Furlough may not have been a familiar word until recently, but it is now being used with abandon to describe a status that can help businesses and their employees during the current pandemic.
Wikipedia informs me that the word furlough originates from the Dutch word verlof which means ‘leave of absence’ and this sums the term up nicely.
Essentially it is a measure that can be used when there is temporarily no work for employees, but the work will return so there is no need to make the employee redundant. If the employee is furloughed and later you discover their role will no longer exist in the future, they can still be made redundant.
To furlough or not furlough? There are several considerations before you can furlough a role. And, it is the role, not the person, who is furloughed so you first need to ask yourself whether there is work available. This decision is taken by the employer, employees cannot request to be furloughed.
Before you have a conversation with your team about the potential furlough period, you need to check if there is a specific policy in the employment contract. If not, you will need to consult with your people. If you have a layoff clause in your employment contract, you may be able to exercise that.
An example of when to exercise the furlough option is if part of, or all your business has recently been asked to cease trading and your employees have no work to do. Other options in this situation would be temporary redeployment but that won’t always be practical, depending on the skills of your workforce and the requirements of the work available.
When employees are furloughed, they remain employed by you. This means they continue to accrue holiday and do not have a break in their service. The employee must not undertake any other paid work whilst on furlough, they can however volunteer.
In the current situation, there is additional criteria that needs to be met for furlough to apply. The individual must have been employed on 28th February 2020, specifically set up on payroll on a PAYE scheme. Although eligible from 1st March 2020, the furlough status can only begin from the date the employee stops working. Also, the period of furlough must be for at least 3 weeks for the employer to be able to claim back the 80% of associated costs. The scheme is initially open for 3 months (until the end of May).
Again, specific to the COVID-19 crisis, the government have offered to pay (to employers) 80% of the employee’s wages. The employer must claim this back from HMRC. The usual NI and PAYE deductions continue to apply.
Some organisations will decide to top up the 80% so their people receive their normal salary. Some unfortunately won’t be able to do this but every effort must be made to try and continue paying people including exploring the option of loans and grants.
Where an employee has a variable salary, an average should be taken, use an average of a period that is fair, for example 3 months or look at what the employee earned in the same month last year as a guide. Make sure this timeframe does not include maternity leave as this is not a fair and proper average.
There is an upper limit too; the 80% that the government will reimburse to employers is capped at £2,500 (gross).
There are some details that aren’t yet clear but, in some cases, businesses need to act now if they are not able to generate any income to continue to pay their people. These are, as we keep hearing, unprecedented times. If you need to act before all the information is available, make transparent and fair decisions. Keep track of all the finances to help you recoup the necessary funds in the future. Communication will be key here. Treat people in the best possible way you can and that way, if you later learn that you have been mistaken then you can evidence your decision based on the information available at the time. Always remember the purpose of this scheme is to prevent making people unemployed.
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If you are in doubt about how to proceed, please contact me for advice. You can email me on firstname.lastname@example.org or call me on 01273 284191