By Harmajinder Hayre, Ward Hadaway, and Alan Rajah, Lawrence Grant

Just like most countries around the world, the United Kingdom is facing a temporary economic crisis due to the COVID-19 pandemic. The UK Government has introduced measures to assist businesses to deal with the potential mass redundancies that could have a severe impact on the fabric of society.

Harmajinder advises that in headline terms:

  • The scheme is intended to avoid redundancies and protect jobs. All employers in the UK will be eligible to participate in the scheme.
  • Her Majesty Revenue & Customs (HMRC) will reimburse employers for 80% of wage costs, up to a cap of £2,500 per month.
  • The workers covered by the scheme are those who have been “furloughed”. Workers must be told about, and in some circumstances consent to, this change of status (see below).
  • Employers will continue to pay the furloughed workers- but at the reduced scheme rate. The Government will reimburse the employer.
  • Timing: HMRC is administering the scheme and it is not live yet. The Government expects first grants to be paid towards the end of April. This means employers will have to fund March and April payroll through their own cash reserves and apply for a rebate from the Government. The Government is making alternative help available for employers to continue to pay employees while the scheme is set up. Please see below.

How it will operate:

  • Certain workers will become “furloughed workers”. Furloughed workers must carry out no work for their employer.
  • Workers must be designated as furloughed and told of this change. But first note –
  • This is a temporary change in status and therefore subject to the usual employment law rules on changing terms and conditions. It is vital that you understand this and follow the correct procedures to furlough an employee

    o If employers have collective bargaining arrangements in place they must agree this change with the union in the usual way.
    o Otherwise:

    § A: employers may be able to vary contracts without worker consent. Some contracts permit certain changes without worker agreement and in those cases employers can notify this change in the usual way. OR
    § B: Where employers cannot make this change to contracts without consent, they require the agreement of individual workers.

  • In scenario A and B we recommend this is documented by letter or email where practicable. The scheme is being administered by HMRC. Therefore employers must submit information to HMRC about workers who have been furloughed, together with their earnings. A new online portal is being set up for this.

Some further clarification points:

  • The scheme is being backdated to 1 March and initially will run for three months.
  • It will cover workers who have already been laid off or dismissed and were on the employers payroll as at 28 February 2020. Employers will need to re-gage workers who have been dismissed / laid off to give them the protection of this scheme. It is not possible to hire new workers post 28 February 2020 and then place them on furlough leave.
  • Workers who are furloughed are not being dismissed or made redundant. This means furloughed employees are not entitled to redundancy payments. However, unless and until changes to the lay-off scheme are made, employees laid off may be entitled to redundancy payments in certain circumstances, therefore it is important to get the status right.
  • Some employers may choose to top up the furloughed wage from 80% to 100%. Some may not be able to do so. However there is no obligation on the employer to do so.
  • Workers remain employed/engaged during this period. Which means most normal terms and conditions apply. At the end of the furlough period you will have to decide what you want to do with the employee – bring them back to work or dismiss them. The reason for dismissal is likely to be redundancy and collective consultation obligations could apply depending on the numbers inolved.
  • Workers who receive a lower income as a result of these changes may be eligible for support through the welfare system, including universal credit.
  • Where employers are still considering implementing redundancies please speak with us. We expect there will be a requirement to show why you are making redundancies rather than operating this scheme and retaining employees.

Alan advises that:

The Government has been clear, this announcement does not create a legal right to place employees on furlough leave. The employee’s status will continue to be subject to employment law and existing contracts of employment.

What is a furloughed employee and when is it appropriate?

The term ‘furlough leave’ or ‘furloughed employee’ is someone who rather than being made redundant, is kept on the payroll during a period where you as their employer do not have any work for them to do.

The scheme is only intended to cover employees registered for Pay As You Earn (PAYE). Self-employed individuals (independent contractors) are not covered by the Scheme.

The scheme isn’t applicable to employees who have already been dismissed or made redundant if they were not on the employers payroll as at 28 February 2020. The Scheme is designed to help employers keep their employees on the books during the COVID-19 crisis by offering a significant wage subsidy. It cannot, however, be used where shorter hours or reduced pay have been negotiated in response to the COVID-19 crisis, or for employees on sick leave or in isolation.

Employees will need to sign a ‘Furlough Agreement’ that should protect Employers, however Employment Law is a total minefield so case expert advice should be sought before taking any action you might later regret.

Harmajinder Hayre

Harmajinder Hayre

GGI member firm
Ward Hadaway
Law Firm Services
Newcastle upon Tyne, Leeds, Manchester, UK
T: +44 191 204 4000
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W: www.wardhadaway.com

Ward Hadaway is one of the largest full service law firms in the North of England, with a reputation for quality, innovation and a practical approach to meeting their clients’ needs. With 90+ partners and over 450 staff, the firm’s approach of partner-led relationships with all clients is supported by a resource that has real strength in depth.

Harmajinder Hayre is the National Head of Employment and Immigration Department at Ward Hadaway.

Alan Rajah

Alan Rajah

GGI member firm
Lawrence Grant, Chartered Accountants
Advisory, Auditing and Accounting, Fiduciary and Estate Planning, Tax
London, UK
T: +44 20 8861 7575
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W: https://www.lawrencegrant.co.uk/about-us

Lawrence Grant, Chartered Accountants celebrates its 50th anniversary this year. Based in North London, they have over 30 staff, three partners and two tax consultants providing well-respected accountancy, business support, and cross-border tax advice. They also offer a selection of cloud and digital software solutions using AI technology.

Alan Rajah joined Lawrence Grant in 1994 and became partner in 2001. He is involved in all areas of general practice, specialising in valuations of business, due diligence, and mergers and acquisitions. His client portfolio includes UK and overseas companies and individuals as well as medical professionals. Alan is global vice chairperson of the GGI International Tax Practice Group.

Published: COVID 19: Labour Law Implications in different jurisdictions, March 2020 

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