COVID-19 – What is Furlough Leave?

  • Posted

Whilst all of us are focused on the health and wellbeing of our loved ones during these strange and challenging times, many businesses, both large and small, will be gravely impacted financially by the COVID-19 pandemic and face very difficult decisions about managing their staff costs.

What can be done to keep businesses going for the next few months or more?

The government has announced an unprecedented range of financial measures to prop up businesses and their workers during these troubled times. The latest raft of initiatives, announced by the Chancellor on Friday 20 March, includes Furlough Leave for workers.

Furlough Leave is a brand new legal concept. Under the newly created Coronavirus Job Retention Scheme, an employer will be able to agree that a worker who would otherwise have been made redundant during this crisis can be designated as a ‘furloughed worker’. They will then remain in employment and on the payroll but not undertake any work, and HMRC will reimburse the employer 80% of the furloughed workers wage costs, up to a cap of £2,500 per month. HMRC are urgently setting up the system for reimbursement.

Employers may then choose to fund the additional 20%, but they are not required to do so.

The intention is that the Coronavirus Job Retention Scheme will run for at least 3 months from 1 March 2020, but the government will extend if necessary.

The basic Scheme details can be found here. Unsurprisingly, there is very little detail at this stage and a few questions immediately spring to mind:

Does the worker have to agree to be furloughed?

Yes, this would appear to be the case. However, the other options for a worker of redundancy/reduced hours/reduced pay etc are unlikely to be very attractive in the current climate and the employer may not have the available funds to meet the redundancy costs in any event.

Can a worker insist that they are furloughed?

It may be an attractive option for some employees to sit at home and not work and take 80% pay but the decision to propose Furloughed Leave lies with the employer. It is they alone who would propose and register this course of action with HMRC.

Should the employer increase pay for the furloughed worker by a further 20%?

If the employer is in a position to act with generosity then this may initially seem an attractive option. However, if only a portion of the workforce is to be ‘furloughed’, consideration needs to be given to the impact on those who continue to work for their pay.

I’m sure that this new concept of the ‘furloughed worker’ will develop over the weeks and months ahead of us when further detail is released. The scheme is an ambitious and comprehensive proposal to encourage employers to retain staff for as long as possible during this crisis. It is hoped that it will avoid bruising widescale redundancies which would make it difficult for a business, and the economy as a whole, to bounce back when, hopefully, all of this is behind us.

If you would like to talk through any of these issues then the Employment team at Buckles are here for you and can be contacted in the usual way.