REQUIRING STAFF TO WORK FROM HOME
The government confirmed on 10 May 2020 that if it is possible to work from home, this should continue and be encouraged by businesses.
Given the Government’s guidance, it will be reasonable to require employees to work from home, where possible, and it would likely be unreasonable for an employee to refuse.
However, you should try to establish the reason why an employee does not want to work from home, as there may be safeguarding issues to consider (e.g. for employees dealing with domestic abuse).
If employees are working from home as normal, they should receive their normal pay.
What does this involve?
On 20 March, the government announced the introduction of ‘Furlough Leave’ as part of the Coronavirus Job Retention Scheme (CJRS), to allow businesses to retain employees whom they would otherwise have to “lay off”.
However, the government’s wording has shifted over the different iterations of the guidance and an employee no longer needs to be at risk of redundancy to be furloughed.
The latest government guidance states that the scheme is designed:
“to help employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy. However, all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus.”
The Treasury Direction to HMRC (which contains authority and instructions for making payments under the Coronavirus Job Retention Scheme) also reflects this, stating that the furloughing must simply be “by reason of circumstances arising as a result of coronavirus or coronavirus disease”.
Whilst the CJRS was initially due to end on 31 May 2020, it has now been extended on two occasions and will now continue until the end of October 2020. The scheme will continue without changes up until the end of July, with the government paying 80% of furloughed employees’ wages. From August, employers will be required to share the cost of the scheme (remaining at 80% of wages at a maximum of £2,500 per month) with the government until the scheme ends in October.
Mr Sunak confirmed that from August the scheme will provide for greater flexibility, allowing employees to return on a part-time basis in order to support the transition back to work. Details of the changes to the scheme – including how payment of wages will be apportioned between employers and the government – will be confirmed at the end of May.
Under the CJRS, employers can apply for a grant that covers 80% of a furloughed employee’s usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. This will be paid into employer’s bank account and must be paid to employees in full (subject to the usual deductions). There can be no “windfall” for the employer, and no part of the grant should be netted off to pay for the provision of benefits or a salary sacrifice scheme.
Employers can decide whether they wish to top-up the remaining 20% of employees’ pay.
Employee rights during furlough leave
Furloughed employees continue to have statutory rights, including: “Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments”.
On 24 April 2020, the government announced that furloughed workers taking paid family-related leave (including statutory maternity, paternity, shared parental, parental bereavement and adoption leave) commencing on or after 25 April 2020 are entitled to receive pay based on their usual earnings rather than furlough pay. This ensures that their statutory pay will not be impacted by a prior period on furlough.
Government guidance has- finally- confirmed the position regarding holiday and furlough, which is as follows:
- Whilst furloughed, employees continue to accrue leave as per their employment contracts. Employers and employees can agree to vary holiday pay entitlement as part of the furlough agreement, however they cannot go below the minimum of 5.6 weeks of statutory paid annual leave each year.
- Employees can take holiday whilst on furlough. NB An employer must still consent to this and can restrict when leave is taken (both during furlough and the recovery period) if there is a business need.
- Holiday taken during furlough should be paid at an employee’s usual holiday pay rate, in accordance with the Working Time Regulations, namely:
- at an employee’s normal rate of pay; or
- where an employee’s rate of pay varies, calculated on the basis of the average pay the employee received in the previous 52 working weeks.
- Employers are obliged to pay the additional amounts over the grant, namely to “top up” the 80%.
- If an employee usually works on bank holidays, their employer can agree that this is included in the grant payment. If an employee usually takes a bank holiday as leave, their employer would either have to top up their pay to their usual holiday pay or give them a day of holiday in lieu.
Which employers are eligible?
The scheme applies to:
- organisations with a UK payroll and UK bank account, including businesses, charities, recruitment agencies and public authorities;
- who created and started a PAYE payroll scheme on or before 19 March 2020;
- who enrolled for PAYE online; and
- who notified employees to HMRC on an RTI submission on or before 19 March 2020.
Where a company is in administration, the administrator of the company can also access the scheme but should only do so if there is a reasonable likelihood of rehiring the workers.
Which employees are eligible/what are the requirements?
To be eligible for furlough leave and pay, employees must meet the following criteria:
- They were on PAYE payroll and notified to HMRC on an RTI submission on or before 19 March 2020, on any type of contract, including full or part-time basis, zero hours, agency or flexible.
- They are sent home by the employer but are kept on the payroll and remain employed by the business. They must be on furlough for a minimum of 3 consecutive weeks, but this can then be extended by any amount of time whilst the employee is on furlough.
- They must not undertake any work for or on behalf of the organisation. (NB They can, however, carry out training and voluntary work, provided that they are not providing services to or generating income for the employer who has furloughed them.)
