Coronavirus Job Retention Scheme: Updated Government and HMRC Guidance
Since the Chancellor’s announcement on 20 March that the Coronavirus Job Retention Scheme (the Scheme) would be introduced to help support business and protect jobs during the COVID-19 pandemic, there have been several updates to the various guidance notes the government has produced (together the Guidance), as well as a Treasury Direction (the Direction). This has been an evolving Scheme and some uncertainty remains, but crucially for business the government on-line portal for making claims opened on 20 April.
The following guidance is currently available on the government website:
- Check if your employer can use the Coronavirus Job Retention Scheme
- Check if you can claim for your employees' wages through the Coronavirus Job Retention Scheme
- Work out 80% of your employees' wages to claim through the Coronavirus Job Retention Scheme
- Coronavirus Job Retention Scheme: step by step guide for employers
- Reporting payments in PAYE real time information from the CJRS
There has also been the Direction which gives HMRC authority to operate the Scheme, and provides a framework for how it is managed. Unfortunately some discrepancies between the Guidance and the Direction mean that some issues remain unclear. We outline the key elements of the Scheme, and some of the areas of uncertainty.
It is important to note that the Guidance specifically states that the Scheme is designed to help employers whose operations have been “severely affected” by coronavirus to retain their employees and protect the UK economy, but recognises that different businesses will face different impacts from COVID -19. To try and prevent fraud, the Guidance makes clear that payments made on claims based on dishonest, or inaccurate information or found to be fraudulent will have to be repaid in full and HMRC retain the right to audit claims at a later date.
Overview of the Scheme
- The Scheme is open to all UK employers (including charities, recruitment agencies and public authorities) which had created and started a PAYE payroll scheme on or before 19 March 2020 and have a UK bank account.
- The Scheme is also open to employers of employees transferred to them under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) after 28 February 2020.
- The Scheme offers temporary contributions to the wages of workers payable by employers “severely affected” by the COVID-19 pandemic. It will operate until the end of October, but in a modified format from August. The government have promised further guidance towards the end of May on what the modified format will entail.
- To be considered furloughed, the employees must not be working at all for the organisation, or any linked organisation, but will remain ‘on the books’. This means they must not provide services or generate revenue for or on behalf of the employer (or any connected organisation).
- To be eligible for the grant the employers must write to their employees confirming that they have been furloughed and keep a record of this communication for 5 years. The Direction makes clear that the employer and employee must agree in writing that the employee will cease all work in relation to their employment. This may cause issues for employers who have already furloughed employees relying on implied, or deemed consent to the changes. The Guidance however was updated shortly after the Direction was issued and appears to contradict the Direction (see below).
- To avoid constructive unfair and wrongful dismissal, employers must consider how to implement the contractual changes.
- The minimum length of time an employee can be furloughed for is 3 weeks. Furlough leave can be rotated and employees can be furloughed multiple times, provided always for a minimum of 3 weeks. Each period of furlough can be extended by any amount of time whilst the employee is on furlough. However the Scheme end date is the last day that can be claimed for.
- Furloughed employees retain the same employment rights as non-furloughed employees, including in respect of unfair dismissal, discrimination, redundancy payments and statutory payments such as statutory sick pay and maternity rights and other parental rights.
- HMRC will pay 80% of a furloughed worker’s gross monthly wages directly to employers by way of a grant subject to a cap of £2,500 per month. Employers can choose to top up the grant but have no obligation to do so (although they must validly vary the employees’ contracts if they do not top up the pay).
- Employees on all categories of visa can be furloughed and the grants under the Scheme will not be classed as “public funds”.
- When the Scheme ends, the employer will need to assess at that point whether to bring the employee back to work or, depending on the circumstances, make them redundant. Grants cannot be used to subsidise redundancy payments.
- HMRC states that it retains the right to retrospectively audit all aspects of any claim.
Key points and issues
Who can claim?
- All UK businesses, including charities, recruitment agencies and not for profit organisations, will be eligible to apply for grants.
