Furlough: Some of your questions answered

Tuesday 31 March 2020

The announcement of the Coronavirus Job Retention Scheme, with the Government promising to pay 80% of employees’ wages capped at £2,500, left many employers asking a lot of furlough related questions.

The Government’s formal Guidance, whilst going some way to providing employers with clarity, has still left many questions unanswered and it remains to be seen when employers will receive the clarification they desperately need.

However, there are some questions which we can now answer:

Can a furloughed employee still work for the business?

No.  A furloughed employee must not undertake any work. They can take part in volunteer work or training (subject to the terms of their contract of employment relating to competition and outside interests), as long as that work does not provide services to, or generate revenue for, the employer.

However, if employees are required, for example, to complete online training courses while they are furloughed, then they must be paid at least the national living wage (NLW) or national minimum wage (NMW) for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

The Government has not disclosed the punishment which will be meted out to employers who are found to be making furloughed staff work, however HMRC are likely to be strict in their response to rule breaking.

The Government has already confirmed that HRMC will be carrying out audits once the pandemic is over.

Can company directors be furloughed?

If a director receives a salary through PAYE (i.e. not dividends) then they are eligible for the Coronavirus Job Retention Scheme.

If a director is furloughed their statutory and fiduciary responsibilities continue. Those duties have an overarching character generally unrelated to day-to-day work. It is thought that the ban on working during furlough will not be breached if a director undertakes tasks directly related to those responsibilities.

However, it is easy to see how a director could stray into prohibited territory. Whilst it’s not too difficult to envisage a director of a large company genuinely being relieved of all work-related duties during furlough, what of the small, private, family company? Is it credible that a director of such a company will perform no work-related tasks during a period of furlough?

Directors need to be very careful about the distinction between statutory duties, on the one hand, and duties which are functional or operational in nature on the other hand.

For how long can employees be furloughed?

Employees must be furloughed for at least three weeks at a time for the employer to be eligible for the subsidy from HMRC. Whilst it appears that employees can be furloughed more than once it is not yet clear whether each and every period of furlough must be in a block of no less than three weeks.

What about NICs and pension contributions?

Employers must still make employer NICs and minimum auto-enrolment employer pension contributions on behalf of their furloughed employees. This will be subsidised by HMRC along with salary. It is understood this will be in addition to the monthly capped sum of £2,500.

An employer can choose to provide top-up salary. However, employer NICs and auto-enrolment contributions relating to any top-up salary will not be funded through the Scheme. Nor will any voluntary auto-enrolment contributions above the minimum mandatory employer contribution of 3%.

 

If you have any questions about the furlough scheme, please email or call our Employment Law team today on 0113 207 0000.