By James Tamm, Director of Legal Services at Ellis Whittam
Furlough is the new COVID-19 buzzword, but if you’re not an employment lawyer, it may mean very little to you in any practical sense.
However, if you’re planning to claim for wage recovery through the government’s Job Retention Scheme, you will need to “furlough” your staff first. In essence, this means amending their job status to reflect the fact that there is less or no work available for your employees to do due to the current pandemic.
Here’s how we advise that employers approach the furlough process.
NB: Start by checking the employee’s contract for a clause entitling you to lay them off, as this will determine which process you adopt.
If there is a lay-off clause in your contracts:
- Arrange to meet or speak with whichever employees you intend to lay off/furlough. This can be in person, by phone, Skype, Microsoft Teams or whatever other means you have available and work for you logistically.
- Explain to employees that due to the downturn in work caused by COVID-19, you were planning to invoke the lay-off clause in their contract, which permits you to send them home on nil pay. However, based on the support offered by the government, as an alternative, you plan to furlough them instead and then make an application to HMRC to pay 80% of their wages up to a maximum of £2,500 per month (via the Job Retention Scheme).
- Given that the scheme is much more generous than the nil-pay lay-off in their contract, you assume that everyone is agreeable to this course of action. However, ask if anyone objects and, if they do, explain that you will be happy to discuss that with them further.
- Keep a note of the meeting/call so that you can evidence what was said, who was present and the fact that the employees have agreed to be furloughed.
- Provide employees with a letter, either in person, by post or by email, confirming the details of the furlough and retain a copy of this document for at least five years. This is essential as HMRC may ask you to produce this as proof in any subsequent audit of the scheme.
- If it is not possible to meet/speak with your employees, the letter can be adapted to confirm that in view of the contractual right to lay off on nil pay, and as furlough is more beneficial to them, you are placing them on furlough as an alternative.
If your contracts don’t contain a lay-off clause, follow step 1 above, then:
- Explain to employees that due to the downturn in work caused by COVID-19, it may be necessary to perhaps consider making redundancies or maybe even closing the business or altogether. However, as an alternative, the company is prepared to place employees on furlough and then make an application to HMRC to pay 80% of their wages up to a maximum of £2,500 per month in line with the Job Retention Scheme.
- As there is no lay-off or furlough clause in the employees’ contracts, explain that you will need their agreement to furlough and/or lay-off. The purpose of the meeting/discussion, therefore, is to seek agreement from the employees to be furloughed/laid off.
- Explain that if employees are not willing to be furloughed, then there is a real danger that the company will be forced to close or, at the very least, make redundancies. As such, you hope employees will be willing to be furloughed instead.
- Ask the employees if they agree to be furloughed in the first instance and, in the highly unlikely circumstances that an application to HMRC is rejected, they instead agree to lay-off with nil pay. If employees strongly object to being laid off, you could limit this to just furlough.
- You will want some evidence that the employees have agreed to this change. This can be minutes of a meeting/conversation confirming verbal acceptance of the furlough/lay-off, or you may wish to ask employees to send a short email confirming that they are agreeable to being furloughed. Employees should not be placed on furlough/lay-off until you have acceptance from them.
- Write to employees to confirm the furlough/lay-off arrangements and keep a copy on file for five years.
- Whilst it is preferable to speak to employees in person, it may not be possible in the current environment. As an alternative, it is permissible to only write to/email your employees, in which case the initial letter is a proposal rather than confirmation of agreement and the letter should be adapted accordingly. Confirming acceptance of the proposal is still vitally important and, again, it will be for individual employers to decide how to do that. For example, you may want your employees to confirm acceptance by return email or verbally by telephone.
- If any of your employees will not agree to be furloughed, you will need to continue to pay them as normal until you are able to either lawfully make them redundant or you have dismissed and re-engaged them under a new contract.
It’s possible that the government may issue further updated guidance as the finer details of the scheme are ironed out, so the process outlined above may be subject to change. However, it is expected that the online application system will be open by the end of April, so notifying staff now will enable you to apply for support as soon as this happens.