Furlough and workforce planning

06 Apr 2020

The majority of organisations have now taken the difficult but necessary steps to address the impact of Covid-19 on staff. Those steps may include utilising “furlough”, introduced to many as a new concept by the Government support package in the form of the Coronavirus Job Retention Scheme (CJRS). In addition it is likely many will have put in place other temporary measures such as reductions in hours and pay.
Social distancing, lockdowns and closures of workplaces have  severely impacted business life but even with the relaxation of the restrictions there is a growing realisation that many companies will look very different in a few months and will need to consider what their staff requirements will be on a mid to long term basis. Those companies who use the time now to ensure they understand and  are using furlough to maximise long term business success and ensure they are ready for the future in respect of numbers of staff, skill base and experience will be better placed to meet the challenges ahead.

Furlough Considerations

Although the announcement of the CJRS on 20 March gave employers much needed breathing space to determine future employee needs and avoid initial redundancies it soon became clear that the lack of detail about the scheme raised many questions.
There have been two updates by HMRC, on 26 March and 4 April, which have provided further clarity but there remains some unanswered and important questions. The following sets out what we do know and also explores the known unknowns about the scheme. It should be borne in mind that the CJRS does not change existing employment law and is a payment scheme to allow wage costs to be reclaimed from HMRC.

CJRS: What we know so far

  • A temporary scheme open to all UK employers who had created and started a PAYE payroll scheme on 28 February 2020
  • The scheme is open for at least three months from 1 March 2020
  • Its intention is to support employers whose operations have been severely affected by Covid-19
  • Employees must agree to be furloughed, it cannot be imposed, and agreement needs to be recorded in writing and a record kept for five years
  • An employer can decide who they ask to be furloughed but must take into account discrimination legislation in their selection decisions
  • Up to 80% of furloughed employees’ usual monthly wage costs, up to £2500 a month, plus Employer NICs and minimum auto-enrolment employer pension contributions on that wage can be claimed from the, as yet unavailable, HMRC online portal
  • The scheme covers all employees, workers and salaried company directors on the PAYE payroll on 28 February 2020
  • The scheme also covers employees made redundant since 28 February 2020 if they are re-hired by their employer. It is the employer’s decision whether they wish to re-hire
  • An employee hired after 28 February 2020 cannot be furloughed and claimed for as part of the scheme
  • If an employee was placed on unpaid leave before 28 February 2020 they cannot be furloughed
  • If an employee is working on reduced hours or pay they are not eligible for the scheme
  • A fixed term employee’s contract can be renewed or extended during their furlough period and the grant claimed for the extended period whilst the CJRS continues
  • A furloughed employee cannot undertake any work whilst furloughed by the employer claiming the furlough wage costs from HMRC
  • A furloughed employee can work for another employer whilst on furlough if their employer permits this, they can take part in volunteer work and they can undertake training provided they are not providing services or generating revenue for the employer. The updated guidance states “Furloughed employees should be encouraged to undertake training”
  • Annual leave will accrue during the furlough period
  • If an employee is on sick leave or self isolating and therefore receiving SSP they cannot be furloughed until they would have been able to return to work
  • An employee shielding in line with public health can be furloughed
  • An employee who is unable to work due to having caring responsibilities resulting from Covid-19 can be furloughed. This will include those who are looking after children because schools and nurseries are closed and also those who need to look after dependents who are ill or self isolating due to Covid-19
  • Maternity, adoption, shared parental and paternity pay and leave rights remain but whilst an employee is receiving statutory pay in respect of these rights the employer will not be able to claim the furlough wage costs
  • An employee can be made redundant whilst on furlough – statutory redundancy payment rights and unfair dismissal rights are maintained during furlough
  • An employee needs to remain on furlough for a minimum of three weeks but can be brought back to work on a rotating basis and therefore furloughed multiple times provided it is for a minimum three week period
The CJRS contains further detail about calculation and components of the wage costs to be claimed from HMRC.

