How to furlough an employee

How to furlough an employee

The Coronavirus Job Retention Scheme has enabled thousands of business owners to keep their employees on the payroll despite a significant drop in revenue and, in some cases, the temporary closure of their business.

The scheme allows employers to ‘furlough’ staff for three months, meaning staff members can take a paid leave of absence rather than being made redundant. The government has pledged to cover 80% of wages for furloughed employees, up to £2,500 a month.

If you’re an employer who is considering taking advantage of this scheme, here’s what you need to know.

Eligibility Criteria

In order to take part, you must be a UK based employer with a PAYE scheme that was started on or before 28th February 2020. Your company must have a UK bank account.

Any employees, including part-time employees and those on zero hours contracts, can be furloughed as long as they were added to your payroll on or before 28th February 2020. Employees who joined your payroll after this date will not be eligible.

If you made an employee redundant before this scheme was announced, you can retract the redundancy and place them on furlough instead. As long as the employee was made redundant on or after 28th February 2020.

Employers can furlough staff members who are on maternity leave. However, employees who are on sick leave can only be furloughed once they return to work.

The government has indicated that it will do a retrospective audit on employers to ensure against fraudulent furlough claims, but what this will look like is unclear. For now, HMRC seem happy for any employer whose operations have been ‘severely affected by coronavirus’ to claim furlough for their employees.

Selecting employees for furlough

Staff must agree to be furloughed, so ensure you communicate with them before making a decision. Remember, some staff may prefer to take redundancy.

HR expert Nicky Jolley, founder and managing director of HR2day in Darlington says, “It is important for employers to be fair in the decision process of who should or shouldn’t be furloughed, and they should be able to demonstrate the rationale.

“For example, it must not be used as an excuse to get rid of under-performing colleagues without appropriate performance management. Any furloughs should be agreed rather than imposed, and positive, open communication should happen between the employee and employer throughout the process.”

Once furloughed, employees must stop working for your business immediately. Any work they undertake whilst on furlough that provides services or generates revenue for your business could jeopardise your claim.

Employees can be put on furlough more than once, so you could take someone out of work then bring them back temporarily. However, they must be on furlough for a minimum of three weeks at a time in order for you to claim money from the government.

Employees cannot independently choose to go on furlough. The decision must come from the employer with the agreement of the employee.

Initiating employee furlough

Once an employee has accepted your decision to furlough them, Nicky Jolly recommends introducing a furlough contract to protect the company from possible tribunal claims in the future. The contract should include:

  • The date the furlough started.
  • What the employee will be paid during the furlough period.
  • Confirmation that the employee will not be required to work whilst on furlough.
  • Any other relevant details, including pension contributions, parental leave and holiday pay as agreed between you and the employee.
  • Details of when the furlough period will be reviewed.

Whilst on furlough, you must continue to pay your staff at least 80% of their salary up to £2,500p/m.

For employees on zero hours contracts with a variable monthly salary, you can base your claim on the amount they earned in the same period last year, or on their average monthly salary from this year – whichever is highest.

You can backdate your claims to 1st March.

Claiming the money from furlough

Your business will be able to reclaim money from the government via an online portal which should be up and running by the end of April 2020. In order to claim, you will need to provide:

  • Your ePAYE reference number.
  • The number of employees you have furloughed.
  • The claim period (start and end date).
  • The amount you wish to claim.
  • Your business bank account number and sort code.
  • Your contact name.
  • Your phone number.

The money that you receive from the Coronavirus Job Retention Scheme is classified as a grant. This means you do not have to pay it back, but you will have to include it as income in calculations of your business’ taxable profits.

Contractual and tax implications of furlough

Your existing employment contracts still stand whilst your employees are on furlough. This includes redundancy clauses.

Whilst on furlough, your employees will continue to pay Income Tax and National Insurance on their wages, and contribute to their pension as normal unless they state otherwise.

You should continue to pay Employer National Insurance and contribute at least the minimum amount of 3% to your employee’s pension scheme. However, the Coronavirus Job Retention Scheme will cover both your National Insurance and the pension contribution, so you will be able to claim this money back.

Crossland Employment Solicitors has a Q&A page which explains what will and will not be covered by the scheme.

Although the aim of the scheme is to prevent redundancies, there is no obligation to retain your staff once the furlough period is over. This means you can select an employee for furlough even if you are unsure if you will be able to take them back after the three month period is over.

What can employees do whilst on furlough?

Employees must not do any work that provides services or generates revenue for your company whilst on furlough.

Employees can do volunteer work (for example in the health or care sectors) and take part in training, so long as the training conforms to social distancing rules. You must pay employees at least national minimum wage for any hours spent training, if the minimum wage is greater than the amount they are being paid whilst on furlough.

Employees can do paid work for other companies whilst on furlough, as long as this work does not put them in breach of their existing employment contract.

Some businesses may wish to place their employees on secondment (a temporary position at another company). Secondments serve as an alternative to the furlough process. You cannot claim money from the Coronavirus Job Retention Scheme in addition to placing your employee on secondment.

Bringing furloughed employees back to work

Once the furlough period has come to the end, you must make the decision to either bring your employees back into work, or make them redundant. If you cannot afford to continue employing your furloughed staff, you must notify them and normal redundancy rules will apply.

If you are able to bring your employees back to work, you should inform them that their furlough period has come to an end. Your employment contract will remain the same as it was prior to the furlough period. Any changes to an employment contract will need to be discussed with staff and standard employment laws will apply.

You can gain a better understanding of how the Coronavirus Job Retention Scheme could affect your business’ cashflow by using Fluidly’s Goal Planner tool. Goal Planner allows business owners to easily see how different scenarios, including a reduction in costs and revenue, will affect your cashflow forecast.

Join Fluidly Starter today and try Goal Planner for yourself. Or, if you’re already a member, login to the Fluidly platform to get started.