Days after he announced a £350 billion business bailout package to help British companies cope with the coronavirus lockdown, chancellor Rishi Sunak made history when he announced the government would pay the wages of millions of workers.
He called it “unprecedented measures for unprecedented times”. Economists said the new plan would cost an additional £78bn. Unprecedented but necessary. One in 20 people in the UK has lost a job due to coronavirus, a YouGov poll suggested last week, while almost one in ten have had their hours reduced as a result of the pandemic.
In the days after his initial announcement, Sunak was forced to extend the job retention scheme by offering to pay employer national insurance and pension contributions up to a maximum of £300 a month for each member of staff. This followed concerns that some employers would still make their staff redundant because of the remaining costs of keeping them on the books even after the bulk of their wages would be covered by the state.
But the speed at which the package was announced, and the complexity of it, has left many confused as to where they stand. To clear things up, here’s what the government’s furlough scheme means, how it can affect you and how long it will last.
What does furlough mean?
‘Furloughed worker’ is not a recognised term in UK employment law, although it is commonly used in the US. Government guidance says someone is furloughed if they remain employed but are not undertaking work. To furlough means to “lay off or suspend temporarily”, usually without pay. In the UK, the legal term would be “laid off”.
While furloughed employees still technically retain their jobs, the furlough itself means that they cease working for their employers and do not earn a salary. The idea is that this is a temporary arrangement, and workers will one day be able to return to their jobs.
When the Chancellor used this term in his radical employment plan, it left many puzzled. Over the past week employers and employees have been trying to work out whether the scheme applies to them.
What is the UK furlough scheme and what do you get?
Earlier this month the government set in motion a plan to avoid mass redundancies across the UK, and encourage companies to put jobs on hold during the disruption caused by the lockdown.
Under new rules from March 1 and running for at least three months, companies can now “furlough” employees rather than fire them. Through this scheme, the government will pay up to 80 per cent of people’s wages, up to a maximum of £2,500 per month. Anyone working in a full time job (or on a PAYE basis) on February 28 can be furloughed. This includes people on zero hours contracts or those working flexibly. Unfortunately, it does not apply to people that might have switched jobs between the end of February and the government announcement.
Being placed on furlough is similar to gardening leave. You would still be paid by your employer and will still pay taxes from your income — but you would not be able to continue working for your employer for the duration of the furlough. In this case, you would effectively be paid not to work until the end of June.
The grant, which will not start paying out until April, can be backdated to March 1, according to government guidelines. The minimum time that an employee can be furloughed is three weeks, and companies cannot rotate furloughed workers — which is problematic if someone still working becomes ill, according to a blog by employment law firm Farrer & Co. Lawyers said that those already self-isolating cannot be furloughed (and must be paid statutory sick pay) until they return to work. Once they return, they can be furloughed. And people who are “shielding” and vulnerable to severe illness caused by coronavirus can still be placed on furlough.
There is no guarantee that your employer will keep you on after the scheme ends. And if you are furloughed, you will not qualify for 80 per cent of your salary if you earn more than £2,500 per month. In that case, an employer could choose to “top up” your salary, or you could be eligible for support through the welfare system, including Universal Credit.
If you receive a regular salary, the 80 per cent should be calculated based on an employee’s actual salary before tax (their gross salary), as of February 28.
If your pay varies (because you are on a zero hours contract or flexible working contract, for example), the 80 per cent limit will be applied to the same month’s earnings from a previous year, the average monthly earnings for the 2019/20 tax year or an average of their monthly earnings since they started work — whichever is highest.
This situation will not affect employees’ entitlement to statutory maternity or shared parental leave pay. However, employers who offer enhanced contractual maternity, paternity or shared leave pay can furlough these employees to receive support with the cost of that enhanced payment.
How can you apply?
Any UK employer can apply to the scheme to temporarily cover people’s salaries, including businesses, charities, agencies and public authorities. Employees have to agree to be put on furlough — and an individual can’t apply by themselves.
The guidance also states that “if sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment”.
Government advice explains that employees that are “shielding in line with public health guidance” should ask employers if they plan to place staff on furlough during the crisis.
There is no requirement for the business to be considered “essential” in order to access the scheme. Nor it is necessary for employers to show that they are suffering any sort of financial hardship. If employers are already receiving public funds, they are expected to use them to cover the staffing costs rather than also applying for the furlough scheme.
For many, this scheme came too late. In the weeks leading up to the government’s economic rescue package, thousands of jobs were lost as retailers, pubs, restaurants, shops and offices lost major contracts and revenue. That’s why in a government update, Sunak said that people made redundant after February 28 could be reemployed under furlough if employers are willing to do so — otherwise they would have to claim unemployment.
Companies can find out whether they are eligible to claim furlough for their employees in relatively simple steps. First, prove that its employees cannot do their jobs due to the coronavirus measures put in place by the government. Second, notify employees of their new ‘furloughed’ status. And finally, submit information to HMRC about furloughed employees to set up a system for reimbursement.
What companies are furloughing employees?
Virgin Atlantic was one of the first companies to take advantage of the government scheme, cutting flights by 80 per cent and requiring staff to take eight weeks of unpaid furlough, with the cost spread across six months’ salary. Budget airline easyJet followed suit: of its 9,000 workers, 4,000 are now on furlough (but under the government scheme).
Earlier this week, troubled retailer Mothercare furloughed 430 employees who were working in Boots ahead of a franchise deal. Pret a Manger opted in to the scheme to “keep paying all of 8,000 employees, despite the fact that our UK shops are not currently open”, according to chief executive Pano Christou. Pub chain Greene King confirmed pay and furlough arrangements for its 38,000 members while its establishments remain shut.
Outsourcing firm Capita slashed £25 million from planned capital spending in response to the “unprecedented” situation, furloughed a number of its 40,000 UK employees, closed offices and temporarily cut the salaries of management and the board.
Hundreds of workers at EDF’s Hinkley Point C nuclear plant are being furloughed after the firm decided to cut the number of workers on site by more than half. And Aston Martin announced plans to furlough some workers after the coronavirus forced it to close factories in Gaydon and St Athan.
It’s not just traditional businesses who are forcing their employees to take a pay cut in order to rescue their bottom lines. Newcastle United became the first Premier League club to put its staff on furlough, in a move to ensure the club’s survival ahead of a potential £345m takeover by the Saudi Arabia Public Investment Fund. Tottenham Hotspur have followed suit, cutting all non-playing staff wages by 20 per cent and placing them on furlough “where appropriate” to cope with the financial crisis caused by the pandemic.
The business panic has even affected fintech unicorns. On Tuesday, challenger bank Monzo said that it would furlough up to 295 employees as it sought to manage costs during the coronavirus pandemic, according to a TechCrunch report. Starling Bank has put 41 staff on furlough and is topping up their salaries to make it 100 per cent.