Legal

What does the furlough extension mean for employers?

4 Nov 2020 By Melanie Lane and Tracey Marsden

Melanie Lane and Tracey Marsden look at the implications for businesses, and explain where clarifications are still needed

The new job support scheme was due to come into force on Monday. It was therefore a surprise – although not an unwelcome one – when the prime minister announced on Saturday that, with England joining Wales in a national lockdown, the coronavirus job retention scheme (otherwise known as the furlough scheme) was being extended. 

The extended furlough scheme will run for one month from 1 November. The government has confirmed that there will be no gap in support between the end of the current scheme on 31 October and the start of the extended scheme. It will be primarily based on the same rules as the flexible furlough scheme introduced from 1 July, with employees continuing to receive 80 per cent of their current wages up to a maximum of £2,500 (pro-rated), but with the cost to employers being limited to employer national insurance contributions and pension contributions. 

Unlike under the job support scheme, businesses will continue to be paid in advance to cover wage costs, although there will be a short gap when employers will be paid in arrears to allow the legal guidance to catch up with the government’s announcement.

Which employers are eligible?

Unlike the job support scheme, all employers, large and small, are eligible for the extended furlough scheme without undertaking any sort of financial impact test. Businesses will be eligible if they have a UK bank account and a UK PAYE scheme.

Importantly, employers do not have to have previously taken advantage of the original furlough scheme to qualify for the extended furlough scheme. 

Publicly funded employers are not expected to utilise the extended furlough scheme, unless they are partially funded and their private revenues have been disrupted as a result of coronavirus. 

As with the original furlough scheme, we expect that administrators will be able to take advantage of the extended furlough scheme, provided that there is some intention to retain the services of the employees of the business in administration.

Which employees are eligible?

Employees:

  • must have been on their employer’s PAYE payroll before midnight on 30 October 2020, meaning that a real-time information submission must have been made to HMRC for that employee on or before 30 October 2020;
  • can be on any type of contract, this includes zero-hours and casual contracts; and
  • can still work some of their normal hours and be claimed for in respect of their unworked hours.

Grants available and employer contribution

For any part of an employee’s usual hours that they are laid off, the government will pay up to 80 per cent of their wages. Businesses will only have to pay employer national insurance contributions and pension contributions on the employee’s wages while they are furloughed. Employers can top this up if they wish.

When can claims be made?

The government has not yet announced when claims can first be made for wage costs incurred during November. Generally, it seems that the terms of the original furlough scheme will continue to apply, but there remain questions:

  • What wages will an employer be able to claim for? Under the original furlough scheme, grants covered 80 per cent of salaried employees’ wages in their last pay period to 19 March. Will that calculation date now be changed to 30 October? What about employees with variable pay? 
  • Will it be necessary to enter into a new agreement with employees already on flexible furlough to cover this extended furlough period, or will employers be able to rely on the existing agreement? This may depend on the terms of the existing agreement. Presumably if a new agreement is required it will be possible to backdate it to 1 November. 
  • Will employers be able to make employees redundant and claim for their notice periods under the extended furlough scheme?
  • Will employers be able to reinstate those employees it had to make redundant in October so that those employees can benefit from the extended furlough scheme as was the case in March?

Melanie Lane and Tracey Marsden are employment partners at CMS

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