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What is meant by ‘Furlough’? Your questions answered

During the COVID-19 pandemic, the Mitchell Charlesworth Payroll Services team are currently receiving an extremely high volume of queries from employers who are broadly asking the same questions.

This article is aimed at addressing those questions.  However, the caveat applies that as there is very little by way of clear answers to some of the questions, and information should be verified by your employment lawyer or HR advisor before taking any action.

Q: I have a worker who is not ill but has had to socially distance themselves under government guidance owing to an underlying medical condition and they cannot work from home. Are they to get Statutory Sick Pay?

Our interpretation is that SSP does not apply in this situation. A realistic option is to furlough the worker under the government’s coronavirus job retention scheme.

Q: What does ‘furlough’ mean as defined by the Coronavirus Job Retention Scheme?

Furlough is where you a worker is paid, without them actually working.  The government will fund up to 80% of monthly wage costs (maximum £2,500) for each worker.  This will be in place for 3 months from 1st March 2020.  While there is no detail yet available as to how the scheme will operate, our interpretation of the term “monthly wage costs” is that the 80% reimbursement, capped at £2,500 a worker is for the combined wages, employer’s national insurance and employer pension costs.

By way of explanation, when you pay a worker you incur other costs such as Employer’s National Insurance and potentially Employer Pension Contributions.  The government’s reimbursement through the scheme appears to include these extra costs.  Therefore, if you pay your worker £3,125 as furlough and claim back 80%; £2,500 you may still have a further 17% (say) to fund for employer’s national insurance and pension contributions.

Having this in mind, you may want to discuss or negotiate with a worker or group of workers the amount they are to be paid during furlough.  As normal employment rights still apply, if undertaking this process with a group of 20 or more workers then you will have to enter a consultation process.  It is imperative therefore that you take advice from your employment lawyer or HR advisor before taking any action.

Q: I want to furlough a worker. Can Mitchell Charlesworth to do this for me?

You must decide which workers to furlough and write to them as outlined by ACAS

We do not have a template letter.  You should instead obtain a template letter from your employment lawyer or HR advisor.

Once you have attended to the furloughing formalities above, (only where we look after your company payroll for you) you should then advise the Mitchell Charlesworth payroll team of the following:

Employee’s Full Name (i.e. John smith) – Date Furlough Started (i.e. 1st April 2020) – Furlough Amount this month (i.e. £2,200)

Q: I do not have sufficient cash to pay the furlough, what can I do?

Speak to your usual Mitchell Charlesworth partner to discuss your options and speak to your bank.  Liquidity is very important, and the government have introduced a range of measure to help business of all sizes.

Q: How do I claim furlough money back from the Government?

Further details are awaited (as of 25th March 2020) The government do not yet have a portal ready to accept claims, and at this point in time, we do not know the exact mechanisms for claiming furlough.

We anticipate that the furlough process will include more factors than just payroll, as there is no way to mark an employee as furloughed and for HMRC to pick up this marker on their systems.

Equally, there’s no mechanism for policing claims or checking if the payments made in March correlate to those made in February.

Therefore, we have no way of knowing how quickly an employer will be able to claw back the coronavirus staff retention grant from the government.

When we have more information, we will let all our clients know

Q: I pay staff hourly. How do I work out what a standard week is or what 80% is?

That will be determined by what is in the employee’s contract of employment and what they have been paid.

In the absence of an employment contract, consider using the records for the last 12 weeks.  Add up how many hours they worked in total and divide by the number of weeks to produce an average weekly salary.  That is a starting point for the discussion with your worker about what you will pay them during their furlough.

Again, we strongly recommend that you speak to an employment lawyer if you have any uncertainty around this.

Q: What is Lay Off and statutory guarantee pay?

It refers to short term laying off of workers when there is no work.  The employee is entitled to “guarantee pay” from the employer during lay off or short-time working. The maximum is £29 a day for 5 days in any 3-month period – so a maximum of £145.

However, Lay Offs entitles a worker to claim redundancy pay if they have been laid off without pay or put on short-time and receive less than half a week’s pay for 4 or more weeks in a row or 6 or more weeks in a 13-week period.

Therefore, unless you are considering redundancies, lay offs may not be suited to your business.

Again, we strongly recommend that you speak to an employment lawyer before taking this course of action.

Q: Can directors be furloughed?

There is no clarity on furloughing directors.  We recommend that you speak to your usual Mitchell Charlesworth partner to discuss your personal finances.

Q: Can employees work when furloughed?

The government guidance to employees states: To qualify for this scheme, you should not undertake work for them while you are furloughed. This will allow your employer to claim a grant of up to 80% of your wage for all employment costs, up to a cap of £2,500 per month.”