The coronavirus is affecting businesses right around the world. From retail to hospitality, many firms have had to make the tough decision to put staff on furlough leave in a bid to protect themselves and preserve jobs during this crisis.
For companies based in the UK, there are a range of funding measures and support schemes available. The Coronavirus Job Retention Scheme, in particular, provides a crucial lifeline to both employers and employees.
Under this programme, the government will pay 80% of employee wages (up to a gross annual salary of £37,500 or £2,500 per month) where companies are unable to offer work as a result of the coronavirus pandemic. It’s aimed at helping businesses avoid redundancies and ensuring people have jobs after this pandemic over.
But when it comes to furloughing an employee, this is something many businesses won’t have done before. In order to do this and receive funding from the government, there are several things businesses must be aware of and do. Here’s everything you need to know as an employer.
Complying with employment laws
Firstly, it’s important to realise that there are important legal issues surrounding furlough leave. Businesses can’t just tell their staff not to come into work and that they are earning less because of coronavirus. That would break the law, by breaching their employment contracts where you promised them a certain salary and that work was available. And, of course, it wouldn’t be fair to employees.
Being honest with staff
There’s no denying that putting employees on furlough leave is a difficult decision for any business, and they wouldn’t do this if it wasn’t completely necessary. But in times of economic uncertainty, it’s crucial. You need to be honest with staff about this, explaining to them that you’re furloughing them in order to protect their jobs and provide them with secure income while the business is unable to operate.
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Creating a furlough notice
So what do you have to do to furlough an employee? The first step is to formally notify them that you intend to put them on furlough leave. In this notice, you need to explain why you’ve made this decision and ask that they agree to being furloughed. Employees will appreciate honesty, and again, they have a legal right to be kept informed.
Creating a contract variation agreement
Once they are aware of your desire to place them on furlough leave and have understood your decision, you’ll need to vary their employment contract so that you can go ahead and furlough them. For every employee, you will have agreed a contract outlining a salary, termination period and annual leave. But to lower salaries and refuse work, you must make legal variations.
When you create a contract variation agreement, it’s important not to change the wording used in existing contracts that have already been signed by staff. Existing employment contract clauses that are not impacted by the decision to furlough an employee need to remain the same.
Instead, you should create a separate variation agreement that sets out the terms that will be varied during the period of furlough (e.g. salary, working hours) and do this for every employee. Once you’ve taken these steps, your employee will need to read, agree to the contract and stop working. These things are paramount under employment laws and what HMRC meant when they said any decision to furlough “needs to adhere to employment laws.”.
Understanding the Coronavirus Job Retention Scheme
To apply for and receive funding through the Coronavirus Job Retention Scheme, there are a few things businesses need to know. First of all, the government will only pay 80% of wages. It’s up to the business whether they want to cover the remaining 20%, but this isn’t mandatory.
Employers can either opt for the 80% government support (once the employee has agreed to receive less), top up the remainder, or make up the full difference for anyone furloughed who was earning above the £37,500 gross threshold.
For example, if someone earns £48,000 a year (or £4000 a month) and the business can’t afford to pay anything, the government would pay the employee £2500 every month. As a result, they’d lose 37% of their earnings. If the employer were to top this up (perhaps £40,000), they’d pay £833 per month while the government covers everything else.
What’s more, the government stipulates that every employee must agree to their Furlough Notice and contract variation agreement in writing. Otherwise, you won’t be able to qualify for this funding from HMRC.
In terms of timing, payments to businesses for their furloughed staff are expected at the end of April. HMRC is currently developing an online platform to facilitate these, which is set to be launched over the coming weeks. Before the scheme kicks in, businesses must continue to pay staff via payroll. But to support businesses in the meantime, the government has agreed to defer VAT payments and offers other support packages.
When the portal is live, businesses will need to tell HMRC about all the employees they intend to furlough and refuse them work. Companies should make one claim per month for their entire workforce and provide the employees’ ePAYE reference number, number of furloughed employees, claim period, amount claimed and bank details.
SeedLegals is an online legal platform that provides company founders and investors with the tools to create, negotiate and sign legal agreements. You can create a Furlough Notice (and contract variation agreement) for free by signing up for a 30-day trial via the SeedLegals platform. Further information can be found here.