Can you recover notice pay via the Furlough Scheme?

Tuesday 7 July 2020

As the Coronavirus Job Retention Scheme (Scheme) starts to wind down many employers are starting to look at making redundancies.

One of the most frequent questions we have been asked is: can an employer recover the costs of making a furloughed member of staff redundant from the Scheme?

The position with the employee’s entitlement to a statutory redundancy payment was made clear by the guidance issued by HMRC; this is something that cannot be reclaimed. However, the position with notice entitlement was less clear.

As no mention of notice entitlement was made in the guidance it was reasonably assumed that an employer could serve notice to dismiss an employee on furlough and recover the salary paid to the employee during this period via the Scheme (although depending on the wording of the contract of employment and the furlough letter/agreement, the employer may have been required to ‘top up’ to 100% of the employee’s usual salary).

However, on 25 June 2020 the Government issued a further ‘Treasury Direction’ which cast doubt on this interpretation of the rules (and has been picked up in the press). The new Direction contained a provision stating that any money reclaimed via the Scheme could only be used ‘to continue the employment’ of those employees who would otherwise have been made redundant because of Covid-19.

Due to the ambiguous nature of this wording, several commentators took the view that this new insertion prohibits employers from recovering notice pay via the Scheme because by dismissing them for reason of redundancy they are not continuing employment, something that goes against the very purpose of the Scheme.

This would mean that once an employer issued a furloughed employee with notice of redundancy, they would not be eligible to recover any salary paid thereafter via the Scheme.

It does, however, appear that this was not the intention of the government and although we have not had any formal clarification of this, HMRC has apparently informally confirmed via its helpline that notice pay can be recovered. Whilst an employee might be under notice of dismissal, their employment is still ‘continuing’ until the termination date.

It is however worth pointing out that this only applies to notice served and ‘worked’ by the employee on furlough. Employers cannot recover payment in lieu of notice (PILON) via the Scheme.

If you have any questions about the Scheme, redundancy or notice entitlement, please email or call our Employment Law team today on 0113 207 0000.