24 Mar 2020

Employment

Furloughing – Can it be enforced?

What does “furloughing” mean? In the current context it means to allow or force someone to be absent temporarily from work. One key question we are being asked is can this be forced? Our Head of Employment Law, Daniel Wilde, takes a look at the impact of "furloughing".

What does “furloughing” mean?

In the current context it means to allow or force someone to be absent temporarily from work. One key question we are being asked is can this be forced. This has to be viewed in the context of the Government promising to support businesses by paying 80% of employees’ salary up to £2,500 per month.

Details on this scheme are extremely scarce so I summarise everything that we know.

This only applies where businesses are applying “Furlough” to their employees.  This means that under normal circumstances their job has become temporarily redundant but the individuals remain in employment funded by the Government.

The key point is that employees take a 20% pay cut (subject to the £2,500 max which may mean higher cuts) then the 80% of their salary is paid by HMRC.  We understand that Employers could make a voluntary top up (i.e. pay the 20%) but many businesses will not be in a financial position to do that.

  • E.g. if someone is on £24,000  pa normal salary is £2000 pcm,.
  • Where the employee is sent home because there is insufficient work.
  • The employer must write to the employee explaining that they have been furloughed – which we suggest you explain the term.
  • The employee’ salary should be paid at 80% of £2000 ie £1600
  • The Employer pays the reduced salary to the employee
  • HMRC reimburses the £1600 but query what happens with on costs such as pension, benefits and employers NICS.

At this stage, it is unclear whether employers can claim the subsidy for costs such as car allowance, other benefits, pension contributions and employers’ NICS.  An accountant contact has suggested that there are indications that it may be 80% of employment costs, but without definitive details it is difficult to advise that this will be implemented. Employers need to be careful with higher paid employees as to what level of salary they agree to support and should consider carefully the wording they use in correspondence with employees.

NB any employee on more than £37,500 (£3,125 pm) will only receive £2,500 max salary support from the Government. The Scheme will be backdated to 1st March 2020 and will include staff that may have been redundant as long as they are brought back on to the payroll as a retained employee. The Scheme does not however apply to employees commencing employment after the end of February to prevent fraud.

The mechanics of this work have not yet been set out. IT is unlikely to be automatic and there is not currently a HMRC system set up designed to cope with the anticipated level of significant refunds to employers. Employers will prudently examine sources of finance in line with other business support schemes to tide over the cash flow issues that will arise. We anticipate an online portal, but cannot say how swiftly reimbursements will be made to employers.

However, normal principles, of employment law still apply. You cannot unilaterally impose “furlough” status and this needs to be achieved by agreement. Furlough is a Government subsidy to wages to allow the retention of employees, but not a “force majeure” event that supersedes normal contractual principles. It can easily be put to employees who otherwise would be dismissed and in businesses where work has otherwise “dipped/crashed” if individuals are willing to agree the same.

A critical issue for many businesses will be reaching agreement with employees and we can advise on strategies and processes to hopefully achieve this quickly.

A practical issue may be perceived unfairness if you furlough some employees but ask others to work on for not much more money or even on reduced terms and conditions.

The key issue here is that you need to take urgent advice. It is no use doing all that you can to save your business if down the line you are faced with claims for unpaid wages for the balance of wages or constructive dismissal claims for unilateral variations in pay both of which are potential risks if this is not handled properly.

Would like to know more about “furloughing” and how it will affect your business?

If you have any questions about “furloughing” or the effect of coronavirus on your business, please contact our Head of Employment Daniel Wilde on 01633 244233, who can provide bespoke advice tailored to the needs of your business.

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