Flexible furlough, unfurloughing, furlough pay and redundancy pay

Key changes to the Coronavirus Job Retention Scheme and how to calculate termination payments for furloughed staff.

It is now approaching five months since the Chancellor of the Exchequer Rishi Sunak announced the creation of the Coronavirus Job Retention Scheme (the ‘Scheme’). In the next three months, the Scheme will be changing as it winds down and support for employers comes to an end. In this article, we recap the way the Scheme is changing as it draws to a close, we look at the mechanics of flexible furlough and ‘unfurloughing’ staff. We start with a look at the new rules on calculating notice pay and redundancy pay for furloughed staff.

Calculating termination payments for furloughed staff

On 31 July the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 came into force. These Regulations make clear that the calculation of a week’s pay for the purposes listed below* must not take into account any decrease in pay as a result of being placed on furlough.

*This reasoning applies to the calculations for:

• statutory redundancy payments;
• notice pay;
• compensation for the employer’s failure to provide a written statement of reasons for dismissal;
• calculation of compensation for unfair dismissal (i.e. ‘basic’ and ‘compensatory’ awards); and
• assessment of whether an employee is to be taken as being kept on ‘short time’ working for a week (which occurs if the employee’s pay for the week is less than 50% of their usual week’s pay).

For the purposes of calculating statutory redundancy payments and the basic award for unfair dismissal, the calculation is subject to the statutory cap on a week’s pay (currently £538).

These changes will have important ramifications for employers who dismiss employees who are, or have been, furloughed and means employees will not be disadvantaged by lower pay rates during periods of furlough leave.

Recap: changes to the Scheme from 1 August

Important changes to the level of funding available via the Scheme began on 1 August.

The changes to the Scheme are:

• From 1 August, employers need to pay employer’s National Insurance Contributions and pensions contributions on the amount of furlough pay paid to furloughed employees;
• From 1 September, funding for wages from the Scheme will decrease to 70% of pre-furlough wages (with a monthly maximum of £2,187.50 on the grant available for each employee); and
• From 1 October, Scheme funding for wages will decrease to 60% of pre-furlough wages (with a monthly maximum of £1,875 on the grant available for each employee).

The government have confirmed that furloughed employees must still get at least 80% of their pre-furloughed wages or £2,500 a month (whichever is the lower), so employers will need to make up the difference until the Scheme closes. At present, there is no indication that there will be any extension to the Scheme, which is due to end on 31 October.

For employers who are utilising the new flexible features of the Scheme, the caps outlined above will be proportional to the hours not worked by the employee.

Bringing staff back to work

Snce 1 July employers have been able to bring employees  back to work on a flexible basis where the employee will work some hours a week and be furloughed for the rest.

Bringing staff back to work (whether on flexible furlough or returning to pre-furlough terms) will be a change to their working terms and conditions, following the initial change to place the employee on furlough. In this respect, usual employment law rules apply and employers should seek written agreement from the employee to any changes to their terms. In some cases, employers may be able to unilaterally change the terms if there is an express contractual right to allow them to do this, but in most cases employers will not have this right.

It is important to note that we consider here only the basic mechanics of bringing a furloughed employee back to work. Employers must also consider wider issues such as whether it is appropriate to bring an employee back to work for health and safety and personal health reasons, e.g. if the employee is a frontline member of staff and is subject to shielding or otherwise has health concerns about returning to work, or whether the employer’s business can actually continue (i.e. whether other changes will come about through any redundancy or restructuring). We recommend that employers seek specific legal advice on these key issues.

Moving an employee on to flexible furlough

Moving an employee on to flexible furlough requires written clarification on:

• What are the employee’s new hours and days of work. If this is expected to vary from week to week this should be clearly set out;
• The employee’s pay whilst flexibly furloughed. Any hours worked must be paid at the employee’s usual rate. In order to be eligible for the CJRS grant, any hours not worked during which the employee is considered furloughed should be paid at 80% of usual pay or more and any pay reduction for furloughed hours must be agreed to by the employee in advance of any such period of reduced pay; and
• Any other changes to the employee’s terms and conditions. This might include location of work, for example.

In addition, employers placing a worker on flexible furlough should reserve the right to end the employee’s furlough status. The three main ways this will occur are:

• The employer can no longer claim a grant in respect of the employee under the Scheme (e.g. because the Scheme comes to an end or the employee is no longer eligible because of changes to the Scheme rules or the employee resigns);
• The employer gives the employee notice that their furlough will end and that they will come back to work; or
• The employer terminates the employment.

Unfurloughing an employee

Ideally an employer should have reserved its rights to end a period of furlough leave on a specified period of written notice or to end furlough leave when the Scheme closes. To unfurlough an employee before the end of the Scheme, the employer should provide this notice and confirm that the employee’s pre-furlough terms and conditions will be reinstated from a specified date.

In addition, it is good practice for an employer to set out any measures it has or will be taking to accommodate the employee’s return to work. For example:

• an employer should provide information on what it has done to make the employee’s place of work safe to return to and/or measures taken to adjust the workplace to reduce the risks of coronavirus transmission;
• where appropriate, employees may be required to attend training to inform them of these measures. If so, it would be a good idea to inform the employee of this requirement as part of the notice; and/or
• if the employee has been unfurloughed but will be required to work entirely from home or flexibly from home and the office, this should be clearly notified. Where contracts do not already allow for this arrangement, employers should consult with staff to agree these changes.

Wrigleys' comment

The coming months are going to be a crucial time for individual employers as they make efforts to move towards bringing staff back to work, whilst ensuring that it is safe and practicable to do so.

Unfortunately, many employers and organisations have closed and many more will continue to be vulnerable as the UK begins to transition out of lockdown. It is therefore as important as ever that employers take care to meet their obligations and follow guidance to ensure as much risk mitigation is done as possible, not only to protect the health and wellbeing of staff, but to protect themselves from potential legal liabilities.