- If they were made redundant or left their employment after 28 February 2020, they can be rehired and then furloughed.
NB Although you can re-employ someone and claim furlough, you may not want to do so, as this situation involves complexities including: what is the contractual position; what happens to any PILON or redundancy payment you have made; what about when the furlough scheme ceases and you may need to make them redundant again…?
- They fall into one of the following categories:
- They went on unpaid leave after 28 February 2020. NB If an employee went on unpaid leave on or before 28 February 2020, you cannot furlough them until the date on which it was agreed they would return from unpaid leave.
- They are “shielding” in line with public health guidance (or need to stay home with someone who is shielding).
NB There has been some confusion arising from the recent change to the SSP regime, which provides that if an individual is unable to work because they fall within the extremely vulnerable category and have been advised to shield, they are deemed to be incapable of work and are, therefore, eligible for SSP.
Some people have suggested that this prevents an employer from furloughing someone who is shielding until the 12-week shielding period expires. However, this goes against the government guidance, which clearly states: “Employees who are unable to work because they are shielding in line with public health guidance (or need to stay home with someone who is shielding) can be furloughed.”
- They are unable to work because they have caring responsibilities resulting from coronavirus (COVID-19), e.g. employees that need to look after children.
- Apprentices (NB apprentices can be furloughed in the same way as other employees and they can continue to train whilst furloughed. However, they must be paid at least the Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage for all the time they spend training).
- Employees on a fixed term contract (NB their contracts can be renewed or extended during the furlough period without breaking the terms of the scheme. Where a fixed term employee’s contract ends because it is not extended or renewed you will no longer be able claim grant for them).
- Other categories of individuals who are paid via PAYE including office holders (including company directors), salaried members of Limited Liability Partnerships, agency workers (including those employed by umbrella companies); and “limb (b) workers”, namely non-employees who satisfy the definition of ‘worker’ in S.230(3)(b) of the Employment Rights Act 1996.
- On 30 April, HMRC confirmed that company directors with an annual pay period are also eligible for the furlough scheme, provided they meet the relevant conditions, including being notified to HMRC on an RTI submission on or before 19 March 2020, which relates to a payment of earnings in the 19/20 tax year. This would usually cover one-person businesses whereby most of the revenue is taken as dividends.
- Where an employee is on maternity, adoption, paternity or shared parental leave, the normal rules for maternity and other forms of parental leave and pay apply but you can claim through the scheme for enhanced (earnings related) contractual pay.
- A new employer can claim under the scheme in respect of employees of a previous business who TUPE transferred to them after 28 February 2020. NB This date has shifted from 28 February 2020 to 19 March 2020 and then back again!
Which employees are not eligible?
- they are undertaking some work/short-time working for the employer;
- they are on sick leave/self-isolating and receiving SSP. (NB They can be furloughed once they are no longer receiving SSP.)
What process must you follow to furlough employees and submit a claim to HMRC?
- First, identify which employees you want to “furlough” by considering job roles and requirements for the business.
- As reducing employees to 80% pay is a contractual variation, you should get employees’ consent to this, to avoid potential unlawful deduction from wages or constructive dismissal claims. Even if you have a contractual lay-off clause, it is safest to seek consent. In our experience, most employees are freely consenting to be furloughed.
NB If no agreement is reached in respect of furlough, and unless a contractual variation clause can be relied upon (which is unlikely), you cannot place an employee on furlough against their will. In this instance, an employee will retain their right to normal contractual pay until an agreement is reached. Placing an employee on furlough without their consent and reducing their pay to 80% is likely to open you up to claims.
- Government guidance advises that, to be eligible for the grant, employers must confirm in writing to their employee that they have been furloughed and that, if this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming the CJRS. There needs to be a written record, but the employee does not have to provide a written response. A record of this communication must be kept for five years.
However, given that a written agreement is strongly recommended wherever you are varying terms and conditions (as you are with furlough), we have always recommended and would always recommend a written agreement in any case!
- Register each “furloughed” employee and submit your claim on the government’s online portal, which opened on 20 April 2020. Detailed guidance regarding how to calculate the sums you can claim and how to submit a claim are available at:
- Although grants are being paid to employers quite swiftly after submitting their claims, employers remain liable to pay their employees’ pay in the meantime.
What can I claim?
As stated above, employers can claim 80% of a furloughed employee’s usual monthly wages, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
But what is included in wages?
Regular payments you are obliged to make
The latest government guidance confirms that, when calculating 80% of employees’ wages, an employer should use “regular payments” they are obliged to make, including:
- regular wages paid to employees;
- non-discretionary overtime;
- non-discretionary fees (this probably relates to “office holders”);
- non-discretionary commission payments; and
- piece rate payments.
