It is crunch time for businesses across Britain and in the race to cut costs millions of workers could be told they won’t receive their next paycheck.
Hundreds of thousands of people are unable to work from home, including those with jobs in restaurants, pubs or shops, but companies are reluctant to let them go altogether. Instead, many will opt to put their workers in furlough.
Chancellor Rishi Sunak delivered good news to those affected last week, pledging to pay up to 80pc of wages, up to £2,500 a month, to protect the jobs of staff who cannot work.
The support package will be available to workers of companies that are on the Treasury’s Coronavirus Job Retention Scheme, which is expected to be up and running within weeks.
What is furlough?
Businesses use furlough as an alternative to laying off staff.
When an employee is put on furlough, their company might require them to work fewer hours a week or force them to take time off unpaid.
This measure is used when companies want to keep their employees on the payroll and bring them back up to full time in future but decide they need fewer hours of work from them in the meantime.
Many businesses are expected to resort to this during the coronavirus lockdown, as they will be unwilling to pay staff that are unable to work from home.
A company can require all of its employees to go on furlough or can decide to only keep on staff that are deemed essential to the business.
Will my company still pay me?
No, your company will not pay you if they put you on furlough and require you to take unpaid leave.
However, you won’t be completely out of pocket. The Chancellor has promised a support package for those affected, meaning you will receive 80pc of your normal monthly salary up to £2,500.
How do I claim 80pc of my pay from the government
Any employer small or large will be eligible for the Coronavirus Job Retention Scheme that is being set up by the Treasury.
If you are an employee who has been told you are on furlough you do not have to contact the Treasury, it is your employer’s responsibility to organise the payment.
Your employer will be able to contact HMRC for a grant to cover most of the wages of people who are not working but are furloughed and kept on payroll, rather than being laid off.
Employers will have to designate the affected employees as “furloughed workers” and notify the staff of this change.
Changing the status of employees is still subject to existing employment law and depending on the contract, may be up for negotiation.
The employer should submit your information to HM Revenue & Customs including their earnings through an online portal. This means that workers can retain their job even if their employer cannot afford to pay them and will continue to get 80pc of their salary.
The job retention scheme will cover the cost of all wages backdated to March 1 2020, and will be open for at least three months, which may be extended for longer if necessary.
In his address last week, Rishi Sunak said: “I am placing no limit on the amount of funding available for the scheme. We will pay grants to support as many jobs as necessary.”
Will my employer have to top up my pay?
No, your employer is not legally required to pay out the remaining 20pc of your salary. However, they can do if they choose to.
To require this could defeat the effectiveness of the scheme, said Mark Hammerton of law firm Eversheds Sutherland. “For example, if a factory engages 500 staff, all on national minimum wage, the cost per month would exceed £100,000.”
What if I was dismissed before the announcement?
The emergency support package will only apply to staff that were employed or engaged at the time of the Chancellor’s announcement on March 20 and who have not been dismissed since, according to Mr Hammerton.
The scheme is backdated to March 1 in terms of pay only and does not include staff that have been let go since, he added.
However, if you had been temporarily laid off before the announcement you may still qualify. Mr Hammerton said: “Our view is that it can apply, but this is not certain. Given what the Government is trying to achieve, it would be illogical to prevent employers accessing the scheme for those staff already temporarily laid off.”
What is the salary cap for receiving 80pc?
The grants from the Government will cover 80pc of your monthly salary up to £2,500, this means it includes people earning up to a full monthly salary of £3,125.
That equated to a salary of £37,500 a year, so anyone earning more than this will not be covered by the scheme but will receive the maximum £2,500 benefit.
Mr Hammerton, of law firm Eversheds Sutherland said the tax position has not been made clear and has called for urgent clarification.
He said: “Our initial view is that employers will be required to deduct income tax and employee’s National Insurance Contributions from the wages paid to furloughed workers.”
Will my company still pay pension contributions?
Pension contributions would continue to be due unless agreed otherwise in the terms of the contract, according to Mr Hammerton.
The Department for Work and Pensions has confirmed that employers remain liable for minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.
Businesses can claim grants under the job retention scheme including minimum employer auto-enrolment pension contributions on top of the 80pc of the employee's salary. This means that businesses can get support without needing to suspend auto-enrolment.
How does furlough work for those on zero-hours contracts?
Zero hours workers who are on the payroll should be able to be furloughed and receive 80% of their salary each month, according to Kate Martin, of legal firm JMW Solicitors.
Ms Martin said: “The nature of zero hours is that pay can be variable, but based on our current understanding, employers would need to look at recent months of an individual employees' salary to work out what the 80pc figure would be."
Mr Hammerton, of Eversheds Sutherland suggested HMRC could use average earnings over a 12 or 52 week ‘countback’ period to decide on an appropriate payment when reclaiming under the Scheme. “Both of these figures have a basis elsewhere in employment law,” he added.
Can an employee request to be put onto furlough?
In most cases the decision to put someone into furlough is made by the company as it is an alternative option to making someone redundant. Employees could ask to be put on furlough but there’s no obligation from the employer to enact that.
Mr Hammerton said: “It’s not a right to be furloughed, merely a scheme for employers to recover certain costs.”
Some employees could feel discriminated against, either because they have been furloughed or have not. Those minded to make claims should be conscious that if the business has a rationale for choosing one person to furlough over another then it is unlikely to be successful.
“In any event, many employers are facing existential threats and the risk of a small number of such claims arising is likely to be low down the priority list right now,” Mr Hammerton said.
The employers should at the very least consider the option, particularly before moving to redundancies, according to Katie Martin.
This would be in line with the government’s objective to minimise job losses during the pandemic, she added.
What are the quirks in the system?
Employers will face a moral dilemma when it comes to how they go about cutting costs.
Before the Chancellor made the announcement some businesses had already announced their employees would receive a 50pc pay cut but will be expected to continue working full time.
The new care package means that these employees would be better off not working and being put on furlough than working full time with the pay cut.
Businesses will have to make the difficult decision about which employees they penalise and put on furlough, reducing them to 80pc pay, and which they keep on full time with full pay.