Leducate Explains: What is furlough?

What is furlough?

What do the terms mean?

Furlough: A temporary leave of work, usually because there is not enough money to pay the worker

PAYE: Pay as you earn - the way most people pay income tax and national insurance based on how much they earn

HMRC: Her Majesties Revenue and Customs - the government department responsible for collection of taxes

The restrictions following the outbreak of COVID-19 have had a significant impact on the UK economy; causing the work of many businesses to come to a halt. This includes the likes of high street shops, food chains, airlines and premier league football clubs.

In response to this, the Government have introduced ‘furlough’ leave as part of the Government Job Retention Scheme. The scheme has been designed to support employers whose businesses have been affected due to coronavirus by paying their employee’s wages and in turn, protecting employees from being made redundant (where an employer no longer needs the services of an employee because they either can’t afford them or their job no longer exists).

What is ‘furlough’?

‘Furlough’ means a temporary leave of absence from work and is not the same as being permanently dismissed. From 20 April 2020, the government agreed to support employers and pay furloughed employees 80% of their salary, up to £2,500 per month. This means employers are able to keep their employees on their payroll while not having to pay their wages, that money coming instead from the government.

The employee must have been on the PAYE payroll scheme on or before 19 March 2020 to be eligible. This includes full and part-time workers and employees on zero-hour or agency contracts. Employers can also furlough those who are shielding due to coronavirus or have caring responsibilities, making them unable to work. 

The scheme is backdated and applies from 1 March 2020. It was initially scheduled to finish at the end of June 2020, however, this has now been extended to the end of October 2020. From 1 August 2020, employers will have to start sharing the burden of paying their furloughed employees salaries with the government and employees will have the opportunity to work part-time.

Can an employee still undertake their normal working responsibilities whilst being furloughed? 

A furloughed employee is not allowed to do any work that they would otherwise have been paid for by their employer. However, they are able to volunteer in the community, or volunteer for their employer (as long they are not doing anything that would make their employer money or are providing a service). An employee is also allowed to take part in training whilst being furloughed.

Whilst it is clear that an employee cannot work for an employer, the fact that they are allowed to volunteer could leave room for employers to take advantage. This could happen where an employer places an employee on furlough in order to access the scheme and reduce their costs, yet still makes the employee do work that would make them money. This is called Employer Benefit Fraud.

Employee benefit fraud could also arise where an employer takes on an individual who does not normally work for the business as a new employee in order for them to benefit personally from the scheme. The government had put safeguards in place in order to prevent this type of fraud and HMRC have made it clear that they will prosecute any offenders.

Given the serious consequence, it is important for both employers and employees to ensure that they understand their furlough agreement and both parties should seek legal advice if they are unsure.

Can an employee work for another company whilst being furloughed?

A furloughed employee is technically able to work elsewhere whilst being furloughed, but this is dependent on their employment contract with the employer who is furloughing them. Many contracts contain an express or implied term that the employee should not work elsewhere other than for the employer, also known as a ‘loyalty clause’. It could therefore be a breach of contract by the employee, if they get another job elsewhere whilst being furloughed. It is important that employees looking for additional employment whilst being furloughed have read through and understand the terms of their employment contract.

The future impact of furlough leave

The government's furlough programme means it is now paying the wages for more than a quarter of UK jobs. Whilst this is a positive solution to a catastrophic situation, it may be the case some businesses would have been so damaged by the coronavirus that they will be unable to keep their staff working after the scheme. This may well be the case for a large number of businesses, meaning that individuals who were on furlough will have to seek new employment. The hope is that by the time the scheme ends in October 2020, the restrictions would have been lifted and businesses will be able to start paying employees in full again.

Written by Hannah Carpenter