someone refused to agree to be furloughed.
  • Lay off: Staff would be laid off for the duration of the lockdown and be paid the statutory guaranteed payments of £29 for 5 days in a 3-month period.

From an employee’s perspective none of these options is likely to be attractive to them; they will either lose their job altogether or lose their income for a defined period. Keeping their job open for them, albeit on a reduced salary, aims to put them in a better position, so try and keep positive communication open to achieve the best outcome for all parties.

Q - I don't have enough work at the moment to keep my staff on their normal hours; can I furlough them but have them do the small amount of work that we still have coming in?

Furloughed staff cannot provide any services or generate revenue for the business at all. They are permitted to take part in training and

volunteering, including the NHS volunteering scheme. If staff participate in training that is of value to the company, they must receive at least the National Minimum Wage for the total hours spent completing this training.

For larger business, this makes furloughing potentially easier to manage; with a big team, you have more potential to furlough some staff and reallocate work that still needs to be done between the remaining, active employees. But if you have a small team, or staff with very niche skills who can’t fulfil elements of their colleagues’ job descriptions easily, it’s more difficult to furlough staff while still having the necessary resource to keep the business functioning at reduced capacity. If furloughing some staff isn’t an easy option, you may have to discuss reduced hours, with associated reduced salaries; if you go down this route make sure you have expert advice to ensure you introduce the changes following due procedures.   

Q - Can staff be furloughed more than once? 

For the duration of the scheme, you can continue to apply for employee furlough. The scheme is expected to run for a minimum of three months and can be backdated from 1 March 2020. It will be decided in May as to whether it will be extended. This means that, in theory, you can furlough an employee for the minimum required three weeks, bring them back to work, but furlough them once more if required, as long as you secure their written consent to it. The issue here, however, is that rotating staff on furlough or having a break in furlough would go against the principle of isolation and shielding, if those guidelines are still in place. In such circumstances, it would be better to consider the national guidelines in place at the time before deciding whether to bring an employee off furlough. We realise this situation may evolve in the coming months and we may have a more viable solution to the problem then. And hence watch this space!

Q - If there is a start and end date for the furlough period and business picks up, can the furlough period be ended, and can staff be asked to come back? Can they refuse?

Your staff must be furloughed for a minimum of three weeks for your business to be eligible to claim the grant. Depending upon the prevailing guidelines on isolation and shielding people from the virus, it may not be advisable to enforce return to work at the end of three weeks. Since there are no written guidelines as yet, most furlough letters seeking agreement are therefore leaving the end date of furlough open for the time being. If staff refuse to come back to work at an agreed date, ideally seek professional advice. This is not the time to be implementing your policies on disciplinaries; instead, employers are expected to be more collaborative and keep their duty of care in mind when placing any expectations to return to work, given the national guidelines in effect at the time.

If staff don’t want to come to work because they feel unsafe – for example if you cannot operate safe social distancing practices due to being in the care sector or any other key sector – staff could resign and subsequently claim they were constructively dismissed. If you have staff who are requesting furlough and refusing to come into work  after the three-week period, the situation has potential to escalate into an HR can of worms, so it is essential to get expert advice to make sure that you are fulfilling all your contractual obligations as an employer and that you document everything correctly.

Q - Can staff request to be furloughed? 

No. Furlough can only be triggered by the employer, and not by the employee.

Q What about employees on unpaid leave? Can I place them on furlough?

With schools being ordered to close, apart from emergency childcare for key workers, many parents had to take dependant care leave. Dependant care leave is unpaid under most company policies; it’s usually expected to last for only a few days to enable the parent to find an alternative solution to facilitate their return to work. Since this is not possible under the current situation many parents find themselves on indefinite unpaid leave. Assuming these parents are employees who cannot work from home, they can be placed on furlough provided your business satisfies the above conditions for furlough and they have been on such unpaid leave after 28th February 2020.

Q - I'm an owner-director – can I furlough myself? 

The recent government announcements have put company directors in a challenging position when it comes to furloughing themselves, however, those that receive salaries through PAYE can be furloughed and apply for a grant of 80% of their pay during the coronavirus pandemic. This only applies to the basic salary you pay yourself as a director and doesn’t include any dividends.

While you are furloughed you would be prohibited from carrying out any work for the business other than the fulfilment of your legal obligations as a director. It therefore makes sense to decide whether the 80% of your basic salary that you would receive is worth the damage to your business of mothballing it completely; you may be better off accepting the financial hit but continuing to work in the business – for example spending time on business development and marketing – to be in a stronger position to move the business forwards when things pick up again.

The introduction of government-funded furlough for businesses has – while providing a temporary solution – produced a plethora of questions. Keep up to date on government guidance and have an open dialogue with your staff to ensure you’re making the best possible decisions for your business.

MEET THE EXPERT

Sandhya Iyer is the director of the HR Dept, helping small- and medium-sized businesses in Tunbridge Wells, Tonbridge and Sevenoaks, Kent.  A graduate member of the Chartered Institute of Personnel and Development, she works with business owners, entrepreneurs and managers to prevent people problems and help them get the best from their staff.

 

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