- Administrators will be able to access the Scheme but the government only expects them to do so if there is a reasonable likelihood of rehiring workers.
- Individuals can furlough employees, such as nannies, provided they are paid through PAYE and they were on the payroll on or before 19 March 2020 (and a Real Time Information (RTI) submission had been made in relation to them on or before that date).
- The government expects that the Scheme will not be used by many public sector organisations. Where employers receive public funding for staff costs, and that funding is continuing, the government expects employers to use that money to continue to pay staff and not to furlough them.
Who can be furloughed?
- The Scheme applies to employees on PAYE payroll on 19 March 2020, and who were notified to HMRC on an RTI submission on or before that date. This is a change from the earlier Guidance which had an eligibility date of 28 February and no requirement for the RTI submission. The unintended consequence of this may be that more employees are knocked out of the scheme than brought in scope as new starters from the end of February through to 19 March may not yet have been included in an RTI submission.
- Employees who were made redundant or stopped working for the employer after 28 February 2020 or after 19 March can be re-hired and put on furlough provided they were on the RTI on or before 28 February or 19 March respectively. The Scheme does not address whether the re-hire needs to be on the same terms and retrospectively reinstated from the date their employment ended. It also does not address the status of any redundancy payment already made to them. It therefore seems open to the employer to ensure a break in statutory continuity of employment and possibly offer a shorter notice period.
- The Scheme also applies to employees who have been transferred under TUPE after 19 March 2020, although this may not apply to service provision changes.
- Eligible employees can be on any type of contract including full-time, part-time, agency, flexible or zero-hours contracts. Foreign nationals are eligible to be furloughed.
- Fixed-term employees can be furloughed and their contracts can be renewed or extended during furlough without breaking the terms of the Scheme. They can also be re-hired and furloughed if their contracts expired after 28 February or after 19 March provided they were on the relevant RTI on or before 28 February or 19 March.
- The Guidance states that employees who have been placed on unpaid leave after 28 February 2020 can be furloughed, but the Direction appears to contradict this.
- Employees who were on unpaid leave prior to 28 February can be placed on furlough, but not before the date on which they had agreed to return.
- If an employer wants to furlough employees, for business reasons, who are currently off sick, the Guidance says they can do so. Those employees should no longer receive sick pay and would be classified as a furloughed employee. The Direction however appears to contradict this, stating that employees off sick cannot be furloughed before the end of their sickness period (see below).
- The Guidance states that employees who are shielding in line with public health guidance can be placed on furlough leave. There is still some uncertainty however as the SSP provisions were changed on 16 April, bringing shielding employees within their scope, meaning that the same issues arise as above with those off sick.
- Employees with caring responsibilities resulting from COVID-19 can be furloughed. The Guidance gives the example of employees that need to look after children.
- Apprentices can be furloughed and can continue to train provided they are paid at least Apprenticeship Wage, National Living Wage or National Minimum wage during time spent training.
- Individuals who are not employees can be furloughed if they are paid via PAYE e.g. office holders (including company directors), salaried members of LLPs, agency workers (including those employed by umbrella companies) and limb (b) workers. There is further guidance for these individuals on particular requirements applicable to their roles e.g. directors can continue to perform their statutory duties but not any work.
Who cannot be furloughed?
- Employees working on reduced hours or for reduced pay.
- Employees hired after 19 March 2020.
- Employees that started and ended the same contract between 28 February 2020 and 19 March 2020.
- Employees on sick leave or self-isolating should get SSP but they can be furloughed after this.
- Employees on the two weeks compulsory maternity leave after birth.
- The self-employed (for whom a separate scheme will apply as announced on 26 March 2020) including a limb (b) worker who is not paid through PAYE.
How 80% of wages costs is calculated?
- The Guidance states that employers will be able to claim the lower of 80% of the employee’s “regular wage” or £2,500 plus the associated Employer National Insurance Contributions and minimum auto-enrolment employer contributions on that subsidised wage.
