Putting an employee on furlough is a great option for many businesses and employees. It gives employees a reasonable, certain, income in uncertain times. However, many employers are assuming that “furlough” is automatic. It isn’t and this could cause trouble in the future.
Putting an employee on furlough is a contractual matter and must be treated as such. Not getting it right could lead to future claims being made. A few simple steps will eliminate the risk.
Every employee must have either a contract or written terms and conditions and changing the contract is subject to existing employment law. The government guidance makes this clear:
“designate affected employees as ‘furloughed workers’ and notify your employees of this change – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation”
If the contract you have with your employees states that hours can be varied, you can probably reduce working hours to nil. Many contracts don’t have this clause so the position is that if an employer can’t provide work for the employee, the employer should pay them.
Under normal circumstances, if an employer doesn’t have work and doesn’t want to pay the employee for doing nothing, a redundancy situation is created. Redundancy law and guidelines must be followed.
Furloughing – different
The government is offering help to employers who “furlough” workers. A furloughed worker is one which has been asked to stop working but who will remain on the payroll. This is not redundancy, although, since the scheme is only open for three months, employers may end up in a situation where they need to consider redundancy.
An employer cannot just put employees on “furlough”. An employee must agree to the change in contract otherwise original contract terms apply. Realistically, reference should be made to an HR/Employment Law adviser for wording but we suggest this wording (on a strictly non indemnity basis). Use this at your own risk:
“You will be furloughed in accordance with the government’s definition from ***** until either 30 June 2020 or we are able to offer you work, whichever comes sooner. Should the government extend the period during which they are prepared to reimburse employers for wages costs for furloughed workers, the date at which this clause concludes will be extended to match the final day for support set by the government.
Please sign and return a copy of this letter to confirm your acceptance of the change in employment terms and conditions.”
Why is it important?
There are several reasons why you should ensure your staff have agreed to the contract change
- The government guidelines say that you should. We don’t yet know what evidence of “furlough” will be required by HMRC but it could include confirmation that guidelines have been correctly followed
- If an employee has not agreed to the change, that employee could, retrospectively, claim full wages instead of the 80%. This could also invalidate any claim for support under the scheme from the government.
- There are circumstances where an employee might be financially better off receiving SSP (Statutory Sick Pay)
- If there is a possibility of an employee becoming eligible for SMP (Statutory Maternity Pay, SPP (Statutory Paternity Pay) or SAP (Statutory Adoption Pay), they could, potentially receive more money via this.
There is a great deal which still needs to be clarified about this, welcome, initiative and we will keep you informed as more information emerges. However, we are certain that the advice on changing contracts outlined above is correct.
Claims will need to be made, both for furlough repayments and enhanced SSP, when the HMRC online form (or forms) is made available. It is essential that good records are kept to ensure that requested information can be provided.
Obviously we will help our clients complete and submit the forms. Regrettably, this will be a step too far for non clients. We understand that some businesses may struggle to operate their payroll in these difficult times. Our payroll staff are still working (remotely) so we can take on a limited number of new payroll clients if you are struggling.
You may like to look at other, recent posts, about coronavirus and its effect on business:
You can contact us about any Covid-19 related matter either by calling on 01509 816150 or by using the enquiry form below.