Where an employee’s (contractual) overtime or commission varies each month (and, therefore, their total wages vary), they should be paid akin to the government guidance relating to “employees whose pay varies” (please see below).
When calculating 80% of employees’ wages, employers should exclude payments made at the discretion of the employer or a client (namely, where the employer or client was under no contractual obligation to pay a sum), including:
- discretionary bonuses;
- discretionary commission payments;
- non-cash payments; and
- non-monetary benefits like benefits in kind (such as a company car) and salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay.
(NB Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a “life event”. However, HMRC has confirmed that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.)
Wages for salaried employees
For salaried employees, their gross salary as at 19 March 2020 should be used.
Wages for employees whose pay varies
For those employees whose pay varies throughout the year, employers can claim for the higher of:
- the same month’s earnings from the previous year; or
- average monthly earnings from the 2019-20 tax year, providing the employee has been employed for at least 12 months.
For an employee with less than a year’s service, employers can claim for an average of the employee’s monthly earnings since they started work.
National Minimum Wage and National Living Wage
As furloughed employees are not deemed to be “working”, the National Minimum Wage and National Living Wage do not apply. As such, employees must be paid the lower of 80% of their salary or £2,500, even if this falls below the National Minimum Wage or National Living Wage. (An exception to this is that employees who are required to complete any training while furloughed must be paid the National Minimum Wage or National Living Wage for the time spent doing so, even if this means they are paid more than 80% of their salary.)
Returning from Statutory Leave
For any employees who return from statutory maternity, paternity, shared parental, adoption, sick leave or parental bereavement leave after 19 March 2020, employers should calculate their “wages” based on their gross salary, not the pay they received whilst on statutory leave.
Finally, where you normally provide benefits to furloughed employees, including through a salary sacrifice scheme, you should continue to do so while they are on furlough (in addition to their wages). You must also continue to pay the minimum employer’s pension contribution under your auto enrolment obligations. (The employee must also continue to contribute unless they opt out.)
LAY OFF AND SHORT-TIME WORKING
What does this involve?
Lay off is essentially temporary redundancy and involves giving employees no work and sending them home without pay.
Short-time working involves giving employees less than 50% of their usual work and only paying them for work done.
Employers can only lay off employees or place them on short-time working if the employment contract contains a lay off or short-time working clause. Check any contractual clause carefully to ensure that it covers the current scenario.
Although you could try to argue that you have an implied right to lay off employees, e.g. if there is custom and practice to lay off in your industry, it would be risky to rely on this, especially given the exceptional circumstances.
If you do lay off an employee without having a contractual right, this would likely be a fundamental breach of contract which could result in the employee resigning and claiming constructive dismissal (unless the employee agreed to a period of lay off). It could also lead to an unlawful deduction from wages claim.
There is no prescribed process to follow to lay off employees. You simply need to inform them that you are invoking your contractual right to do so (referring to the relevant clause).
If employees are laid off or on short-time working for 4 consecutive weeks or for 6 weeks over a rolling 13-week period, they can resign, treat themselves as redundant and a statutory redundancy payment will be payable unless the employer issues a counter notice (which essentially indicates that you believe normal work will resume within 4 weeks). The mechanism for this is complex, so please seek advice if you are considering lay off.
Whilst furlough leave is available, it is very unlikely that employers would choose to lay off an employee. However, lay-off may become more popular when the furlough scheme ends, and short time working may still be needed/useful whilst there is reduced work.
What must I pay?
Employees who are laid off or put on short-time working are not entitled to normal pay. However, holiday will accrue as normal (and could be requested, taken and paid during that period) and employees are also entitled to statutory guarantee payments of £30 per day (or the employee’s daily pay, if lower) for a maximum of 5 days in any 3-month period.
Those on short-time working will be entitled to pay for hours worked but cannot receive a guarantee payment for a day they work.
It is unclear whether, if an employee falls ill during a period of lay off, they should go on to sick pay or whether the lay off will “trump” this and nothing (save for guarantee payments) will be payable.
If an employee is on maternity, paternity or adoption leave, they should remain on their current rates of pay during a lay off. While an employer is entitled to lay off a pregnant employee, they should exercise caution to avoid claims of discrimination and should note that the employee is entitled to go on maternity leave and claim maternity pay during this time.
ENFORCED/VOLUNTARY ANNUAL LEAVE
What does this involve?
Employers can require employees and workers to take holiday on specified dates, e.g. during a business shut down, by providing notice at least twice the length of the period that the worker is being ordered to take. For example, if a business decides to shut down for 5 days, they must provide staff with at least 10 days’ notice of such. This is clearly only a short-term fix and may also be very unpopular as it will likely interfere with and possibly prejudice pre-existing holiday plans.
You can, of course, also ask people to agree to take holiday voluntarily or people may want to do so as they will receive their full pay for such period.
