COVID-19 update: What is the Job Retention Scheme and how will it work? Updated 26 March 2020

The announcement of the Job Retention Scheme was hugely welcomed by businesses facing untold pressures and anxiety in the current Coronavirus pandemic. It is the single most significant development, by any British government, in assisting the private sector and will provide a lifeline to many businesses across the UK the difficulty of course, for us all, remains that the detail is still thin on the ground – but given that the Chancellor has confirmed that the scheme does not override existing employment law principles, we have addressed some key questions relating to the practical implications of the Scheme below.

Bespoke advice, addressing specific concerns and queries your organisation and industry are facing as well as template notices to employees, will be prepared by the team here at ALG Northern Ireland and will address queries on this as they apply in GB and NI.

What is the scheme and what is 'furloughing'?

The Scheme is a Government initiative whereby employers contemplating making redundancies or lay-off for example are being encouraged not to initiate such processes, but instead register for the Job Retention Scheme such that employees will stay on payroll – will not be officially on notice of redundancy or lay-off, and will receive up to 80% of 'wages' to a cap of £2,500 per month (for at least three months). The term the government have come up with, is 'furloughing'. That is not a recognised term in UK employment law – rather it is a US based term and while a 'google' search would produce some hits on the term and its use in HR/Labor matters, do so with caution as the source is probably talking to the US use of the word.

How do I access the Scheme?

The Government is yet to confirm precisely how Employers will register for this scheme. It will however be administered by the HMRC, and the Chancellor confirmed that a bespoke 'Portal' will be created to administer the Scheme. Note also that it is not for employees to 'elect' to be furloughed – it is exclusively for the employer to give this designation. Employment law rules will not be overridden however, so make sure that any Employer designation is based on objectively justifiable decision making – unfair selection or designation will attract the same criticism from employees as normal – and the same criticism from the Tribunals if applied inequitably. The Government are expected to publish more information on the Scheme, and the Portal, on Tuesday or Wednesday of this week, so expect more guidance soon.

Which employees are eligible?

All those employed through PAYE who work for an organisation who is contemplating redundancies as a consequence of the COVID-19 pandemic – the scheme does not appear to be designed to apply to businesses which were already in deep financial difficulty it seems. While the scheme will be backdated to the 1 March 2020, we expect to see some eligibility criteria set out within the HMRC Portal when initiated. It is for the Employer to provide the data, and to engage with the HMRC – again, it will not be for the employee to engage directly. It appears that employees engaged after 1 March will be excluded from the Scheme (although this is not yet confirmed) and that employees must be furloughed for minimum period of 3 weeks in order for an employer to claim under the Scheme.

Who pays the money – and when?

The expectation is that the employer will continue to process salary through payroll – i.e. the employment relationship continues as normal. The employer will in due course recover the monies from the HMRC but this can only happen after the Portal is established, and employers have satisfied eligibility criteria. It would be quite incredible if this was established and monies paid before the end of March – the more realistic expectation is that the Scheme will start functioning for the end of April payroll run. On that note – it is also expected to run on a monthly, not weekly cycle. Until such time as employers can avail of grants under the Scheme, it is suggested that cash flow issues can be addressed under the temporary Coronavirus Business Interruption Loan Scheme and other grants. Employers may otherwise seek to agree deferred payments of salary to employees. 

Is the £2,500 cap gross or net?  Does it apply to salary or all remuneration?

There is much speculation around the rationale for this £2,500 cap. Some say it is by reference to the national median salary of £30,000 (gross).  Whether it is or not is partly academic – the scheme is exceptionally generous and should cover the vast majority of low paid employees wage costs for the relevant period.  We use 'wage' costs intentionally here. If it was solely by reference to gross base pay, the guidance would have said as much. Thus far, it does not. Accordingly – and to the extent the two caps allow (i.e. 80% and up to £2,500 per month) the scheme provides for Employer costs as regards base salary, Employer NICS, and Employer pension contributions. Given the last two categories also have statutory provenance, one can see the logic in including same – but it will almost certainly not extend to commission or bonus arrangements for example. Again, the Portal, and additional governmental guidance must address these queries. For those employees with irregular earnings, it is likely wages for the purposes the Scheme will be calculated on the basis of a 'week's pay' under the Employment Rights (NI) Order 1996 i.e. on the basis of average weekly remuneration over the preceding twelve weeks. 

Can employees access the scheme and work from home?

No. The scheme is not designed to underwrite employer costs for employees working from home – they are still working even if productivity is down. It is designed to support those employees for whom the employer has no work and would otherwise have identified for redundancy, or temporary lay-off.

Is the employer obliged to top-up the payment?

No. The employer may elect to top-up the additional 20%, but there is no obligation to do so. Each employer will respond in different ways. It may be for example that an employer can permit affected designated employees to 'top-up' the scheme by electing to use one day* holiday leave accrued so as to ensure that for the first three months at least, and for so long as there is enough leave accrued, the employee receives the same basic salary and pension contributions they would otherwise have received. *Based on a full time employee working five days per week. The 80% Scheme to be topped up by 20% or 1 working day per week.

How long does it last for?

It is intended to last for three months, from 1 March onwards. While there is wording which references the extension of the Scheme – it is hoped that the situation will have normalised to some extent in three months from now such that the scheme can be closed down or perhaps modified.

Will employees who are 'furloughed' continue to accrue holiday pay?

