In a bid to safeguard jobs, keep Britain’s economy moving, and alleviate the impact of COVID-19, the Government has introduced a scheme that will enable businesses to recover wage costs for employees on furlough leave. Laura Kearsley, partner and solicitor in the employment law team at Nelsons, explains how it will work and what actions businesses need to take.
What is the Coronavirus Job Retention Scheme (CJRS)?
The CJRS, which was announced by the Government on Friday, 20 March, will enable businesses to recover 80% of wage costs up to 2, 500 per month for employees on furlough leave. In addition, employers will also be able to recover associated employer national insurance and minimum pension contributions.
Furlough leave is a new concept that has been introduced as an alternative for employers who might have otherwise implemented redundancies, lay-offs, unpaid leave or other measures for their employees.
The scheme is available for at least three months from 1 March 2020 and may be extended if necessary. There is no limit on the number of employees who can benefit from the CJRS or the duration it can be used for.
What are the benefits?
Undoubtedly, the biggest benefit to employers is that the government will foot the payroll costs of any members of staff who cannot work during the crisis.
The stated purpose of the scheme is to help employers avoid dismissing employees on the grounds of redundancy. However, as we currently understand it, in order to be designated as a furloughed employee, businesses either need to exercise a contractual right to lay staff off or get a worker’s consent to be furloughed.
Therefore, it does not appear there will be any need to prove that the job concerned would have otherwise met the criteria for a redundancy. If this is correct, this will mean employers can use the scheme for employees who are unable to work due to childcare issues or feel anxious about coming into work at the moment.
The scheme is available for all businesses in respect of employees on their payroll, including part-time staff and those on zero-hour contracts. This simple definition makes it easy for employers to work out who they can offer furlough too. Those concerned will remain on the payroll and continue to accrue holiday and service.
The scheme is backdated to 1 March 2020 so employers can, but do not have to, take back anyone they have already dismissed or placed on unpaid leave and convert them to this leave instead.
Are there any downsides?
There is no option to partially furlough workers under the scheme. Employees must be furloughed for at least three weeks and they cannot do any work, other than training, for this period. This may not suit all employers who would prefer reduced hours from employees with essential skills. It also will not be appropriate for many directors or senior employees who will still need to have some involvement in their business.
The scheme only covers employees that were on the payroll before the start of March. Anyone who has started their employment sooner or who is under offer is left without any protection.
It is also important for businesses to acknowledge this scheme may create resentment between employees. Some will still be at work getting either full or reduced pay, while others will be on furlough leave getting paid at least 80% for doing nothing, and those who are off sick ill or self-isolating may only be getting statutory sick pay (SSP), which, at around 95 per week, is likely to be less than 80% of full pay.
There will be an incentive for employees not to notify their employer if they become sick or need to self-isolate during furlough leave because of these adverse pay consequences. Likewise, employers will be better off as they can only reclaim 14 days of SSP as opposed to indefinite furlough leave pay.
Employers can still make staff redundant while they are furloughed if it becomes obvious they will not have jobs to return to.
Other important things to note for employees whose earnings vary, employers will need to base the amount they are claiming on previous wages. Her Majesty’s Revenue and Customs (HMRC) will also retain the right to retrospectively audit all aspects of a claim. Employers can only submit one claim at least every three weeks.
The scheme does not apply to contractors or the self-employed. There is separate help available for those categories of worker.
How should businesses approach the scheme?
This is an unprecedented package of measures to help employers support their employees. All businesses should think carefully about using the CJRS even if they are not in immediate financial difficulty as a result of the crisis. Careful planning now might help businesses to survive in the longer term if there is a sustained economic downturn.
Creative thinking about using the scheme and furloughing those that are eligible and agreeable, and moving work between remaining staff might make more economic sense than cutting hours across the board and receiving no government support.