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

By 01/04/2020June 22nd, 2021Employee 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, which includes furlough, 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.

We’ve been navigating these waters for some time now and have updated the questions regularly asked with the latest information to help you plan and support your staff accordingly.

What is furlough?

As businesses are forced to close or struggle to stay afloat in direct response to coronavirus, employers have the option to furlough their staff. The government will subsidise 80% of furloughed employee salaries.

Since the beginning of the Coronavirus Job Retention Scheme, 11.2 million jobs have been supported.

How does furlough work?

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

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

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

What is furlough pay?

You will receive a grant from HMRC that covers the lower 80% of your 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.

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

How long does furlough last for?

Originally, furlough was supposed to end on the 31st of October 2020. The deadline has been extended four times since, with the new deadline being the 30th of September 2021.

How do I calculate furlough pay?

Calculating furlough pay depends on how long your staff has been in your employ:

Employees that have been in your employ for more than a year:

You can make a claim for furlough grants that are 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

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 monthly average wage) before NICs and other deductions.

For employees on flexible contracts

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

How do I apply for furlough?

To be eligible to claim salary costs, 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 of 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.

When claiming, you’ll need:

– your PAYE reference number

– your bank account and sort code (for BACS payments only)

– your bank’s billing address

– the number of employees being furloughed and their NI numbers

– your employees’ payroll or employee number

– the start date of the claim

– the total amount of wages you’re applying for

– your contact name

– your phone number

You will also be required to provide:

– your name or the name of the employer if you’re an agent

– the Corporation Tax unique taxpayer number

– your Self-Assessment unique taxpayer number

– the company registration number

In the instance that you are claiming for employees under flexible furlough, you will also need to supply:

– the usual hours your employee would work

– the hours your employee will work or has worked within the claim period

You must also maintain a record of the furloughed hours of your employee throughout the claim period.

Any claims must be made 14 calendar days after the month you’re claiming for.

What happens after I’ve claimed?

Once you have submitted your claim, you will receive a reference number. If your claim is checked and correct, the amount you requested will be sent to your bank account within six working days.

However, it is recommended that, even once your claim is received, you keep:

– a record of the claims for six years, including the amount and claim period for every employee

– your claim reference number

– all furlough calculations

– a record of the usual and actual hours worked and any assisting calculations for flexibly furloughed employees

Do companies have to pay furlough?

As an employer, you can either pay 80% of your staff’s regular monthly salary (i.e. 20% less than you usually do) or top up the government-funded 80% to match their usual wage, although there is no legal obligation for you to do so.

However, you are obligated to pay your employees the total amount you are claiming, including forwarding the associated National Insurance contribution and employee tax to HMRC.

Can you claim furlough and work?

No. However, employees can undertake training or volunteer following public health advice as long as they do not generate money for or provide services to your business.

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

Can you claim furlough for employees on statutory sick pay?

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 prorated salary for the remainder of the month.

How do I tell my staff they are being furloughed?

For employers seeking to furlough employees, this process should start with a conversation. It’s important to reassure your staff that they are not 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’.

If you are a medium-sized business and require ever-evolving HR software to support efficient and effective operation, we would love to speak with you. Find out more about our company here.