Rallying the industry: Tina Chandler explains how furloughing will work for asset and auto finance businesses

Furloughed workers: what does that mean?

You will have to designate affected employees as furloughed workers and notify them of this change. However, you still have to heed employment law and having designated those employees whose jobs were at risk, you will need to agree with those employees that they will be ‘furloughed’.

Given the extraordinary situation prevailing at the moment and the challenges faced by the financial sector in particular and given the alternative to being furloughed, it is likely that most employees will agree to the terms.

For those workers who do not agree, they will either have to take unpaid leave for an indeterminate period or you may to have to go down the redundancy route. It should be noted that furloughed workers are designated by you, the employer – an employee cannot ‘self-designate’.

Who is eligible?

Employees hired on or after 1 March 2020 are excluded from the scheme, but if you made anyone redundant since 28 February 2020, you can re-employ and then furlough them. To qualify for payment under the JRS, an employee must be furloughed for a minimum of three weeks.

Who can be furloughed?

Normal employment law still applies so you must not discriminate when deciding who to furlough. Employees returning to work after a period of sickness absence, or self-isolation, can be furloughed, however they cannot be furloughed whilst they remain on a period of sickness absence or self-isolation.

Furlough will only take effect when this period comes to an end. Employees who are “shielding” however, will be eligible to be furloughed.

Employees on maternity leave can be furloughed if they agree to return to work early or change to shared parental leave, alternatively they will remain on Statutory Maternity Pay where this is applicable and will not be furloughed until their return.

Owner-managed businesses are entitled to use the Coronavirus JRS if they are paid through a PAYE payroll system. To do this, they will need to furlough themselves, on the understanding that they will not be able to generate work for their business and can continue to run it only from a statutory perspective.

The Government has provided specific guidance in relation to Company Directors and members of Limited Liability Partnerships using the Coronavirus JRS.

Company – Salaried Company Directors can be placed on furlough in order to benefit from the Coronavirus JRS. Provided the Company’s Board of Directors believe it will be in compliance with the statutory duties of one or more of its individual salaried Directors, it can place such Directors on furlough.

Directors who are on furlough will not be able to undertake work for the Company, other than comply with their statutory duties. To furlough Directors, it must be a formally adopted resolution of the Board of Directors, and so noted in the records and communicated to the relevant Directors.

Those who are salaried Directors of their own Personal Service Company will also be entitled benefit from the Coronavirus JRS through becoming furloughed.

Partnerships – It has also been made clear that salaried members of Limited Liability Partnerships, who are designated as employees for tax purposes, will be eligible for furlough under the Coronavirus JRS.

To furlough such individuals, the terms of the Limited Liability Partnership Agreement (if one is in existence) may need to be varied by a formal decision of the partners to reflect changes to any furloughed members remuneration or work.

To calculate the grant which the Limited Liability Partnership can claim back from HMRC in respect of the furloughed member, any amounts determined by the specific member’s performance or the overall performance of the Limited Liability Partnership will need to be removed from the reference salary of the furloughed member’s profit allocation.

For partnerships other than Limited Liability Partnerships and sole-traders who will not qualify to use the Coronavirus JRS, consideration should be given to the Self-employment Income Support Scheme.

Furloughed workers remain employed but must not work

Assuming the designated employee has agreed to be furloughed, they cannot undertake any work for their employer at all. If the employee continues to work, even reduced hours, they are not eligible for the scheme.

The good news for furloughed staff is that they can volunteer or undertake training providing neither activity generates income for their employer.

How it will work?

While furloughed, the government will pay related employment costs including pension contributions and NICs (but not commission or bonuses) in addition to wages. All furloughed workers will remain employed by their employer for the duration of the scheme.

Employers can make up the missing 20% of their employees’ salaries but that is their choice; there is no legal obligation for the employers to top-up the salary to 100%, but any contractual clauses regarding withholding pay and deductions should be considered.

For those employees who are furloughed, their employment status will change but their employment record remains continuous.

Employers need to give HMRC a list of furloughed employees. Employers pay their workers as usual, via PAYE, and then apply for funding, every three weeks (not weekly) to cover 80% of their wages (up to £2,500 of gross pay).

You will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer NICs and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included.

For workers whose pay varies, the 80% is based on the higher of:

• the earnings in the same pay period in the previous year; or
• the average earnings in the previous 12 months (or less, if they’ve worked for less).

If employees paid the minimum wage are furloughed, the fact that 80% of their earnings will bring their wages below the NMW does not contravene the legislation as people are only entitled to the NMW if they are working. They can, however, claim the NMW if undertaking training.

The HMRC system through which payments can be made should be up and running by the end of April. The scheme is expected to run for three months, subject to review.

Tina Chandler is a partner at leading Midlands law firm, Wright Hassall and deals with contentious and non-contentious employment law issues. She acts for employers of all sizes from small businesses to large national and international businesses, advising in connection with all aspects of employment tribunal proceedings and appeals.

Wright Hassall is a top-ranked firm of solicitors based in Warwickshire, providing legal services including: corporate law; commercial law; litigation and dispute resolution; employment law and property law. The firm also advises on contentious probate, business immigration, debt recovery, employee incentives, information governance, professional negligence and private client matters.