#Furlough - we know more than we did a few weeks ago, but do we know enough?
This week we have had the most discussions with clients about Furloughing and thought it would be useful to focus on some of those points that have come up.
This week has seen those businesses look to work out the impact of the down turn of trading on their finances As a result, there have been a lot of businesses who have furloughed staff this week, seeing the 1st of April as an obvious time to do this from a payroll perspective.
Here comes the caveat....... we are not Lawyers so if you want “advice” then please do use an Employment Lawyer, we know some fantastic people so ask if you need one!
However below are some views and insights on some specific points:
You are not allowed to work for the company who furloughed you, but what does “work” mean?
The government guidance states that the individual can undertake training or volunteer subject to public health guidance, as long as they are not making money for the employer or providing services to the employer.
The debate this week has been around whether an employee being involved in chasing up an outstanding debt would be classed as “work”. Our view is that we need to consider the guidance and the legislation but there has to be some common sense in this. We believe it would be ridiculous if the answer to that question was NO! If by that individual having a quick conversation with a client or customer they know, gave the business the best ability to recover the debt, then this would be positive for the cash flow of the business. Essentially this could be seen as decreasing the likelihood of more people being furloughed in the organisation.
We would advise anyone who asks employees to do this sort of role however, check with your employment lawyer and also be very careful your employee is not drawn in to dealing with client/customer queries or talking to them about additional work, we are of the view this very much would be seen as “making money” or “providing services”. We obtained specific legal advice on this area and know that there is pressure on the government to provide further clarification.
In addition to the points above we have suggested to some clients that they suspend access to key systems, therefore they can demonstrate the individuals were not able to work if HMRC ever asked.
What about statutory directors and furloughing?
We thought it was important to look at the role of a Statutory Director in the context of them “working”.
To confirm, the same rules apply under the scheme to Directors as they do to Employees. What we would remind people is that under a furlough scheme the Director is furloughed as an “Employee” (ie. They were on the PAYE system at 28 February 2020 of the company) and as the government has continually stated the Furlough process is set up as an alternative to redundancy. Therefore whatever decision Directors take they need to go back to the substance of why the scheme was set up in the first place. ie. are they doing this as an alternative to making themselves redundant?
So what about Directors duties? There has been additional comments from HM Treasury that a Director can still fulfil their statutory duties whilst furloughed. However for clarification, one of the formal duties of a director under the companies act is to "promote the success of the company."
Clearly in reality there will be obvious duties to fulfil such as filing accounts etc but the big question is around what duties can they do in order to “promote the success of the company”. We have seen some advisers state that even tweeting or posting on LinkedIn about the business constitutes working but doesn't that fall under the banner of promoting the business.......who knows!?
We are aware that the Institute of Directors have asked the government to clarify the point about “work” vs “promoting the success of the company”. If there are specific queries then please get legal advice.
In addition to the above, there are also many businesses out there that have said they need to have a business when this is all over! By not having staff able to work on tenders or proposals it is extending the potential trading problems when the world returns to normal. We can see the logic in this and we are aware that yesterday the CBI has raised this specific point with the government.
What about the different roles in a board of Directors?
There is an interesting debate to be had about a Board of Directors. For example, if a company had the following structure:
- Managing Director
- Sales Director
- Operations Director
- Finance Director
- Non-Executive Director
The big question is what day to day duties do each of these individuals do which would be classed as “employment” duties and what would be “statutory” duties, the obvious one would be those of the Finance Director dealing with statutory filings at companies’ house. However for the others, such as the Operations Director, the majority if not all of their day to day duties would likely fall under "employment" duties. We would advise directors be careful about what duties they fulfil whilst in furlough. As noted above the big unanswered question is “what is classed as work and what is classed as fulfilling director’s duties?" such as “promoting the success of the company”…..?
We thought it was also worth pointing out the role of a Non-executive Director (NED). The institute of Directors (IoD) have confirmed this week that their view is that a Non-executive Director is not a permanent employee and therefore cannot be furloughed. However, again there has been no guidance on this specific point from the government. They would also clearly need to be on the payroll as at 28 February to qualify.
Can we only put people in the furlough scheme if redundancy was the alternative?
The government previously indicated that the furlough scheme was an alternative to redundancy, lay-off or unemployment. Essentially the ethos is that it is seen as a last resort prior to redundancy. The guidance for employees refers to furlough as applying when the employer is unable to operate or has no work for the employee to do, but there is no explicit requirement in the latest guidance for employers to show that redundancy was the alternative.
It seems that HMRC may have accepted that putting employees on a furlough scheme which means they are not working is enough to show that they would otherwise have been made redundant. The guidance does state, however, that the scheme is “designed to support employers whose operations have been severely affected by coronavirus”.
Importantly, note that the government has indicated that it will retain the right to retrospectively audit employers, with scope to claw back fraudulent or erroneous claims. We believe from discussions with clients a lot of people think there will be some discretion, but they should not be abusing the scheme.
What about holiday during furlough?
The overarching message here is, be careful what you ask your employees to do! We are aware that different businesses have taken varying stances when it comes to holiday. There has been limited guidance on this and if you are asking people to take their own holiday and paying at a reduced amount then this may cause problems in the future with your claim. ACAS guidance seems like the best place to look at this https://www.acas.org.uk/coronavirus/using-holiday
How do I know if I am able to claim back sick pay I have had to pay out?
If you employ less than 250 people then you are likely to be eligible to claim back the sick pay you have paid out at the standard SSP rates. There is some useful guidance here:
Please continue to use the government’s website for the detailed guidance. We are pleased to see that there are constant updates to this and links to specific schemes in place.
The site that has the details about how to claim for wages when an employee has been furloughed is below:
https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme