• Workforce management
  • HR guide

Furlough leave: a comprehensive guide

Jazmin Lopez

Introduced in March 2020 by the UK government, the principle of work furlough is now mandatory.

Not only is it good for your business, but it's also great for your employees. Working from home isn't always an option for everyone.

This new addition to employment law allows you to retain your employees as well as ensure their safety. This is particularly important during the coronavirus crisis, particularly the one we're all facing now. Despite the coronavirus outbreak, this piece of legislation allows you to avoid unnecessary dismissal of employees and other such redundancies.

So what does furlough leave really mean? And why is it so important for you to comply? How do you ensure compliance anyway?

More importantly, how can you make a claim?

Let's take a look at each of these questions individually to get a better understanding of what your business needs.

What is furlough leave?

The concept of furlough is based on the idea of economic uncertainty.

We live in uncertain, unpredictable times. Your business, as well as your employees, need to be protected.

According to employment laws, furlough allows your employees to take a leave of absence during times of economic uncertainty or crisis. When this happens, eligible businesses may claim furlough through an online process. After the process is complete, your employees receive 80% of their wages.

This allows businesses to retain employees without having to bear the burden of costs without returns. Simultaneously, employees retain their positions, have some sense of job security despite any temporary setbacks their companies may face.

Though you do not have to bear the weight of paying monthly wages to your workers, you are welcome to pay them the remaining 20% not covered by the scheme. This, however, is not mandatory and employers are free to do so only at their discretion.

Difference between layoff and furlough leave

With furlough leave, there is an understanding that the employee must return after the duration of leave ends. However, with a lay off there is a contrary expectation.

Additionally, an employee who has been furloughed continues to retain most of their work benefits during the leave period. In particular, they maintain continued access to health insurance.

A furlough is simply an alternative to laying off or dismissing employees. It implies an agreement to resume work when possible. There is an understanding that current situations do not permit working in the same manner as before.

Laying off is generally the course of action most businesses take when they are not financially able to support the employees they've hired. This is especially important for companies where remote work is not an option.

It is in their best interest to opt for a furlough to minimize this financial burden while allowing them to retain the employees they need to perform future business tasks when feasible.

Key factors of the furlough leave scheme

Wondering what compliance means for your business? Here are a few things that happen when you put your employees on furlough leave.

  1. The employee is still on your payroll
  2. Annual leave is still accrued during this time
  3. The HMRC must reimburse 80% of your employees' wages until 30th June 2020
  4. An employee's contributions to the National Insurance is also covered
  5. The employer pension contribution is covered
  6. No coverage for fees, bonuses and commissions
  7. Employees may work part-time during July, subject to payment on the part of the employer
  8. Employers are free to place employees on the scheme only until 10th June 2020
  9. An employee may be furloughed for a minimum of three weeks

These general guidelines will help you get a better idea of what this is and how you can your business can better manage it.

Requirements for furlough leave in the UK

Can your business apply for furlough leave? If you're a UK organization, you most likely can.

  • Consider whether or not you meet the following requirements.
  • Did you create a PAYE scheme on or before the 19th of March 2020?
  • Did you enrol for a PAYE account online?
  • Do you have a bank account in the United Kingdom?
  • Is your business negatively affected by the coronavirus outbreak?
  • Are you a private organization with no public funding?
  • Do you have the consent of employees to put them on furlough leave?

If your answer to all of these questions is yes, then you are eligible.

This, of course, raises a different issue.

Which of your staff can be furloughed?

Most of your employees should be eligible for furlough leave. Here's what the eligibility criteria looks like.

  • The employee must be on your PAYE payroll
  • Notifications of RTI submissions should be made on or before 19th March 2020
  • A contractual employer-employee relationship must exits

Below is the guidelines particular to each type of contractual relationship.

Employees who can be furloughed

Wondering what kind of contracts are covered under UK employment regulations? Here's a quick list.

Any fixed-term employee can be furloughed, however, this is only applicable until the end of their term. If needed you may continue to extend their contract.

Full-time, part-time employees and agency workers can be furloughed. This includes agency workers who are under the employment of umbrella companies.

