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How will the government's new job retention scheme work?

24 Mar 2020 By Sarah Ozanne

The chancellor has announced unprecedented financial support for those  temporarily laid off during the Covid-19 outbreak. Sarah Ozanne reports on what this means for employers

The Coronavirus Job Retention Scheme has been implemented for an initial period of three months, with grants backdated to 1 March, but may be extended. 

The scheme is open to all UK businesses and allows employers to apply to HMRC for a grant to pay up to 80 per cent of the wage costs of ‘furloughed’ employees who are temporarily not required to work but remain employed, up to a cap of £2,500 per employee per month. The aim is to enable employers to avoid redundancies and prevent worsening the economic impact as well as ensuring businesses have the workforce once the situation improves. The latest information from the government indicates the scheme is not open to those employed on zero-hours contracts or gig economy workers.

The scheme requires employers to designate affected employees as ‘furloughed workers’ and notify the relevant staff of this change to their status. The employer then submits information to HMRC about the employees to be furloughed, and their earnings, through a new online portal. The portal is not yet open and so the information to be submitted, including whether the employer must demonstrate that the employee would otherwise be made redundant, is not yet known. 

There is no definition in law of a ‘furloughed worker’ and it is not possible to draw on existing employment definitions or contexts to identify exactly what type of employee this is. However, the government guidance states that someone who is furloughed will remain on their employer’s payroll but not undertake any work for them during the relevant period. This suggests that it simply means any employee required not to work, rather than ‘laid off’ in the formal sense under employment law. 

Whether businesses can designate an employee as furloughed will depend on the terms of their employment contract. If an employee’s contract does not provide the employer with the contractual ability to require them to take a period of paid or unpaid leave the employer will need to agree this with the employee. However, given the option of refusing (and potentially being made redundant) it is anticipated that most affected employees will agree. As staff will not be laid off in the employment law sense, they will not be entitled to claim statutory redundancy pay after they have been off work for a period of time.

More difficult questions may arise for employers if they need to choose between employees as to who is furloughed and who is not. If work is still needed to be completed or if redundancies are still required, businesses will need to identify objective criteria for selecting those who remain at work (and receive their full pay), those who are offered paid leave under the scheme and those who are made redundant. This has the potential to lead to damage to employee relations.

The scheme is also open to potential abuse by employers that submit information to HMRC claiming they have designated employees as furloughed to obtain a grant from the government, but then retain employees to carry out their jobs as normal. The government has indicated that it will retain the right to retrospectively audit all aspects of the scheme with the scope to claw back amounts claimed fraudulently or in error. 

Further detail on the scheme is awaited and therefore many questions are left unanswered at the moment: will the scheme allow businesses that have already made redundancies to reinstate those employees and then furlough them? What happens if a furloughed employee becomes sick – will they remain on 80 per cent pay or change to sick pay? And what impact will being furloughed have on holiday accrual?

Sarah Ozanne is an employment lawyer at CMS 

Head of HR

Head of HR

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GRADE 8 £37,890-£44,863 FTE (Actual £19,021-£22,521)

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