How Does the Furlough Scheme Work? image

How Does the Furlough Scheme Work?

Staff Squared date icon17th April 2020

Tag iconManaging staff

In our previous post, we explained what furlough leave is and covered who is eligible under government guidance. If you missed it, you can read that advice here.

Here, we look at how the furlough scheme works, including how to decide which employees are furloughed, how to submit a claim and what happens during the furlough period.

How to Agree which Employees are Furloughed

Employers must speak with their staff if they intend on placing them on furlough leave, and the staff members need to agree to be furloughed. If an employee does not agree to be furloughed then their employer can dismiss them by making them redundant.

It’s really important to bear in mind that changing a person’s status of employment is subject to existing employment law, and depending on the employment contract wording, there may be an ability to lay-off workers to impose a furlough period. If there is no lay-off provision in the existing contract, the employer will need to agree furlough with the employee on the basis that there is no work available for them. Most employees will agree to this as the alternative is dismissal with no promise of prompt redundancy pay (if this is owed to employees at all).

In some cases, unions might conduct a consultation process where a furlough change is agreed. Bear in mind also, that since normal employment laws still apply when furloughing employees, equality and discrimination laws also need to be considered. This means that employers will need to be aware of certain risks, for example, furloughing a disproportionate amount of men or women, which could lead to discrimination claims later.

Some negotiation may be required in places where some staff may be needed and others not. Where this is the case, be sure to handle these changes with case as some employees may feel put out that they are having to work whilst others are not, and vice versa.

It may help to select employees for furlough using a process like redundancy selection. For example, using objective criteria such as a scores matrix based on skills, productivity, previous appraisals etc.

However you decide on the employees who need to be placed on furlough leave, you must discuss all of the available options with employees and stay up to date with the latest on the government website.

Applying to the Scheme

Employers can furlough their staff under the Coronavirus Job Retention Scheme from the end of April, however, this will be backdated and will apply from 1st March and continue until 30 June, unless the current government guidelines are extended further than this.

Employers who have come to an agreement with their staff regarding furlough leave should write to the affected employees to confirm the change to the status of their employment and a record of this should be kept for five years.

Employers will be able to access the scheme via an online portal where they will need to provide details of the affected employees and information about their earnings and other relevant information such as their National Insurance number etc.

More information on how to apply to the scheme can be found here.

When an employer decides to place their staff on furlough, they should:

  • Design a furlough process and agree a furlough policy.
  • Decide which employees are affected.
  • Decide whether to pay 80% of salary or to supplement it.
  • Gain the employees’ written consent even if contractual provisions already cover lay off; express agreement is advisable, especially if salary is not being topped up.
  • Stop the employees from working.
  • Ensure employee contact details are up to date.
  • Provide any information that employees should know in regards to their new employment status during this period and keep them up to date with any new information as required.
  • Calculate the amounts they are claiming from HMRC.

Employers will need to work out their employees’ NI and minimum automatic enrolment employer pension contributions in order to calculate how much they will need to claim in order to pay 80% of their employees’ salary. Once the online portal is available, employers will then be able to apply with their ePAYE reference number, bank account number and sort code. They will then need to specify:

  • The number of employees being furloughed
  • The claim period (start and end date)
  • The amount claimed (the minimum length of furlough is three weeks)
  • The employer’s contact name and telephone number.

When to Apply

The government have advised that employers should claim in advance of an imminent payroll date or at the point when they run their payroll. Once HMRC have received a claim and agree the employer’s eligibility, a BACS payment will be deposited directly into the bank account specified.

Claims to cover the furloughed employees will need to be made in one go, rather than employers submitting individual claims for each staff member. It is likely that employers will probably need to make more than one claim throughout the period of furlough, since it is still very unclear as to how long the current situation will go on for.

What Happens During Furlough?

Length of furlough

The minimum furlough period is three weeks, however, the scheme is set to run until 30th June. This could be extended depending on how things progress in the coming weeks.

Working

Furloughed staff must not work for the employer during the period of furlough. They will usually return to their job afterwards (unless redundancies follow).

Pay

Furloughed workers will receive either 80% of their regular wage or £2,500 per month, whichever is lower. This will be paid directly to the employee. Employers can choose to top up the employee’s salary above 80% but they are not obliged to. All of the monies paid by the government must be paid to the employee.

Regular payments of wages, variable PAYE wages, fees and compulsory payments including commission and bonuses are included when working out the 80% figure. However, payments at the discretion of the employer such as discretionary bonuses and commission payments are excluded. Tips, tronc shares, and non-cash payments such as health insurance or use of a company vehicle should be excluded as well.

To break this down, the following payments are included when working out the 80% share:

  • Regular wages.
  • Variable PAYE wages.
  • Fees.
  • Compulsory bonuses.
  • Compulsory commissions.

While the following payments are excluded:

  • Discretionary bonuses.
  • Discretionary commission.
  • Tips.
  • Tronc shares.
  • Non-cash payments such as health insurance.
  • Use of a company vehicle.

Employers will receive a grant to cover part of the salaries of any employees who would otherwise have been dismissed. Employers do not have to pay this grant back. Employers must pay over the entire grant received to the furloughed employees; plus any top up payment they are choosing to pay.

Read more about how pay is affected by furlough here.

Annual leave

If furloughed workers do not book any holiday, their statutory minimum holiday entitlement of 5.6 weeks per year will accrue while they are furloughed. The exact amount will vary depending on how much leave the employee has already taken.

Read more about how annual leave is affected by furlough here.

Training

If employees are required to complete any job-related training while they are on furlough leave (which is permitted as long as it doesn’t involve them in providing services to, or generating revenue for or on behalf of their organisation) they should be paid at least the National Minimum Wage rate. Similarly, apprentices should receive at least the National or Apprenticeship Minimum Wage or the National Living Wage.

Returning to Work

The scheme is set to run until 30th June 2020, but this may be extended depending on the circumstances closer to this time. Employees can be moved in and out of furlough on a three week or longer basis.

Written by Clarisse Levitan

Marketing and Customer Relations Advisor - Staff Squared 

Clarisse works as the Lead of our Customer Care Team to provide our customers with the very best care and guidance when using their HR software and is responsible for our day-to-day marketing activities and strategies.

More from our blog

Pay only for what your business needs

  • £

    3.50

    per person

    per month

  • Try Staff Squared FREE for 14 days. No credit card required.

How can we help?

Staff Squared Logomark Close icon
Close cross
Enter your email address

Already have an account? Log in

Need help?