Yes – the Chancellor was at pains to confirm that Employment law principles are still engaged – so assume that the employee, while on payroll, continues to accrue all statutory rights, of which annual leave is just one.

Can an employee be required to take holiday during furlough and be paid 80% during the holiday period?

Yes, the employee can be required to take holiday provided the employer gives the necessary notice set out under the Working Time Regulations (i.e. a period of notice twice the length of the period of holiday the employee will be required to take). This may be prudent in seeking to avoid a situation where a large number of employees have a significant amount of accrued holidays to use when the Scheme ends. On the basis employees consent to a reduction of their salary to 80%, they can be paid at this level in respect of the holiday period.

Will it accommodate the proposed increase to the National Minimum Wage in April?

We do not yet know, but we must assume it will unless and until the guidance states otherwise, employment principles remain in place.

Does it apply to employees on maternity – paternity or long term sick?

Again, one would assume not. Any employee who is currently in a different statutory or contractual category – for example on maternity leave and benefitting from Statutory Maternity Pay, will continue to avail of that categorisation, not the present scheme. That may well produce some anomalies, and affected employees may request to be considered as 'furloughed' employees for the short term financial benefit – but this again is not what the Scheme is designed to do and accordingly – until the guidance confirms otherwise, retain employees in pre-existing payroll categories where they are.

Can employers continue with disciplinary/grievance processes while employees are on furlough?

As noted above, guidance is clear that employees cannot work while on 'furlough leave', however, as is the case in relation to mothers on maternity leave, there may be scope for ancillary matters related to the employment to be dealt with while employees are furloughed. This will depend on the legislation but for now, it would be prudent to briefly suspend these processes pending further governmental clarification. 

Where operations will continue at a reduced level how should employers choose which employees to furlough? Can elderly and vulnerable workers be prioritised when deciding who gets furloughed?

This will involve selecting employees using a basic matrix. This is particularly advisable to help give a defence to allegations that employees were selected on the grounds of protected characteristics. That said, employers may be able to prioritise those who are regarded as vulnerable under government guidance i.e. where they have with underlying medical conditions (on the basis that if disabled, this would probably be a reasonable adjustment under the Disability Discrimination Act 1995) or those aged 70 or over (as objectively justified treatment in line with the Employment Equality (Age) Regulations (NI) 2006). Again, though this is a murky area and is not without its risks.

How should employers deal with employees who object to their colleagues being placed on furlough leave with 80% of pay while they still have to work?

This is likely to be difficult from an industrial relations perspective, as those retained in work take on the risks associated with that. Clear communication will be needed on the nature and purpose of the scheme, the priority to protect the health and wellbeing of employees and the need to ensure the ongoing viability of the business to protect all jobs. Employers may wish to consider some options to reward those who continue to work such as a bonus when the Scheme ends, extra holidays and/or (depending on selection criteria for those designated as furloughed) assurances that they will have increased protection should a redundancy scenario arise.

What if the employee refuses to be put on "furlough leave", do I have to pay them full pay?

In the immediate short term – yes. The Employer may well designate – but the Employer must still consult, and the employee must still consent, before this should be implemented. To do otherwise would give employees some employment related claims, including those for unlawful deductions and breach of contract perhaps – but such a reaction by an employee would be rather short sighted. By definition – the employer is facing the prospect of compulsory redundancy or lay-off, and if the employee is not prepared to consent to this scheme, then they may well be hastening their own lay-off or compulsory redundancy.

What are the implications for employees on short-time working? For example, if I only have enough work for two days per week, what rate of pay is the employee entitled to if they're later put on Furlough Leave?

It is expected that this Scheme will not extend to short-time working. It is only for those employees who have no work (not less work) and who may be at risk of redundancy as a consequence. If put on short-time working as a temporary measure, and then moved to furlough, then the entitlement would in all likelihood be up to 80% of the original 'wages' not the temporary short time working reduction.

Can you rotate furlough amongst employees?

This sounds sensible from an industrial relations perspective but government policy and public health guidance is to minimise the number of people outside their homes. Rotating in and out is unlikely to be consistent with that and the indication is that a worker must be furloughed for a minimum of 3 weeks for before an employer can bring them back to work. For now employers should assume that rotation even on a 3 week basis will not be possible. We are hopeful that the government will provide clarification on this soon.

Would it be unreasonable to dismiss an employee for redundancy if furlough is available? Can an employer still give notice under a redundancy process during the period employees are placed on furlough? 

If a statutory redundancy situation exists, it would still be advisable for employers to consider placing employees on furlough if it is available. If an employer proceeds to make an employee redundant while furlough remains unavailable, it is not necessarily the case that this will be unfair. Under the Employment Rights (NI) Order 1996 a tribunal will take into consideration the resources available to an employer but if it is the case that an employer can't reasonable be expected to find 80% of employees' salary until the portal is open, redundancy may be a reasonable decision. There is nothing to stop an employer undertaking a redundancy consultation process during a period while employees are placed on furlough, and if ultimately redundancies are required, employees can be placed on notice with the effect that the Scheme covers the cost of the notice period or at least part of it depending on when the notice is given. 

This commentary is effective only as at 26 March – as per previous updates we have every expectation that the Government guidance and draft legislation on the Scheme will be issued very shortly and this will render aspects of this note obsolete in a matter of days. For now, we hope it is a useful assist in dealing with some of the key questions surrounding the scheme.  

If you have any specific questions around this scheme which your colleagues or employees are raising – please contact any member of the Employment & Incentives Belfast team.

Date published: 26 March 2020