I write a column for CIPP News and this article – not mine – is from the CIPP, you can read the original here. The CIPP (Chartered institute of Payroll Professionals) is the rock for payroll and I am delighted to share this excellent explanation of what a furloughed worker is. We are all wondering whether we will employ them in the coming months and how they will be paid
The term ‘furloughed worker’ is not a familiar term used in relation to employment law within the UK. However, the government’s announcement about new support measures in relation to the coronavirus outbreak has changed this, as everyone now wants to understand what a ‘furloughed worker’ is and what the implications will be.
‘Furloughed workers’ are common in the United States, and the term ‘furlough’ relates to the temporary leave of an employee / employees due to the special needs of a company or employer, attributable to the economic conditions at a specific employer, or in the economy as a whole.
The Chancellor, Rishi Sunak, announced that if employers cannot cover staff costs due to COVID-19, they may have the option of accessing support to continue paying a portion of employee wages, in order to avoid the difficult situation of having to make redundancies. Support would be available through the Coronavirus Job Retention Scheme. It is important to note that these payments are available where there would have otherwise been a redundancy situation.
In order to access the scheme, employers will need to discuss the need to reassess impacted employees as ‘furloughed workers’, and to have discussions with those affected. For employers, changing the status of an employee remains subject to existing employment law and contract dependant, may be subject to negotiation. Employers will then be required to submit information relating to furloughed employees and their earnings to HMRC via a new online portal. This has not been set up yet but will be available in due course.
Employees should not complete any work for their employers throughout the time in which they are furloughed. This will enable employers to claim a grant of up to 80% of their wages for employee employment costs, up to a cap of £2,500 per month. Workers are still classed as being employed for the period in which they are furloughed, and employers could opt to fund the differences between the payment from the government and their salary, but there is no mandatory requirement for them to do so. Therefore, if employee pay is reduced as a result of these changes, they may be eligible for support through the welfare system, inclusive of Universal Credit.
The Coronavirus Job Retention Scheme is expected to run for a period of at least three months, from 1 March 2020, but it will be extended if necessary.
Details of the Job Retention Scheme have now been published
Does anyone understand what the term “wage costs” means? From an employer perspective, there are three principal wage costs – the salary, the employer national insurance based on the salary, and the employer pension contribution based on the salary. I can’t see anywhere whether Government is just paying 80% of salaries or whether they are paying 80% of (salary plus employer NI plus employer pension contribution). Adrian
I agree with your definition of wage cost as the total cost of employment. Whether tax or NI or pension deductions need to be paid from this Government grant depends on whether the compensation is to the individual or the employer. If the latter, HMRC are going to get some of it back through the tax system so a true 80% might be against wage costs , if the former- then I can’t see the 80% being against anything but salary. And then there is the situation with the 5m self-employed – many of whom can’t work from home but may not be key workers.
I agree with Adrian.
I also dislike the importation of US terminology, even in such a crisis.
I also note that to qualify you seem to have to do no work whatsoever for your erstwhile employer, That seems typical of HMRC and/or London-centric civil servants who are reluctant to allow some flexibility at the margins for fear of the support scheme being abused in some other way.