The Chancellor of the Exchequer Rishi Sunak’s “unprecedented” economic intervention package announced on 20 March includes radical measures to help the government protect jobs amid the growing COVID-19 emergency.
The new Coronavirus Job Retention Scheme unveiled by the Chancellor as part of his emergency response is available to all UK employers in all sectors – there is no restriction on size, unlike the recoupment of Statutory Sick Pay which is limited to employers with less than 250 employees. Brief guidance notes have now been issued for businesses and employees with more detail expected shortly.
Government to pay ‘at least 80% of salary’ for employees who would otherwise be ‘laid off’
Under the scheme, employers will be able to access support to continue paying part of their employees’ salary for “those employees that would otherwise have been laid off during this crisis“. While layoff is a specific statutory concept in employment law, the Chancellor’s statement and the guidance strongly suggest that the government is not just looking to support employees who may be laid off under the statutory rules, but wants to capture under the scheme all employees at risk of redundancy due to COVID-19. The Chancellor also referred to the scheme as supporting all those on payroll which may include workers on the PAYE system and not just those who meet the statutory definition for employment. We wait clarification on this.
The scheme will pay 80% of the salary of each affected worker up to £2,500 a month. It is assumed that this is gross pay but further clarification is expected. Employers will need to know what aspects of a salary are covered by the scheme. For example, does it include pension contributions and benefits or additional payments, such as overtime, which can substantially increase an individual’s pay packet? The employee guidance states that an employer can choose whether they wish to top up a payment made to an individual who remains employed under the scheme but “they do not have to“.
The BBC has reported that the Treasury has stated that the scheme will apply to workers who have already been laid off, “so long as they are brought back into the workforce and instead granted a leave of absence”. Again, more detail is needed.
How can employers access the scheme?
Employers who wish to benefit from the scheme will need to:
- Identify their affected employees who should be designated as “furloughed workers”. At present, the term furloughed workers is not defined in UK employment legislation. It is though a concept used in other jurisdictions, such as the US to refer to an employee who are essentially put on unpaid leave, that is they do not work and are not paid but remain an employee.
- The government’s guidance for businesses acknowledges that if an existing employee is to become a furloughed worker it will require a change in their employment status, which remains “subject to existing employment law” and that “depending on the employment contract this may be subject to negotiation”. This suggests that employee consent will need to be obtained unless the employment contract provides for this situation. In most cases it is likely that consent to the terms of furlough will be needed. Depending on what payments are covered by the new scheme, employers may also need to factor in to these negotiations what benefits and payments an individual will not receive during furlough leave.
- A furloughed worker will need to be notified of their change in employment status.
The employer must then submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. HMRC will be setting out further details on the information that is required and are working “urgently to set up a system for reimbursement”.
‘You should not undertake work for your employer’
The employee guidance confirms that “to qualify for the scheme you should not undertake work for your employer”. This would seem to exclude from the scheme anyone who is on reduced hours arrangements. It is not uncommon for employees to have more than one employment and employees looking to support themselves financially may now pick up new work in sectors, such as transport and food retail, where more workers are needed to manage demand. Whether or not this would exclude them from the scheme remains to be seen.
‘Think carefully before laying people off’
The scheme was launched with a message for employers to “stand behind workers” and to “think carefully before laying people off”. The sentiment will not be lost on organisations that face difficult conversations with employees at risk of redundancy and complex procedures for collective redundancies in the UK. The scheme offers businesses a welcome breathing space and time to focus on their activities. However, how long the scheme will serve to protect employees in the longer term remains to be seen. The Chancellor announced that the scheme will be back-dated to 1 March and will continue for three months. With productivity, consumer spending and supply chains disrupted globally by COVID-19, the Chancellor indicated that the scheme may have to be extended. Businesses are unlikely to spring back quickly from the crisis.
Employers are likely to face some difficult questions from employees, particularly where negotiations are already taking place on pay cuts, reduced hours, unpaid leave and potential redundancies. Employers, who are exploring the existing statutory provisions on lay off to avoid immediate redundancies, should note that this new scheme provides more generous pay. It also avoids an employee triggering their own redundancy.
For employees still working, the prospect of seeing colleagues sent home on 80% of salary guaranteed for three months (with the possibility of the employer topping this up) may not sit easily, particularly where their work may put them at greater risk of COVID-19 but without any greater long-term job security.
With the Chancellor announcing that he expects the first grants under the scheme to be paid before 1 April, more detail is expected soon, with the scheme just one of a number of measures that the Chancellor has announced to support businesses.