- For full-time and part-time salaried employees the employee’s actual gross salary (as in their last pay period prior to 19 March 2020) before tax is used. If however, based on previous guidance, the employer has calculated their claim based on the employee’s salary as at 28 February and this differs, it can still be used for the first claim.
- For employees whose pay varies, the claim will be for the higher of:-
- the same month’s earnings from the previous year, or
- average monthly earnings from 2019-2020 tax year.
If they have been employed for less than a year, the employer can claim for 80% of their average monthly earnings since they started work until the date they are furloughed. If they have worked less than a month, work out a pro-rata for their earnings so far, and claim 80%.
- Employers can claim for any regular payments they are obliged to pay their employees which includes wages, non-discretionary overtime, non-discretionary fees and compulsory commission payments. Discretionary bonus (including tips), commission payments, non-cash payments and non-monetary benefits should be excluded.
- As stated above, the reference salary should not include the cost of non-monetary benefits including taxable benefits in kind. Nor should it include benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay.
- Employees remain liable for their own tax and employee NICs.
- As furloughed employees are not working, it does not matter if the 80% calculation takes them below national minimum wage (NMW) based on their usual working hours. However, if they are required to complete training whilst furloughed, they must be paid at least NMW for time spent training, even if this is more than 80% of their wage that will be subsidised.
- The Guidance states that salaried employees returning from family related leave, or sick leave should have their furlough pay based on their usual salary, not the pay they received whilst on leave. However, for those on variable pay, the calculation set out above is not adapted for those who have been absent. This has the potential to lead to discrimination if someone loses out substantially as a result, and it is hoped the Guidance will be reviewed on this.
The Guidance states that employers can “choose” to fund the difference between normal salary and value of the grant, but do not have to do so:
- The change to furloughed status remains subject to existing employment law and existing contractual rights under the contract of employment.
- Employers must reach and record agreement with furloughed employees to waive all or part of the excess over the value of the grant.
- If the employer chooses to top up, the employer NICs and auto-enrolment pension contributions in respect of the top-up amount will not be funded through the Scheme.
- If an employer does choose to top up the employee remains under the obligation not to work or provide services for the business.
Making the claim
- Information about the furloughed workers and their earnings are to be submitted to HMRC through a new online portal. The portal opened on 20 April.
- If the employer has fewer than 100 furloughed staff they will have to enter details of each employee they are claiming for directly into the system. If they have 100 or more furloughed staff, they will be asked to upload a file with the information.
- Grants can be backdated to 1 March 2020.
- The claim should be started from the date the employee finishes work and starts furlough, not the date when the decision is made or when the employer writes to them to confirm their furlough status.
- The claim should be made using the amounts in the employer’s payroll either shortly before or during running payroll.
- The original Guidance made no reference to holiday, but in the updated Guidance produced on 17 April, this changed. The Guidance now makes clear that holiday continues to accrue during furlough, and employees can take leave whilst on furlough.
- The Guidance says that holiday pay should be “at your normal rate of pay” calculated in accordance with the Working Time Regulations 1998 (the WTR). Employers are obliged to top up the Scheme payments to usual pay.
- What amounts to “normal rate of pay” may vary depending on whether permanent contractual pay reductions have been agreed, or whether the pay variation is only for the duration of the Scheme.
- The government has also amended the WTR to allow the carry-over of up to four weeks’ (rather than the full 5.6 weeks) statutory leave for the next two leave years, where it is not reasonably practicable for employees to take some or all of their holiday entitlement due to coronavirus.
- On 13 May further guidance was produced which seeks to explain how holiday entitlement and pay operate during the pandemic. It addresses the position both of workers who continue to work and those who have been placed on furlough.
- The Guidance states that if an employee is on sick leave or self-isolating as a result of Coronavirus, they will be able to get SSP, subject to the usual eligibility requirements. Further changes to the SSP regime on 16 April have brought those who are shielding within SSP provisions.