CJRS : What we don’t know

  • Annual Leave 
Although annual leave will accrue during furlough it is unclear whether the taking of annual leave during furlough will break the furlough leave period. If it did do this then the next issue would be how that impacts on the claim for wage costs from HMRC. Further guidance on this is quickly needed as many employers want employees to use annual leave now rather than build up large amounts of annual leave to be taken later in the year or in the event they left employment which they would be entitled to be paid for. Until clarity is provided on this point employers should be cautious about requiring people to take annual leave during furlough. Acas guidance initially suggested annual leave could not be taken during furlough and employers would not be able to require employees to take it but on 2 April further Acas guidance (non-binding) stated that employees on furlough could take annual leave.
It is also unclear if annual leave is to be permitted during furlough what the correct calculation of the holiday leave should be i.e. 80% being the wage costs paid to the employee or 100% utilising the normal remuneration calculations for annual leave set out in the Working Time Regulations.
  • When employers will receive the grant from HMRC
The online portal for claims is not yet open and taking into account the numbers of claims that will be received it is likely that grant payments will not coincide with the dates employers are contractually obliged to pay staff. HMRC have said they expect the claims portal to be open by the end of April but this will not be soon enough for most employers’ April pay dates. Therefore employers will be need to be ready to pay staff the agreed furloughed wage costs even though they may not have received the HMRC grant.
  • TUPE transferred employees
If an employee transferred by TUPE to another after 28 February 2020 there is uncertainty over whether their current employer can furlough them as they were not on the new employer’s payroll as at 28 February. Whilst it would seem harsh for this eligibility requirement to exclude employees when all other rights of the employment contract are transferred there is nothing in the TUPE legislation which would transfer a right between third parties i.e. between the new employer and HMRC, to apply to the employee.
  • Timing of Collective Consultation requirements
Proposals to terminate the employment of 20 or more employees for redundancy reasons will require a collective consultation period of 30/45 days depending on the numbers to be made redundant. Whilst seeking to place employees on furlough is not in itself a redundancy, if an employee does not agree to the furlough changes it may be necessary to then move to either a forced change to terms and conditions or dismissals for redundancy reasons. It is not expected that the proposal to put employees on furlough will at that stage require collective redundancy consultation but employers do need to consider carefully when the consultation requirement is triggered. The latest guidance published on 4 April makes specific reference to the possibility of engaging collective consultation processes to procure agreement to changes to terms of employment and this is an area likely to be subject to considerable scrutiny. However the time periods involved in collective consultation and the temporary duration of the scheme do not sit comfortably together.

Phase 2 Planning

The furlough period will end and employers will move from the dependency on the CJRS to having to fund all wage costs again and employers will need to consider a range of measures to achieve costs savings and create the right workforce for the future.
Collective consultation requirements, as referred to above, will be necessary where large scale redundancies and/or changes to terms and conditions are required. Establishing the framework for collective consultation now will save time and money when plans need to be activated.
Tough questions will need to be asked on what skills and experience are essential to the business moving forward and how many employees will be needed. Having a clear business rationale will support communications with employees who will be impacted and provide evidence of business need in redundancy and changes to terms and conditions scenarios.
Selecting employees for redundancies is often where companies come legally unstuck in being able to show a fair and reasonable selection criteria and application of that criteria to individuals. Employers need to ensure they have objective selection criteria and preparing that now to use if necessary will be time well spent. As will be collating and reviewing the evidence that will be used to apply that selection criteria to individuals who may be at risk of redundancy.
Employment Tribunals will still apply the fairness tests to dismissals irrespective of Covid-19 difficulties and any actions taken in the next few months which are likely to result in redundancies will be scrutinised for fairness when assessing claims.
With the fog of furlough starting to lift with updated guidance and employees having certainty over levels of pay in the next few months, employers now have time to not only address needs for the future but also to reflect on the largely positive spirit of co-operation that has been seen from employees in response to tough measures. Maintaining and improving good employee relations have never been needed as much as they are now.

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