Finally, on 26 March, the Government provided details of its salary support for employers who are contemplating dismissing employees because of the downturn in trade as a result of coronavirus (COVID-19).
In interpreting the government scheme, ideally, it would have been good to have the legislation and the statutory instruments that bring it into effect. At time of writing, these were not published. Therefore, this article is based on the government website, information from the Employment Lawyers Association and other employment law sources.
Who can claim
Both private sector and public sector employers can claim salary assistance from the scheme. Whilst there is no definitive answer as to whether the scheme also applies to workers, in addition to those who are classified as employees, the current information suggests that both categories of persons will be covered. Therefore, employers will be able to claim salary paid to both employees and workers.
Only employees on the payroll on 28 February 2020, who are made redundant or furloughed, are eligible for the scheme. Employees who were made redundant after 28 February 2020, qualify under the scheme, if they are rehired. For these purposes, furloughed means employees who are asked to be absent from work.
Employees hired after 28 February 2020, do not qualify under the scheme. It is thought that this is an antifraud measure to prevent employers hiring their relatives and then furloughing them to qualify for salary support.
Scheme benefits for the employer
Employers who put their employees on unpaid leave after 28 February 2020, as an alternative to redundancy, can recover 80% of the salary paid to those employees. Very importantly, there is no obligation on the employer to top up the furloughed employees’ salary. However, employers are free to do so.. It is important to note that the government will pay 80% of the salary or £2,500 whichever is a greater.
Further, the employer can recover Employers National Insurance contributions and the minimum automatic enrolment employer pension contributions in addition to the salary contribution.
Employees cannot work
Employees put on the furloughed scheme cannot do any work that could generate revenue for the employer. Whilst on the furlough scheme the employee’s wages will be subject to the usual income tax and national insurance deductions.
Reduced hours for reduced pay
Employees working on reduced hours and reduced pay do not qualify for the government assistance for furloughed employees.
Varying pay from pay cycle to pay cycle
If the employee has been employed for a full 12 months prior to the claim, the employer can claim the higher of:
- – the same months earnings from the previous year
- – average monthly earnings from the 2019 – 20 tax year.
Furlough and collective consultation
If avoiding redundancies is the rationale for furlough, it follows that the alternative to furlough should be redundancy. Whilst the claims portal for employers is not yet up and running, it may well be that some evidence of proposed redundancies would be required as a condition of claiming.
If the employer furloughs 20 or more employees and a condition of claiming salary support is evidence that those employees would have been made redundant, then the employer may have to show that collective consultations were afoot. In that event, section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULR) may be engaged.
Under TULR, an employer proposing to make 20 or more redundancies within a period of 90 days is obligated to consult with the trade union representing those workers or elected representatives. If elected representatives do not exist, the employer is obligated to facilitate the election of representatives to consult with.
Clearly time is, at the moment, of the essence and whilst it may be possible to engage with the recognised trade union, as the appropriate representatives, trying to elect representatives for the purpose of consultation is likely to be impractical.
However, the current situation does raise the possibility of a “special circumstances” defence to any failure to consult on collective redundancies:
section 188 (7) TULR
“If in any case there are special circumstances which render it is not reasonably practicable for the employer to comply with the requirements of subsections (1 A), (2) or (4), the employer shall take such steps towards compliance with the requirement as are reasonably practicable in those circumstances.”
If employees are furloughed under the scheme, this provides time for employers to consult and therefore may reduce the ability to rely upon section 188 (7).
In practical terms, where an employer is proposing to furlough 20 or more employees, redundancy should be put forward as a real alternative to that proposal and therefore consultation should take place on both those options. That will allow the employer to say that they introduced a furlong as an alternative to redundancy.
If employer does not top up salary
If the employer proposes only to pay 80% of the salary and not top it up, this would be a variation of the salary clause in the contract of employment. This can only be done with the consent of the employee. Please seek further advice on the wording of a mutually agreed variation of the contract of employment.
If the employer proposes to top up the salary and thereby pay the employee their full salary, the fact that the employee is not required to attend work is very unlikely to be a variation of the contract of employment and therefore would be permissible without the consent of the employee.
Operation of salary recovery
Whilst employees can be put on furlough straight away, operation of the scheme to permit recovery of salary costs for the employer, is expected to be up and running by the end of April.