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How to minimise the risks for business owners associated with placing employees on furlough leave

Posted on May 11th 2020

One of the government’s first responses to the devastating effects of the COVID-19 pandemic on the UK economy was to implement the Coronavirus Job Retention Scheme (CJRS).

The scheme was created in order to protect both employers and employees; putting an employee on ‘furlough leave’ was introduced to reduce the employer’s liability for wages whilst protecting the employee’s job security.

However, it is important for a business owner to understand fully the immediate and future implications of placing employees on furlough leave and, by acting reasonably and fairly, how best to minimise the associated risks.

Furlough agreements

It is important that businesses comply with certain requirements when putting an employee on furlough leave. In order to ensure that employers can demonstrate that these requirements have been met, they should provide a furlough agreement in writing to their employees to be signed by both parties. So as to achieve clarity and certainty, businesses are encouraged to:

  • State the date the furlough starts – this can be any date from 1 March 2020, provided the employer can demonstrate that the employee was not carrying out any work for it or for an associated company from the stated date;
  • Stipulate the amount of pay the furloughed employee will receive;
  • Provide an approximate date for the furlough to be reviewed – although the initial furlough period should be for a minimum of three weeks;
  • Provide a way that the furloughed employee can keep in touch with its employer during the course of its furlough leave in the event that this should be required;
  • If the employer is not ‘topping up’ the 80% of salary or wages available through the CJRS, give an explanation as to why this is.

As furlough agreements involve temporarily changing an employee’s contract of employment, employers are urged to ensure they are not being unfair to their employees or making any unilateral decisions. Consent, communication and good record keeping are key.

Choosing who to put on furlough

Choosing staff to continue working and staff to be put on furlough is a big challenge for businesses, especially in the event that some staff are receiving full pay to be on leave whilst other staff are receiving full pay to work. This has the danger of being interpreted as unfair by some staff who are still working and who are likely to be undertaking work beyond their usual duties while covering staff on furlough leave or sick leave.

It is, therefore, crucial that employers base the decision-making process on the needs of the business and avoid direct or indirect discrimination when doing so. Maintaining critical staff and appropriate cover across areas of the business which are able to operate in the current climate are the principles to adopt.

Statutory family leave

Employers need to be aware that even if somebody is furloughed, they are still entitled to statutory pay and entitlements, including maternity and paternity leave.

Statutory pay must be calculated in accordance with a furloughed employee’s usual full pay, even if they are currently furloughed on 80% of their usual salary or wages.

It is possible however that an employee already on statutory family leave can be furloughed at the same time.

Annual leave

When on furlough, an employee will continue to accrue annual leave and employers need to be aware that this will be calculated in accordance with the employee’s employment contract. Annual leave will therefore continue to accrue at the employee’s usual contractual rate of pay which will not necessarily be their furloughed rate.

The government have introduced new rights for workers to enable them to carry their leave over to the next two years’ leave entitlement in certain circumstances, which applies to both staff who are furloughed and staff who are still required to work. Under the amended Working Time Regulations employers may have to allow up to four weeks of unused annual leave to be carried over to the next two holiday years.

This could potentially cause significant inconvenience to businesses going forward, as there may be a surge of staff requesting longer or more regular annual leave absences, for example, once travel limitations are lifted. An increase of staff taking more annual leave than usual will undoubtedly impact on productivity and output just at a time when businesses are trying to get back on their feet.

Training

Employees are permitted to complete job-related training or courses as long as this does not involve them generating income or providing services for their employer. Otherwise, the general guidance is that training should be encouraged to keep a furloughed member of staff up to date. Employers, therefore, need to approach this on a case by case basis and encourage furloughed staff to ask permission before undertaking training to make sure that it is not caught out by the exceptions.

Businesses also need to be aware that when undertaking training allowed under the furlough scheme, they are entitled to at least the National Minimum Wage rate.

Hiring and re-hiring

Employees who have been recently hired and put on the PAYE system after 19th March 2020 are not eligible for the furlough scheme. Businesses are encouraged to consider whether they should defer the employee’s start date or cancel their contract with paid notice, in circumstances where new starters do not have any work.

For employees who have been dismissed recently, businesses can choose to re-employ those staff, as long as they meet the criteria that they stopped working or were made redundant between 29th February 2020 and 19th March 2020. However, although this is possible, employers must be aware of the knock-on effect that this would have on redundancy payments, as well as other employment benefits including annual leave and family leave allowances.

Future problems and the unknown

The unprecedented nature of the COVID-19 crisis means that the legal and financial consequences for businesses of the various schemes introduced by the government are largely unknown at present. Being fully aware of how the furlough scheme operates and of the specific rules relating to certain types of staff or activities is, however, one way for employers to at least guard against potential staffing issues going forward.

Keeping clear records, communicating with staff and acting reasonably and fairly will create a solid foundation for businesses to help minimise future risks.

How we can help

If you would like to speak to a member of our Corporate & Commercial Team for guidance on placing staff on furlough leave and on documenting that properly, please contact us on 01244 354670 or by email at law@oliverandco.co.uk.

Call and speak to a member of our team on 01244 312306