Placing employees on furlough leave – everything you need to know

April 3, 2020

Businesses right across the world are feeling the effects of the Coronavirus pandemic. In order to survive this crisis and avoid redundancies, lots of companies are putting their staff on furlough leave. 

Like many other countries, the UK has unveiled significant funding measures to support businesses and employees during this time. The Coronavirus Job Retention Scheme is one of them, whereby it’ll pay 80% of employee wages (up to a salary of £37,500 or £2,500 per month) to provide a lifeline to businesses and staff.

Although furlough leave is necessary for many businesses, it’s something they may not have done before. When it comes to furloughing an employee and receiving financial support from the government, there are a few things employers need to know and do from a legal perspective. 

Businesses can’t just tell workers they can no longer come into work due to Coronavirus, as that would be against the law and breach employment contracts.  So what do employers need to know? And how can they place employees on furlough leave? 

No employer wants to put their employees on furlough leave. While a difficult decision to make, it’s necessary during these times of uncertainty and concern. You need to be frank and honest with employees. Explain that you’re furloughing them in order to avoid making them redundant and provide them with an income while the business is struggling as a result of the Coronavirus pandemic.

To place an employee on furlough leave, the first thing you need to do is formally notify them of your intention to furlough them. You should explain why you want to furlough them in this notice. 

Next, you must vary your employee’s employment contract (with their consent) to be able to place them on furlough leave. Every employee will have a contract that sets out their salary, a termination period and annual leave. However, furlough leave rules stipulate that businesses can pay their employees less than their salary and refuse them work. Because of this, legal variations are needed so that employers have the power to do these things. 

The contract variation agreement should detail the furlough conditions of each employee. When varying employment agreements, employers should refrain from changing the wording in existing signed contracts – that should remain the same. Use a separate agreement. 

Once your employee reads the Furlough Notice, agrees to the contract variations and stops working for your business, you will have successfully furloughed them. This paperwork is essential to adhering to employment laws.

There are also few important things to note about the government’s Coronavirus support scheme for employees. While the government will pay 80% of wages, businesses have the option to top up the remaining 20% or make up the difference so that the employee gets their original or a reduced salary. 

Take, for example, a software developer who earns £48,000 a year or £4000 a month. You’ve taken the decision to furlough them. If you can’t afford to pay the remainder, they would still receive £2,500 from the government monthly. That’s a 37% decrease in income, a lot of money to lose. If you can pay more (say £40,000),  you only pay £833 a month and the government support covers the rest. 

In order to qualify and receive this financial support from HMRC, employees must agree to conditions set out in their Furlough Notice and contract variation agreement in writing.  The scheme is expected to begin at the end of April, when HMRC will have launched an online payment for payments. In the meantime, businesses will need to keep paying staff via payroll. However, the government is offering further support in the form of deferred VAT payments and different support packages. 

When the portal launches, businesses must declare all employees who have been furloughed and ensure they don’t undertake any work on behalf of the company (applying from March 1 2020). Companies can only make a single claim for all employees and will require details such as the employees’ ePAYE reference number, number of furloughed employees, claim period, amount claimed and bank details.

Written by Rob Winspear, legal officer at online legal platform SeedLegals