Apprentices can be furloughed, and you can continue to train them during this period.

Any officeholder within your organization can be furloughed.

Salaried company directors can be furloughed, along with salaried LLP members. However, the same rules of being on your PAYE payroll apply here. However, anyone who is working specifically for commercial revenue is not eligible for furlough leave.

Workers under contract to perform personal services may be furloughed.

Duration of furlough leave

Given that the reason for this new regulation is the coronavirus, there is bound to be uncertainty surrounding the duration. However, while the maximum period may be subject to change the minimum period is set at three weeks.

For now, the scheme has extended until the 31st of October 2020.

However, from July onwards, part-time work will be permitted.

From August, you are expected to contribute to pensions and NICs.

From September, your wage contribution extends to a minimum of 10%.

Subsequently, in October, this contribution increases to 20%.

Annual leave and work furlough: how do you keep track of both?

You want to maximize productivity, and you fear that all this talk of "leave" jeopardizes your business. However, there are several ways around this.

For one, you can encourage your employees to use their holidays during the furlough leave period itself. Secondly, review your contracts to evaluate whether the leave is a necessary part of the agreement.

However, keep in mind that the EU working time directive allows your employees to carry over at least four weeks of unclaimed annual leave on to the next two years.

Consent and furlough leave

Most employment laws do not specify the need for employers to provide work for their employees. This means that placing your employees on furlough leave without their expresses consent should be legal. However, the breach of contract arises when you are not willing to put in the remaining 20% of their salary.

In this case, you would definitely need their consent because you are going against the agreed payment. In a nutshell, they did not consent to 80% pay, therefore it is a breach of contract.

Ideally, as an employer, it is simply in your best interest to convey a new arrangement to your employees and seek their consent. Not only does it facilitate some form of transparency, but it demonstrates your willingness to take their needs and concerns into consideration.

In addition to this, do ensure that no consent was obtained under duress, fraud or threat. In the current economic circumstances, it is highly unlikely for employees to turn down the opportunity for furlough leave. It is simply more prudent to play it safe.

Keep in mind that if your employees are a part of a trade union, it is highly likely that you will have to seek permission through the trade union itself.

As a simple rule for your business, it is always best to do what you think is reasonably expected of you. This will go a long way in helping you avoid any unwarranted legal claims.

Document requirements for the HMRC

Evidence of consent and communication is important for businesses applying for furlough. This should be documented through some form of written communication, signed agreements or letters.

Now, a back and forth need not be established, however, an acknowledgement is helpful. Be sure to keep this documentation safe for at least five years.

A good HR software like kiwiHR can create safe, digital storage for all important documents.

How Coronavirus impacts your business

It is likely that these rules will be amended subject to the severity of the situation in the months to follow. Remember, the whole reason this exists to serve as a remedy for businesses and employees in financial need. The pandemic is what brought this into action, and it is what will determine the future course of these events. 

The best you can do as an employer is to play it smart, comply with regulations and keep your employees informed of any changes as soon as you hear them.

Additionally, you also need to manage and track your employees' leaves. Do not forget that while furlough leave is implemented, your employees continue to accrue other types of leave as well.

Addressing Your HR needs

Navigating all these regulations in the midst of the pandemic is no easy task. The pressure is undoubtedly high, and you do not need the added stress of managing work furlough and annual leave as well.

And that's precisely why you need quality HRIS software to help you out. 

Our software is designed to make your work a lot simpler, and quicker.

Start your FREE 14-day trial and get a taste of what your business needs. 

The benefits of using HR software

All these rules and compliance can make it difficult for you to keep track of each individual employee and their respective leaves. That's where HR software can come to the rescue. Here's how it helps you and your business:

  • Track all your employees in one convenient location
  • Track the amount of time your employees work, including dates, months and years
  • Keep track of any time off, sick leaves, annual leave, holidays and so on
  • Consolidate all important information within a single space for ease of access
  • Make onboarding a seamless experience by using features designed specifically for that purpose
  • Track payments due to your employees

HR software is a great way to make sure your employer-employee business runs smoothly and efficiently.

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