What is furlough and how does it work? A guide for employers

By 01/04/2020 March 17th, 2021 Employee Management, Statutory Sick Pay
What is furlough

A word that very rarely graced our daily office chatter before March 2020, but the concept of ‘furlough’ is now one that is very present in the minds of the UK’s workforce.

Announced by the Chancellor as part of the government’s response to the COVID-19 pandemic, the Coronavirus Job Retention Scheme was designed to minimise the threat of mass redundancies across the country and adversely affecting economic performance as business slows or comes to a grinding halt altogether.

Employees may be furloughed due to a slowdown in operations or simply because there is no work for them to do due to non-essential businesses being closed entirely.

In short, furlough is similar to placing employees on a leave of absence, whereby employers can claim for 80% of the wages of furloughed employees, up to a maximum of £2,500 per employee, per month. Payments can be backdated to the 1st March 2020.

The Coronavirus Job Retention Scheme is expected to be made live by the end of April 2020.

How does furlough work?

For employers seeking to furlough employees, this process should start with a conversation. Not only will this reassure employees that they aren’t being made redundant but that their work is being temporarily ‘paused’, in effect.

Explain to them the process of furloughing, what they can expect to be paid, and how soon they might be expected to return to work as ‘normal’.

Both employer and employee must agree to furlough coming into effect. Employees cannot apply for furlough payments themselves.

As an employer, you can either pay 80% of their normal monthly salary (i.e. 20% less than you normally do) or top up the government-funded 80% to match their usual salary. However, there is no legal obligation for you to do so.

Is my business eligible to claim for employee wage costs through the Coronavirus Job Retention Scheme?

To be eligible to claim salary costs through, your business must have a UK bank account and the employees for which you are claiming furlough grants must have been on your PAYE payroll on the 28th February 2020.

This includes employees on all types of contract, including full and part-time employees, employees on agency contracts and those on flexible or zero-hour contracts.

You will receive a grant from HMRC that covers the lower 80% of employee’s regular wage, or £2,500 per month, plus Employer National Insurance contributions and minimum automatic enrolment pension contributions on the subsidised salary payment. At the moment, you can claim furlough grants for up to three months, but this may be extended as the situation surrounding COVID-19 develops.

It is worth noting that only the employee’s actual salary can be used to calculate the 80% that will be funded by the government. Any bonuses or commission should not be included in your calculations.

The government has announced that it will issue further guidance on calculating Employer NICs and pension contributions ahead of the scheme going live.

How do I calculate furlough payments to employees?

For employees that have been in your employ for more than a year, you can make a claim for furlough grants that is the higher of:

– The amount an employee earned in the same month last year or

– The average amount an employed earned from the last year

For newer recruits that have been with you for less than a year, you need to calculate an average of their monthly earnings since they started working for you.

For example, Christina has worked for you since the start of November last year, she is salaried and earns £1,900 per month before NICs and other deductions.

To date (March 2020), Christina has earned £9,500. Therefore, her average monthly pay is £1,900. When she is placed on furlough, she will be entitled to £1,520 (80% of her average monthly salary) before NICs and other deductions.

The same rule applies to any flexible workers you might have. Simply calculate their monthly pay for the months they have been in your employ and divide by the number of months they’ve worked for you.

Can my employees continue to work if they’re on furlough?

No. However, employees are able to undertake training or volunteer in accordance with public health advice as long as they are not generating money for, or providing services to your business.

What about volunteering?

As long as it in no way connected to or for the financial benefit of your company, employees can carry out voluntary work should they wish, whether for the NHS or helping out vulnerable members of their community that might be self-isolating, for example.

Of course, it is worth reminding furloughed staff that do choose to volunteer of the government and Chief Medical Officer’s advisory notices on social distancing and non-essential travel.

How do I claim furlough grants from the government?

While the online service to make a claim is not yet available, there is already some guidance on how to make a claim and what information you need to make a claim for furlough grants.

The key points to note as an employer are:

– You can only make a claim once every three weeks – this is the minimum amount of time that an employee can be furloughed for

– Claims can be backdated to the 1st March 2020, if applicable

In order to make a claim, you’ll need:

– your ePAYE reference number

– the number of employees being furloughed

– the claim period (start and end date)

– amount claimed (per the minimum length of furloughing of 3 weeks)

– your bank account number and sort code

– your contact name

–  your phone number

What about employees that are claiming Statutory Sick Pay for coronavirus-related symptoms or self-isolation?

If you have employees that are currently claiming Statutory Sick Pay for self-isolation or coronavirus-related symptoms, they can continue to claim SSP for the maximum of 14 days. After this point, they can be furloughed and paid 80% of their pro-rated salary for the remainder of the month.

Please note: while we here at Natural HR work with HR professionals every day, we are not lawyers. This post is a high-level summary of government information about furloughing staff and should not replace sound legal advice available from professional solicitors or employment lawyers.


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