The Government announced on Friday 20th March that it would be introducing a new Coronavirus Job Retention Scheme available to employers of any size. This scheme will allow all employers to access grants covering 80% of the salary of “furloughed” employees who otherwise would have been laid off during the COVID-19 pandemic.
What is a furloughed employee?
This is a phrase used more often in the USA, meaning suspending an employee temporarily during which period they will not be paid. It is very similar to laying staff off but requires changing the employment status of the individual employee. The guidance is not clear about whether or not laying-off employees will allow the same benefit, but it is unlikely.
What help is available for furloughed employees?
HMRC have advised that they will reimburse up to 80% of furloughed wage costs, up to a maximum of £2,500 per month with effect from the beginning of March 2020. The employer bears the decision whether to pay the remaining 20% of wages, but you should be aware that not to pay the full wages due under an employment contract may be a breach of contract.
A key point to note is that the term “reimbursement” suggests the employer will need to pay the wages and then HMRC will reimburse the cost through a grant. Employers therefore need to understand that they may still face cash flow issues in the interim. We will find out further details on this in due course and will pass them on.
Given this new help available our advice is no longer to make staff redundant or lay them off unless there is no other alternative.
What steps should employers take now?
Employers will need to obtain the agreement of their workforce to change the terms and conditions of employment. This includes changing the status of staff to “furloughed workers” and a potential reduction in their wages to 80%. If you cannot obtain employee agreement to this change then our previous advice on redundancies and lay-offs will still apply.
Employers will then need to inform HMRC of the change to their workforce status to enable them to apply for the grant. It is not clear at this stage how this will work in practice, but we will update you when we have more information.
The new assistance means there is a relatively straightforward conversation that employers must have with their staff. They will need to agree to amending their employment contracts and we can provide advice as to the quickest, most effective way of doing this.
Importantly, businesses that require some employees to continue working will need to bear the cost of these employees in the normal way. A furloughed worker cannot undertake any work whilst being temporarily suspended from the business. We will provide more information about this scheme in due course as we are yet to receive detailed guidance from the Government. If you need to speak to us about this or any other issue around coronavirus, please get in touch to arrange a free initial consultation with one of our expert employment law solicitors.
The Backhouse Solicitors Team
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