25 March 2020

Surviving coronavirus: guidance for UK employers on furloughs and redundancies


Update as at 19 May 2020

This article was written on the basis of the Government’s initial guidance, which has since been significantly revised and extended. As a result, this article may not reflect the most up-to-date position on the UK Job Retention Scheme. We suggest you read this article, for the latest advice on the furlough scheme.

Other employment materials on the coronavirus outbreak, including our article about returning to a safe working environment, can be found here. The firm’s wider insights on how to manage the impact of coronavirus can be found here.

When the Government announced the possibilities of ‘furloughs’ on Friday 20 March 2020, they introduced an entirely new word into the vocabulary of the British workplace. The bare bones of the announcement was that the Government would reimburse 80% of furloughed workers’ wage costs to a cap of £2,500 per calendar month, backdated to 1 March 2020. The scheme would exist for at least three months and be open to all employers ‘small or large, charitable or non-profit.’

The scheme

Details on the furlough scheme were scant, for understandable reasons, but this is what we know so far:

As an employer, you have to designate the employee a ‘furloughed worker’ and then submit details of their earnings to a HMRC portal, which is currently being created and is expected to go live shortly. Other commentary has suggested that it may be the end of April 2020 before grant payments under the scheme are processed by HMRC / received by employers. This means you will need to fund these payments until the portal is operational.

The Government has said that changing the status of employees remains subject to existing employment law. This means:

  • having a contractual right, found in some contracts, to ‘lay off’ staff (providing them with no work and – unlike the proposed ‘furlough’ scheme – no pay) or to ask them to work ‘short time’ (providing them with less work and less pay).
  • consulting with staff regarding a possible short-term variation of their contracts.

Given that the ‘furlough’ concept – and certainly the terminology – is new to UK employment law, it is highly unlikely that you will have a contractual right which is expressly relevant. However, the economic benefits of the Government’s ‘furlough’ scheme means that this is likely to be the best route for most employers and employees.

What do you need to know?

As with most employment issues, clear and appropriate communication will be key, and so any draft notification of furlough employment should be tailored to meet your particular circumstances and reflect any relevant economic considerations in the particular sector, as should the approach. For example, if it is practicable to discuss with employees in advance and seek their agreement that would be preferable. If not, e.g. having first designated the ‘furloughed’ employees, you should seek to agree the change with them retrospectively.

The numbers of employees affected may also be relevant. As the law stands, if more than 20 employees might (absent agreement) be dismissed, the employer would be obliged to open collective consultation (with trades unions or elected representatives). In the current, extraordinary climate, it’s possible a ‘special circumstances’ exception might narrow this obligation.

There are still some open questions on the status of furloughs, which we hope will be resolved shortly:

Do employers have to cover the additional 20% of pay (or indeed the amount in excess of £2,500 for higher earning employees)?

The Government guidance states that employers can choose to top up the payment from HMRC under the scheme, but do not have to.

What happens if employees need to switch between furlough and sick leave and back again?

We assume they self-certify and come off furlough and onto SSP/contractual sick pay, and back onto furlough pay again when they are better.

Can an employee be partly on furlough and partly working?

At the moment, it does not seem as though those on reduced hours will qualify – but those who normally work part-time, are expected to qualify. This seems (based on the little we know) to be an incentive for employers not to put employees on reduced hours and so, if possible, arrange staffing needs so as to keep key people working full-time on normal pay and everyone else on furlough pay. This may change.

How does one calculate the pay of employees on zero hours / fluctuating hours contracts?

Presumably there is be a period over which earnings are averaged, as with statutory redundancy pay.

Is £2,500 the maximum that can be reclaimed or is it 80% of £2,500?

We think it is likely to be the former.

What else might you need to consider?

If despite the availability of furloughs you still need to consider redundancies, here are the steps to go through:

  • Consider whether your contracts of employment might provide you with some flexibility to avoid redundancies. This may include holiday clauses or variation and flexibility clauses;
  • If the contracts are not very flexible, what can you reasonably persuade staff to agree to?;
  • If the measures you have suggested are not enough, what should you do to make sure any redundancy dismissals are lawful and fair?; and
  • Redundancy costs.

Where you may be experiencing financial difficulties, you should consider your position carefully and, where possible, divide staff into the following four categories:

1. key workers (if any) who have to continue to come to work (see government list of key workers here);
2. employees who can work from home on the same (or reduced) hours/pay;
3. employees you need to put on furlough; and
4. employees you need to make redundant.

We wish you safe passage through these difficult times. As ever, we are here to help and if you have any questions or would like further advice on the above please contact a member of our employment team. For more information on furloughs and redundancies, see our frequently asked questions article for some helpful tips.

Click here to read more insights on how we can weather the coronavirus outbreak with you.

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