Furlough pay is part of a scheme provided by the Government to protect employees from being laid off. Employers can claim a grant to assist in the salary cost of its workforce. The Coronavirus Job Retention Scheme now covers workers employed up to March 19. But what are the rules of the scheme related to minimum wage?
What is the Coronavirus Job Retention Scheme?
The Chancellor of the Exchequer Rishi Sunak introduced the Coronavirus Job Retention Scheme in March.
The scheme is designed to safeguard workers from being made redundant and is available to all UK-wide employers.
The scheme is initially open for three months and can be backdated to March 1.
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How much can you get under the scheme?
HM Revenue and Customs will provide a grant to cover 80 percent of a worker’s usual wage.
This amount can be up to a maximum of £2,500 a month, plus associated Employer National Insurance contributions and minimum enrolment employer pension contributions on that subsidised wage.
This means £3,125 per month, which is equivalent to a gross salary of £2,500.
You should not apply for the worker’s previous salary.
Any employer can voluntarily choose to top up an employee’s salary to reach 100 percent, but this is not obligatory.
How does the furlough scheme work regarding minimum wage?
Minimum wage workers or those earning close to the minimum wage will likely receive less than minimum wage if they are furloughed.
The current National Minimum Wage and National Living Wage amounts increased on April 1.
The minimum wage rates are as follows:
- 25 and over: £8.72 an hour
- 21 to 24: £8.20 an hour
- 18 to 20: £6.45 an hour
- Under 18: £4.55 an hour
- Apprentice: £4.15 an hour.
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- Are sick pay, pension contributions and bonuses affected by furlough?
Furlough basically means a temporary leave of absence.
It is an official designation and means employees are retained rather than laid off to protect the UK economy.
Employers must consult and agree with employees to furlough them.
Changing the status of employees is always subject to existing employment law so it is important to bear this in mind before furloughing workers.
Legally, employees are only entitled to the National Living Wage or National Minimum Wage for the hours they are working.
Furloughed employees are officially workers on temporary paid leave, meaning they are not working.
If an employer works at all, it is illegal to use the furlough leave grant.
The Government will not pay more than 80 percent of any salary, up to £2,500, regardless of how low or high one’s salary is.
This means, an employer could reduce a worker’s pay to 80 percent, even if based on their normal hours that would bring it below the National Living Wage or National Minimum Wage.
However, employers are entitled to undertake training while on furlough.
CIPD explained: “If employees are required to complete any job-related training while they are on furlough leave (which is permitted as long as it doesn’t involve them in providing services to, or generating revenue for or on behalf of their organisation) they should be paid at least the National Minimum Wage rate.
“Similarly, apprentices should receive at least the National or Apprenticeship Minimum Wage or the National Living Wage.”
Any time spent on training is treated as working time for the purposes of the minimum wage calculations and must be paid at the appropriate minimum wage, taking into account the increase in minimum wage rates from April 1, 2020.
Therefore, employers need to ensure that the furlough payment provides sufficient monies to cover these training hours.
Where the furlough payment is less than the appropriate minimum wage entitlement for the training hours, the employer will need to supplement this income to ensure it at least reaches the appropriate minimum wage is paid for 100 percent of the training time.
Where a furloughed staffer earns a salary close to minimum wage levels and is asked to undertake training courses for a substantial portion of their usual working time, employers are recommended to seek independent advice or contact Acas.
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