It was on 20 March that the Chancellor announced the temporary introduction of the Coronavirus Job Retention Scheme, more commonly known as the furlough scheme. The practical implications of this unprecedented measure have been debated constantly ever since. That debate continues. Even though extensive guidance about the changes to the scheme from 1 July onwards has been published and a third Treasury Direction issued on 25 June, the complexities of flexible furlough, particularly the calculations for working out pay, have generated a great deal of debate. These recent changes have considerable implications for employers and their staff and current furlough agreements.
However, it’s not just the new provisions about flexible furlough that are newsworthy. On 8 July, the Chancellor announced a Job Retention Bonus in his “Plan for Jobs”. The Government will introduce a one-off payment of £1,000 to UK employers for every furloughed employee who remains continuously employed through to the end of January 2021. Employees must earn above the Lower Earnings Limit (£520 per month) on average between the end of the Coronavirus Job Retention Scheme and the end of January 2021. Payments will be made from February 2021 and further details about the scheme will be announced on 31 July. A number of high profile businesses have already announced that they will not be taking up the option of this payment. Others have stated that they are in fact in a position to pay back their furlough grants.
By way of a reminder, under the original furlough scheme announced back in March, if employers cannot maintain their current workforce because their operations have been severely affected by coronavirus, they can furlough workers and apply for the grant from HMRC as mentioned above. An employer can choose to top up a worker’s salary beyond the 80% but is not obliged to do so, although it is important that employers have the agreement of furloughed staff to a reduction in pay if they are not topping up. There has been considerable discussion and speculation recently about a possible change to the stated purpose of the scheme. This is because of specific wording in the third Treasury Direction about “continuing the employment of employees in respect of whom the CJRS claim is made“. The revised wording has potential implications for working out notice including on redundancies and has caused some uncertainty. On 17 July however, HMRC confirmed that employers can continue to claim for a furloughed employee who is serving a statutory or contractual notice period, but grants cannot be used to substitute redundancy payments.
For furlough before 1 July, it was a key principle of the scheme that workers could not do any work for their employer, although in certain circumstances they could take part in volunteer work, study or training. From 1 July, the revised scheme allows furloughed workers to work part-time (flexible furlough) for any amount of time and any shift pattern and employers are required to pay employees in full for the hours worked.
As at 19 July, 9.5 million workers had been placed on the Government’s furlough scheme which has cost £29.8bn so far. The similar programme for self-employed workers has seen 2.7 million claims made worth £7.8bn. Clearly, the ongoing cost of the scheme was not sustainable in the long-term and it was inevitable that, with a four-month extension of the scheme to the end of October announced on 12 May, changes had to be made. The Chancellor stated that he wanted “to avoid a cliff edge and get people back to work in a measured way”. Headlines of this were announced on 29 May, and on 12 June, HMRC published numerous updated Government Guidance documents on its websites with further details. That Guidance has been updated several times since and new Guidance has been published to assist employers in making the appropriate calculations for establishing “usual hours” worked and “furloughed hours”,
Headline changes from July
- As we know, the scheme will remain in place for all sectors and regions of the UK, although in the updated Guidance published on 12 June, employers were reminded that if they have staff costs that are publicly funded (even if the employer is not in the public sector), the employer should use that money to continue paying their staff, and not furlough them.
- There will be no change in how the scheme operates until the end of July in relation to any employer contribution. This means that the Government will continue to reimburse employers for 80% of furloughed workers’ wages up to a maximum of £2,500, minimum automatic enrolment employer pension contributions and employer National Insurance contributions (NICs) on behalf of their furloughed workers. The scheme was closed to new entrants from 30 June and accordingly, new staff being placed on furlough for the first time had to be furloughed by 10 June to satisfy the minimum period of furlough of 21 days. However, late on 9 June, the Government announced that the cut-off date of 10 June does not apply to those returning from maternity, paternity, adoption, shared parental or parental bereavement leave, providing the employer has previously furloughed some employees. On 19 June, the Government announced that the cut-off date does not apply to military reservists either. Employers can furlough an employee who is a military reservist returning to work after a period of mobilisation that ends after 10 June, even if they are being furloughed for the first time provided that the employer has already claimed for another employee in their organisation for a furlough period of at least 3 consecutive weeks, between 1 March 2020 and 30 June.
- It had been widely reported that from 1 August, employers would be required to contribute 20% to the level of wages paid by the Government. Instead, the Chancellor announced that employers will have to pay employer NICs and pension contributions from that date. For the average claim, this represents 5% of the gross employment costs the employer would have incurred had the employee not been furloughed. The Government will still pay 80% of wages.
- From September, the Government contribution will be 70% of wages and employers will have to pay the NICs and pension contributions and 10% of wages to make up the 80% total up to a cap of £2,500. From October, the Government contribution will be cut to 60% of wages and the employer element will increase to 20% in addition to NICs and pension contributions.
- The revised scheme allows furloughed workers to work part-time, known as flexible furlough. This was expected to start on 1 August but was brought forward to 1 July, in recognition of employer support for partial furlough. Employers will of course need to pay their employees at their usual rate of pay for the days worked (and the employer NICs and pension contributions on that pay) and the remaining days will be paid under the scheme, subject to the relevant cap which is proportional to the hours not worked. Guidance on flexible furloughing, how the scheme will operate going forward, and how employers should calculate claims has been published and updated – see further below.
