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The Coronavirus Job Retention Scheme and the meaning of furlough (21st March 2020)

Yesterday (20th March 2020), the Chancellor announced the introduction of an employee support scheme the like of which we have never before seen in the UK.  With unlimited funding being made available, the aim of the Coronavirus Job Retention Scheme (let’s just call it CJRS) is to pay grants to businesses to support as many jobs as possible.

In essence, the Government will pay up to 80% of furloughed workers wage costs, capped at £2,500 per month.  Details are sparse at the moment, but here is what we know so far:

Ø  Which employers are eligible?  The Chancellor has stated this will apply to “any employer in the country – small or large, charitable or non-profit”.

Ø  Who and what are furloughed workers?  For the purposes of the CJRS, a furloughed worker is one who is designated by their employer as furloughed (details will need to be provided to HMRC) and who then does not undertake any work for their employer during the time they are on furlough.  The aim of the scheme is to support workers who would otherwise be facing redundancy or unpaid layoffs so furloughed workers must cease working.

Ø  Can employers force employees to accept furloughed status?  Almost certainly not as a matter of law.  This would be a change to their employment status and employers will need to act accordingly as they would for any other change to an employee’s status.  That said, there may be a compelling argument for an employee to agree to this if the alternative is redundancy or layoff.  We recommend employers get legal advice before they finalise any designations of furloughed workers.

Ø  How much will be reimbursed by the State?  The reimbursement has been set as 80% of a worker’s wage costs up to a maximum of £2,500 per month i.e. an annual equivalent of £30,000.  The term “wage costs” has been used, but it is unclear what this is meant to cover.  Presumably basic salary forms part of wage costs but it is questionable whether other items often considered by employees as pay such as regular bonuses, car allowances etc. will be included.

Ø  Must employers top up the State reimbursement?  No.  Employers are permitted to fund the difference between the reimbursement and an employee’s salary, but are not obliged to do so.

Ø  When and how will reimbursement payments be made?  HMRC will administer the scheme and make reimbursement payments to employers.  They are setting up an online portal and new systems to do this, but as we write this is not yet up and running.  The Government has said they expect the first grants to be paid “within weeks” and certainly before the end of April.  To help with bridging any cashflow gap, the Coronavirus Business Interruption Loan Scheme will be available starting Monday 23rd March.  These loans will be interest free for 12 months and will be administered by the commercial banks.

Ø  How long will the Scheme last?  The Chancellor has said CJRS will be open initially for at least three months and that he will extend it for longer if necessary.  He has also stated there is no limit on the amount of funding available for the scheme.

I find the use of the expression “furlough” an odd choice for a scheme like this.  It is widely used in the USA where it has a connotation of being laid off without pay which is not at all what this scheme is doing.  The British Army used it in the 1800s (particularly in India) and during the First World War, soldiers who

had been wounded, after recovering and before returning to a Base Depot or training establishment, were granted furlough.  Often it had adverse financial consequences as a soldier on furlough was commonly not paid at the same rate as a soldier serving in a unit or one on short leave.

That is a minor niggle though.  This is an enormous financial commitment by the Government and will be welcomed by employers and employees alike.  Much more detail is needed and we will bring you further updates as we become aware of that detail. 

Posted on 24 March, 2020 by Ortolan

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