An extension to the furlough scheme – but at what cost?

Chancellor Rishi Sunak has announced a further extension to the Job Retention Scheme until 31 October 2020. In his speech to Parliament, the Chancellor reported that 7.5 million jobs have been furloughed and the scheme has helped to support nearly one million businesses. It is reported that the scheme has paid out £10 billion so far and will cost £40 billion for every three months it operates.

Changes to the Job Retention Scheme

For now, until the end of July, the Job Retention Scheme will continue to operate on its current terms. You can find a summary of the scheme in our previous updates Job Retention Scheme Further Guidance and Job Retention Scheme New Guidance.

From August, the scheme will have more flexibility, designed to help support employees back to work. The full details of the amended scheme are due to be published by the end of the month, but the Chancellor indicated that employers would be able to bring back furloughed staff on a part-time basis whilst still relying on the scheme. At the moment, furloughed staff are not permitted to carry out any work for their employer.

During this transitional period, furloughed staff will continue to be entitled to the same level of support, which is 80% of their wages up to a maximum of £2,500 per month.

However, more significantly, the Chancellor’s announcement included the intention that, from August, employers would have to start sharing the cost of employees’ salaries. It is not yet known what that will look like, although the speculation is that employers will have to contribute 50% of furloughed employees’ salaries.

What should businesses do now?

In the immediate future, where employers intend to keep all or part of their workforce on furlough until the end of July, they must ensure that any initial period of furlough leave is extended in writing. It is important that there is documentary evidence showing the dates of the employees’ furlough period and any adjusted salary, not only for the purposes of providing proof to HMRC in any later audit but also to record any temporary amendments to an employee’s terms of employment.

As the government lays out its exit plan from the current lockdown and starts to reignite the economy, and with the prospect of sharing the cost of the furlough scheme, employers should sensibly look at their business plans and team structures to ensure that they are in the best position to compete in their markets.

Employers must also think about the practicalities of bringing staff back to work part time, especially those employees who still have children or dependents at home, those who may be continuing to shield themselves because they fall into a vulnerable category, and those who carry out jobs that cannot be done from home. Social distancing rules remain in place and employers will have to comply with their health & safety obligations in providing a safe place of work for anyone who is returning to their workplace. We recommend that employers start thinking about written rules around shared facilities such as kitchens and bathrooms, hot desks, and shared equipment like computers and printers.

Further clarification on holiday

There have been many questions in relation to the operation of holiday during furlough and the government has now issued guidance on this point. It is important to note, however, that the holiday guidance is not legally binding which means that if a case came before an employment tribunal, the tribunal would not be required to follow the guidance. If you are unsure how to deal with holiday for your employees, we recommend that you seek specific legal advice on your situation.

As we know from previous guidance, an employee may take holiday and holiday entitlement continues to accrue whilst the employee is on furlough. As is the case when an employee is working, an employer may require an employee to take holiday at certain times, by giving twice the amount of notice as the amount of holiday required to be taken. For example, if the employer requires the employee to take a week’s holiday, the employee must be given two weeks’ notice. Equally, an employer may cancel a request for holiday by giving the employee the same amount of notice as the requested holiday. If the employer does not give this amount of notice, they can only require the employee to take holiday or cancel an employee’s holiday with the employee’s agreement.

In relation to bank holidays, the guidance sets out that if a furloughed employee would normally receive bank holidays as part of their entitlement, the employer can proceed in two ways: the employer may either pay the employee for the day’s holiday or give notice to cancel the holiday and allow the employee to take the day’s holiday at another time. If an employee would usually be required to work on the bank holiday, the employer can require them to take it as holiday.

It is worth noting that the guidance states that employers should consider whether an employee is able to rest, relax and enjoy leisure time due to restrictions they may be under (such as social distancing and self-isolation) when deciding whether to require employees to take holiday, as this is the fundamental purpose of employees receiving paid holiday.

Holiday pay

In terms of how much a furloughed employee must be paid if they take holiday during the furlough period, the guidance confirms that holiday pay should be calculated in the normal way “based on a worker’s usual earnings”. Having regard to the various cases that have been determined over recent years on what is ‘normal remuneration’ when calculating holiday pay, this indicates that employees should be paid at their usual rate of pay, rather than the furloughed rate of pay if this is lower. The 80% can still be reclaimed under the scheme but the employer must top up any amount above the sum claimed.

What an employee’s usual rate of pay is will depend upon whether they receive a fixed salary for fixed hours or whether their hours vary. If an employee receives a fixed rate of pay for fixed hours, they should be paid at that rate. If an employee has fixed hours but their pay varies weekly, for example because they work shifts, a week’s pay should be calculated as the average number of weekly fixed hours the employee has worked in the previous 52 weeks in which the employee was working, at their average hourly rate. For an employee who has no fixed hours, it is the average pay from the previous 52 weeks in which pay was received.

If an employer is unable to pay the amount in excess of the 80% provided by the CJRS, the employer may need to refuse the employee’s holiday request or cancel holiday that had already been booked.

Carrying leave over

Usually an employee is not permitted to carry over the four weeks’ leave to which they are entitled under the Working Time Directive but may carry over the additional 1.6 weeks’ leave from the Working Time Regulations with permission from their employer. However, if the impact of coronavirus has made it not reasonably practicable to take leave before the end of the holiday year, it is now permitted to carry over any untaken leave to the two following leave years.

The guidance also states that, unless the employer is unable to pay the top up amount of holiday pay, an employee on furlough should be able to take their holiday during the furlough period and will not need to carry it over. It is likely that the need to carry over annual leave will apply more frequently to employees who work in companies whose business has increased due to coronavirus and have therefore been required to continue working.

We will continue to keep you updated as more information about the changes to the Job Retention Scheme are announced. In the meantime, if you would like advice on managing your employees’ return to work or any of these issues in this article, please call one of the employment law team who will be pleased to assist you.