The coronavirus job retention scheme (CJRS) has allowed many businesses to stay afloat. Richard Davey explains what your responsibilities are for providing employee benefits for furloughed workers.
Wikipedia states that the term 'furlough' was “first defined officially in the UK on 24 March 2020 in response to the COVID-19 pandemic”. It is now something many employers are discussing daily as the lockdown continues and slows many businesses down.
Provision of employee benefits for furloughed workers
While the concept of furlough is new to the UK, the US has run similar subsidised schemes previously and, according to various sources, the provision of employee benefits such as pension, group life, income protection and healthcare has continued for furloughed workers.
That is not to say this trend needs to be followed, certainly during these difficult times. Let us consider the benefits available to employers and what needs to be considered when reviewing benefits strategy in respect of furloughed workers.
While the private sector has agreed to re-allocate many of its facilities to the NHS, which will mean that planned procedures and future appointments may be delayed or postponed, private healthcare schemes remain valued by employees.
An employer can decide to continue to offer cover to furloughed members. The cost of cover will normally remain unchanged, but furloughed workers may elect to opt-out of the scheme, given the P11d costs that are associated with such policies.
Furthermore, where there is the option for an employee to pay for cover for their partner or family, for example, as an employee-funded benefit, an increase in members opting out could be expected to put more cash in their pay packet.
Where schemes have specific underwriting requirements prior to being accepted into the plan, employers need to check with their advisers how opting out may impact cover if the member decides to re-join the plan when returning to full-time work.
Life Assurance, income protection and critical illness schemes will still allow employers to have the option to retain pre-furlough cover levels for benefits, which are based on a multiple of salary, or these can be reduced, as decided by the employer. However, scheme documentation needs to be amended to allow for furloughed workforce. Most importantly, life assurance scheme rules are likely to need reviewing in order to pay any benefit in the event of a claim in the most tax-effective way for furloughed workers.
The consideration of contractual obligations cannot be overlooked and benefits that form part of an employee’s contract need to be guaranteed, or the terms and conditions of the contract need to be amended, with legal input likely required. It will be essential that all policy wordings are updated and mirror any change in the contract or terms and conditions to ensure employees remain eligible for cover.
For employers who are considering reducing benefits for furloughed workers in line with salary, it is essential that you seek specific benefits advice to ensure that those affected can recover their previously accepted benefits when back to full-time employment. If this is not agreed with the insurers, employers may be exposing themselves to shortfalls in cover, certainly where furloughed workers are not in the office on the date they restart full-time work.
Ultimately, we know that employers will be looking to reduce spend as far as possible. We can review existing programmes from a cost-cutting perspective to help ease the temporary financial burden employers face while maintaining a long-term view that businesses will return to normal and packages can be re-instated at a later date.
Businesses that operate flexible benefit plans may have additional considerations if they must furlough employees for a period of time, especially when provided by way of a salary sacrifice.
Under a salary-sacrifice agreement, the employee is varying their employment terms and conditions to reduce their pay in return for a benefit, eg, additional life insurance, adding dependants to private medical cover or buying additional holiday. Furloughed workers may wish to elect to reduce benefits while on reduced pay to maximise salary, which will involve opening a window to enable members to change these selections.
Key points to think about
Prepare for pension contribution changes and alterations
Notify your benefits intermediaries of any insurance benefit where the premium is based on the individual’s salary or any policy amendments are being considered
Care should be taken as opting out of some benefits may not entitle you to re-join at the same cover level
Speak to your intermediary and platform supplier to check beforehand, as additional fees may apply to allow changes
Annual leave will continue to accrue for furloughed workers
Consider employees on long-term sick or self-isolating to ascertain whether they can be furloughed and what happens in the event of either scenario
Review current sick-pay policies
Check salary-sacrifice arrangements are still usable through your legal or tax adviser
Communicate effectively with staff
Note that this article has been prepared as a guide only, does not represent any legal or tax advice and is based on information provided through various sources that may alter at any given time in the future.
If you would like to discuss this further, get in contact with Richard Davey.