Furlough Process

Furlough Process

The UK Government’s recently announced Job Retention Scheme allows for employees to be “furloughed” for up to three months.

An employee furlough refers to a temporary leave or modification of normal working hours for a specific amount of time. It’s a leave of absence given to an employee with the promise that they will still have their job once the leave is over.

Employee furloughs are becoming common practice in both public and private-sector organisations. There are numerous reasons why employers implement a furlough employee policy, such as plant shutdowns, seasonal work, company reorganizations and reduced demand due to COVID-19.

Don’t rush into implementing an employee furlough policy without talking to your lawyer or HR specialist first.  

Furloughed workers should not undertake any work for the company, including answering calls or emails

Coronavirus Job Retention Scheme should not interrupt an employees’ continuity of service

Annual leave will continue to accrue

No PAYE tax or national insurance contributions are due

The grant is a reimbursement by HMRC so businesses may face cash flow issues

Changing the status of employees remains subject to existing employment law and may be subject to negotiation

If you decide that putting employees on furlough is the best option for you and your employees, then you need to prepare a notification letter. Your furlough notice letter should contain the following:

•    Address - This is a formal letter, a furlough notice should clearly state the date, employee’s name, and their address. 

•    Purpose – State the purpose of the letter. Get straight to the point. Include the employee’s position, department, reason for the furlough, and information about any changes to employee benefits. It is advisable to tell the employee that this action does not reflect dissatisfaction in job performance.

•    Detail - Explain what a furlough is, determine the length of the furlough, and communicate employee benefits during this period to employees.

•    Future communication - Offer a way for the employee to keep in touch. End the letter on a positive note.

 

EXAMPLE TEXT [NOTE: RUN THIS PAST YOUR HR SPECIALIST]: 

[Send to employee’s address] 

Dear [Employee name],

NI NUMBER AND / OR PAYROLL NUMBER

The purpose of this letter is to formally notify you that your position as [INSERT] on the [XXX DEPARTMENT] is being closed temporarily due to the downturn in business as a result of the COVID-19 Pandemic.

Your last official day of work will be [INSERT DAY]. Your salary and benefits will continue at their current level during the Furlough period. Please understand this action in no way reflects dissatisfaction with your job performance.

The length of this furlough is [insert future date or unknown at this time].

We will provide regular information as the current Pandemic unfolds and if and when we return to normal working routines.

A Furlough is a short-term temporary leave of absence. The furlough period and provisions may be changed or terminated at the sole discretion of the Company, and does not create any employment contract, express or implied.

During the furlough period, your pension and other benefits will continue [IF APPLICABLE].

Thank you for your contributions to the business and if I can offer assistance in any way, please contact me.

Yours sincerely,

[insert signature]

 

How businesses should prepare – the financials 

Set up the payroll with a furloughed pay element to identify the amounts for reclaim

Calculate furloughed pay based on the 12 weeks up to the end of February. Use regular basic pay but not overtime or bonuses. Please note: This is our estimate of the likely period for assessment – details still to be confirmed by the Government.

For employees off sick during that 12 weeks, base furloughed pay on the amounts excluding sick pay

Assume this is still pay and that PAYE tax and NIC deductions will be due, albeit that  payments to HMRC are likely to be deferred

This is a grant that reimburses the business, so cash flow could still be an issue. A bank facility or loan may be required to fund these payments prior to reimbursement.

Practical step by step process

1.    Identify those employees ‘at risk’ and earmarked for lay-off

2.    Analyse pay from the last 12 weeks up to the end of February (estimated timeframe, government still to confirm)

3.    Establish base pay that qualifies for 80% furloughed grant

4.    Identify employees where £2,500 cap will apply

5.    Calculate additional pay required to get to ‘normal’ pay

6.    Model options to manage any top up outside of the grant

7.    Identify employees required to remain in employment

8.    Model options to flex remuneration for those employees not furloughed, including establishing new ‘base’ pay in line with national minimum wage and employment related loans

9.    Commence communication with all affected employees including illustrations of proposed payments

10.    Obtain employee/union buy-in

11.    Implement changes to payroll and pay elements

12.    Prepare application to HMRC

13.    Register and log-on to new HMRC portal (timing TBC)

14.    Submit required information to HMRC

15.    Receive reimbursement via new system

Should you have any queries about this or need any support with implementing your furlough process, please do not hesitate to contact us.