- The Guidance also states that short term illness/self-isolation should not be a consideration in deciding whether to furlough. If, however, employers want to furlough employees for business reasons and they are currently off sick, they can still furlough them. In these cases, the employee should no longer receive sick pay and would be classified as a furloughed employee. As stated above however, the Direction appears to contradict this, stating that employees off sick cannot be furloughed before the end of their sickness period. We hope for further guidance on this urgently.
- The Guidance states that employees on long term sick leave or who are shielding can also be furloughed. It is for the employer to decide. There is a potential contradiction between the Guidance and the Direction in relation to shielding employees however now they have been brought within the scope of SSP (as set out above).
- The Guidance states that it is up to employers to decide whether to move employees who have been furloughed and become sick onto SSP, or keep them on furlough at their furloughed rate. If a furloughed employee moves onto SSP employers can no longer claim for their furloughed salary. In most cases, the reality is that someone on furlough leave is unlikely to tell their employer they are sick as the payments while being furloughed are likely to be substantially more than SSP.
- Sickness while on furlough leave is more likely to be an issue if the employer has a generous contractual sick pay scheme where there is the incentive to notify the employer. It seems clear that a furloughed employee who is moved onto sick pay provisions cannot be claimed for through the Scheme. One option to ensure this does not become an issue would be for the employer to provide in the furlough agreement that enhanced sick pay does not apply during furlough leave.
- The other practical issue for the employer, if it is unaware that an employee is sick, arises where they are rotating staff or on giving notice to return to work. The employer will not know the employee is sick until they are due to return.
- An employee cannot be furloughed during the two week compulsory maternity leave
- Eligibility for SMP is unchanged. The government has made amendments to the SMP regulations with effect from 25 April 2020 so that normal weekly earnings are to be calculated as if the employee had not been furloughed.
- If the employer offers enhanced contractual pay to women on maternity leave, the guidance states that the enhanced rate is included as wage costs that can be claimed through the Scheme. This implies that a woman on maternity leave may wish to be furloughed in order to claim an amount higher than the rate of SMP. It is unclear but the guidance appears to suggest that she can be on maternity leave and also be furloughed.
Employer pension contributions
- The Pensions Regulator has issued separate guidance on the payment of automatic enrolment pension contributions and the Scheme.
- No payments above the minimum employer auto-enrolment contributions will be met by the Scheme and therefore contractual variations may be required in the furlough agreement if employer pension contributions are reduced. It may also be necessary to amend the pension scheme rules.
- Employers with at least 50 employees would normally have to conduct a 60 day consultation process to reduce employer pension contributions. Employers who do not comply face sanctions. In its guidance, the Regulator has stated that it will not take enforcement action for failure to comply with consultation requirements if:
- the reduction in employer pension contributions applies only to staff who are on Furlough Leave,
- the employer is making a claim under the Scheme, and
- the employer has informed affected employees of the changes.
- Employers are encouraged to carry out as much consultation as possible. Obtaining employee agreement to any reduced employer pension contributions where possible would therefore be prudent.
Agreeing ‘Furloughed’ status
Changing the status of employees to exclude them from work and reduce remuneration remains subject to existing employment law. Employers will therefore need an express right to make such changes or, more likely, require consent:
- Few contracts contain an express right to change status or lay off employees for whom the employer has no work.
- Unless such a right exists, employers will need to agree the change, or introduce it on notice.
- The Direction specifically states that to be a furloughed employee, the employer and employee must have agreed in writing that the employee will cease all work in relation to their employment. This requirement was first introduced in the Direction published on 15 April, long after many employees were furloughed and is a potential issue for employers who have relied on deemed or implied consent to the changes. Often this is the only practical solution for large employers in a financially challenged environment. The Guidance was, however, revised after the Direction was issued and states that:
“To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. If this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming the CJRS. There needs to be a written record, but the employee does not have to provide a written response.”
- This does not sit squarely with the Direction. Whilst the Direction carries more weight than the Guidance, it would be unworkable if employers who have acted in good faith on the Guidance found themselves excluded from the Scheme. HMRC will be looking out for fraud, but not to trip up employers who have acted on the government guidance available. Records must be kept for five years.