Workers are now able to carry forward up to 4 weeks’ unused holiday (which they have been unable to take due to COVID-19) for two holiday years. Although the right to carry forward applies to all employees, it was primarily introduced to ensure that key workers and others who cannot take holiday during the pandemic can still take that holiday in due course. Therefore, businesses might want to ensure that workers who are not in that situation still take the holiday they are accruing, rather than carrying everything forward.
What must I pay?
Employees should receive normal pay if they take holiday during a period of absence. This will, of course, reduce accrued holiday pay costs if redundancies later become necessary.
CHANGING TERMS AND CONDITIONS REGARDING WORKING HOURS
What does this involve?
Employers cannot force employees to take unpaid leave or accept reduced hours or pay. However, you can request employees’ agreement, by consulting with employees and then asking employees to sign to confirm their agreement to the amended terms. Under the circumstances, employers may present this as an alternative to other more draconian options such as layoffs and redundancies.
If employees refuse, you could consider terminating and re-engaging on new terms. However, this could give rise to an unfair dismissal claim and collective consultation may also be required if you might end up terminating and re-engaging 20 or more employees, so tread carefully and seek advice.
What must I pay?
If employees agree to reduce their hours, you should pay them the reduced pay with effect from the agreed date.
What does this involve?
If you need to close a place of business or there is a reduction in your requirements for employees to perform work of a particular kind, a redundancy scenario will arise.
Onerous collective consultation obligations will kick in if you propose to make 20+ employees redundant in a 90-day period, so please seek advice in that instance.
As with lay offs, it seems unlikely that many employers will seek to make redundancies given the availability of furlough leave at no cost to employers.
What must I pay?
An employee with two years’ (or more) service us entitled to a tax-free statutory redundancy payment.
All employees (regardless of length of service) will be entitled to notice pay and pay in respect of any accrued but untaken holiday.
What notice pay is payable during furlough is a complex matter, as there is no clear guidance on this, and employment law experts hold different views regarding whether a furloughed employee should receive their “furlough wages” or “normal” pay during a notice period while on furlough. There appear to be two possibilities, based on employment law principles, which are simplified as far as possible below.
This is based on some complex sections in the Employment Rights Act, which address what level of notice pay an employee who is “absent” from work during their notice period should receive.
These sections apply where an employee is:
- “ready and willing to work but no work is provided for him by his employer”;
- “incapable of work because of sickness or injury”;
- “absent from work wholly or partly because of pregnancy or childbirth” or various forms of statutory family-related leave; or
- absent from work on holiday.
Furlough leave may well fall within the first category, as no work is provided by the employer, although it is possible that a furloughed employee may not be “ready and willing to work”, for example, if they have asked to be furloughed because they would prefer to be at home (but they are not shielding or otherwise unable to work).
If a furloughed employee does fall within the first category, the level of notice pay they receive during furlough will depend on how the notice period in their employment contract relates to their statutory minimum notice period. (Statutory minimum notice is one week’s notice for up to two years’ service and then one week per year of service):
- If the employee’s contractual notice entitlement is less than one week more than their statutory minimum notice period, they are entitled to “normal” pay during their notice period. (Please see below for what I mean by “normal”!)
For example, an employee with 4 years’ service (and would, therefore, be entitled to 4 weeks’ statutory minimum notice) who has a 4-week contractual notice period will be entitled to normal pay during notice, rather than furlough pay, despite having agreed to be on reduced furlough wages.
- If the employee’s contractual notice entitlement is at least one week more than their statutory minimum notice period, they are not entitled to “normal” pay during their notice period.
For example, an employee with 4 years’ service (and would, therefore, be entitled to 4 weeks’ statutory minimum notice) who has a 3 month contractual notice period will only be entitled to their 80% furlough pay during notice, rather than normal pay.
“Normal” pay is based on a complex calculation relating to a “week’s pay” as follows:
- For employees with “normal working hours” where pay does not vary based on the amount of work done, a “week’s pay” is the amount payable on the day before notice was given.
If the employee has agreed to vary their contractual salary entitlement to 80% furlough pay, a “week’s pay” will be based on that.
2. For employees with “normal working hours” where pay does vary with the amount of work done, a “week’s pay” is the average pay over the 12 weeks before notice was given.
Depending on the length of the notice period, that may involve averaging out some non-furlough weeks (at 100%) and furlough weeks (at 80%).
3. For employees without normal working hours, the calculation is the same as in (b) above.
It has been suggested by some that, even where an employee is only entitled to be paid at 80% during their notice period in the scenarios outlined above, an Employment Tribunal might look for a “creative” way to find that an employee should receive 100% pay during their notice period! Therefore, the safest option will simply be to pay 100%, if that is financially viable for you.
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.