- On a practical level, ideally furlough arrangements would be agreed in writing by employees (this can be by email), but where this has not proved practical, provided employment law considerations are met, the claim under the Scheme should be valid. If HMRC fail to take a practical approach this will undermine the purpose of the scheme: to protect jobs.
- In practice, in current circumstances, most employees are likely to agree to accept furlough leave in any event.
- The Guidance also states that a collective agreement reached between the employer and a trade union is also acceptable for the purpose of the Scheme.
- The Guidance states that if 20 or more staff are affected it may be necessary to engage in a collective consultation process to procure agreement. A formal collective process is engaged if an employer proposes to dismiss at least 20 employees within a 90 day period from one establishment in order to vary contract terms. In the current climate, most employers will seek voluntary agreement with employees. In reality most employees will consider it more attractive to accept the change to be furloughed than face redundancy. Specific legal advice should be sought on handling agreements to vary the contract, particularly given the need for urgent change with which most employers are faced.
- Merely imposing the change will expose the employer to the risk of employees resigning to claim wrongful dismissal and (for those with two years’ qualifying service) unfair dismissal (as well as the issues of agreement in writing now required by the Direction). Alternatively, employees could refuse to accept the change, continue in employment under protest and later claim damages or an unlawful deduction of wages to recover the balance of their contractual salaries.
- A key issue which remains to be resolved is whether a furloughed employee will cease to qualify for the grant if the employer serves notice of dismissal. Both the Guidance and the Direction are silent on this, but the Guidance makes clear that furloughed employees can still be made redundant (although redundancy costs cannot be recovered under the Scheme), in which case it would appear to be possible to serve notice and remain on furlough, even though this is not in keeping with the spirit of the Scheme.
Only employers can apply for grants to pay the wages of furloughed workers:
- Employees cannot demand to be furloughed without their employer’s agreement.
- Selection of furloughed, retained and redundant employees could cause resentment within the workplace e.g. from employees who are retained, while their colleagues are sent home and paid 80% of their wages without having to work at all.
- The Guidance does not refer to any requirement to adopt fair criteria to make those decisions, but does acknowledge that these decisions will be subject to existing equality and anti-discrimination law.
- No grant is available for employees continuing to work normal or reduced hours, for example, due to agreed short time working. As furloughed workers cannot undertake any work for their employer, the grants cannot be used to top-up the wages of such workers.
- The Guidance states that employers are free to consider allocating any critical business tasks to staff that are not furloughed. However, employers should ensure that such duties fall within the scope of the duties which such employees are required to perform under their existing contracts. Otherwise, they must agree a variation.
- Employers may dislike rewarding, for example, half their workforce for no work at all (whilst perhaps continuing to accrue holiday) when they would prefer to have all their staff on half-time working. One possible solution would be to rotate workers on furlough, in order to treat all workers equally. However, it may be that such complexity proves administratively prohibitive for some employers.
What furloughed workers can and cannot do
Furloughed workers can:
- Take part in volunteer work.
- Undertake training and should be encouraged to do so.
- Continue working in a second job they already have.
- If their employment contract permits, take on a new job, provided they are able to return to the employer as soon as furlough ends and also to participate in any training needs of the original employer.
- If they are union or non-union representatives they may undertake duties and activities for the purpose of individual or collective representation of employees or other workers provided that while doing this they do not provide services to, or generate revenue for, the employer or any linked organisation.
Furloughed workers cannot:
- Do any work which provides services or generates income for the organisation which has furloughed them, or any linked organisation.
There are still points which need clarifying. Employers are well-advised to monitor the guidance from the government as well as ACAS, as both are being regularly updated and changed.
Aside from the rapidly evolving legal position, effective communication and transparency are key for all employers when implementing a period of furlough. Open discussion, pragmatic solutions and, preferably agreement will be critical in using the Scheme to save businesses and reduce the risk of claims.
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