- Under the new scheme, (i.e. from 1 July), the maximum number of employees that the employer can claim for at any one time cannot be more than the maximum number of employees they claimed for regarding any claim ending by 30 June. This is described in the third Treasury Direction as the “high watermark number”. There are some exceptions where the cap may not apply and these are family leave returners and military reservists mentioned above. Another important exemption is “relevant transferred employees” in the context of TUPE. The transferee is eligible to claim under the scheme in respect of those employees of a previous business transferred under TUPE after 10 June if the employees being claimed for were previously furloughed by their prior employer (the transferor) for a furlough period of at least 3 consecutive weeks between 1 March 2020 and 30 June. These transferring employees can be added to the transferee’s “high watermark number”. This cap will have an impact on how many employees an employer can put on flexible furlough at the same time – see further below.
Detailed Guidance published on 12 June subsequently updated
The details of how flexible furloughing, and the furlough scheme in general, continues from 1 July is set out in the various updated Government websites. Important points to note from the updated Guidance are that:
- Previously furloughed employees includes anyone furloughed for at least three consecutive weeks between 1 March and 30 June. This removes the previous concern of some employers that it might only apply to those actually on furlough on 30 June.
- Staff can still be on full furlough – whilst the focus is on a return to work and flexible furlough, the scheme will not be limited to part time working after 1 July. This is of course very important to certain sectors, particularly, for example, the hospitality, leisure and entertainment sectors, where many staff may have to remain on furlough for some time to come.
- Importantly, the updated Guidance of 10 July, has slightly different wording about an employee’s agreement to flexible furloughing. For previously furloughed employees the updated Guidance says: “Employers should discuss with their staff and make any changes to the employment contract by agreement…To be eligible for the grant, employers must have confirmed to their employee (or reached collective agreement with a trade union) in writing that they have been furloughed…The employee does not have to provide a written response“. For the new flexible furlough scheme, the wording says: “If you flexibly furlough employees, you’ll need to agree this with the employee (or reach collective agreement with a trade union) and keep a new written agreement that confirms the new furlough arrangement.” Is this an intentional difference? The safest course could be to view it as intentional, firstly because there is currently no corresponding wording about the employee not having to provide a written response, and secondly because if an employee is working part time hours it makes sense that it must be completely agreed and recorded between the parties. However, the third Treasury Direction, which takes precedence over the Guidance, makes no mention of “the employee’s response”. It says the agreement must be made in writing, or confirmed in writing by the employer (which can be by electronic means such as email). Employers need to keep a written record of the agreement for 5 years and keep records of how many hours their employees work and the number of hours they are furloughed (i.e. not working). See “Furlough agreements” below. (In reality, regardless of what is required to claim under the furlough scheme, previously furloughed staff should have signed a written agreement as well to avoid potential claims of unlawful deduction from wages where salary has been reduced to less than 100% of pay.)
- The Guidance gives a clear example of the maximum staff on furlough in any one claim period: “For example, an employer had previously submitted three claims between 1 March 2020 and 30 June, in which the total number employees furloughed in each respective claim was 30, 20 and 50 employees. Then the maximum number of employees that employer could furlough in any single claim starting on or after 1 July would be 50.” However, note that those furloughed for the first time since 10 June because they were on family friendly leave can be added to the maximum claim number as can military reservists and certain employees in a TUPE context.
- Previously furloughed staff who were put on furlough in June still had to be furloughed for a minimum of 3 weeks even though this would take them past 1 July. It’s only those put back on furlough starting from 1 July who can have a shorter furlough period. In addition, claims for periods after 30 June can only be made from 1 July.
- The claim period will be a minimum of 1 week. Employers can only claim for less than 7 days where it includes the first or last day of a calendar month and the employer has already claimed for the period ending immediately before it (because claims cannot overlap calendar months from end June).
If there is an error and employers have overclaimed, they can correct this in the next claim and must pay back the relevant amount to HMRC and there is Guidance on this. The Guidance also states that if employers want to delete a claim in the online service, they must do this within 72 hours. For underclaiming, employers need to contact HMRC. Employers should keep a record of any adjustments for six years. Details on the calculations to be made have been added to the Government’s websites including:
- Steps to take before calculating your claim
- Calculating the claim
- Example calculations for flexibly furloughed staff
- Example calculations for NICs and pensions contributions
Implications of the changes for employers
In some sectors, such as hospitality, which is one of the last sectors to re-open, any payments that employers are required to make might be too high. Even though no employer contribution to wages is required until September, employers in the hospitality sector for example may still not be generating significant income in the coming months and may struggle to fund the NICs and pension contributions. Many have already made the difficult decision to implement redundancies. Whilst the furlough scheme will be winding down, the CBI is lobbying for other methods of wage subsidies such as making use of the Apprenticeship Levy.
The August changes may also have implications for employers who are currently topping up wages.
Flexible furlough will be welcomed by both employers and staff. Employers will need to consider for how long staff can be taken off furlough and whether the return to work will be to working from home or from their workplace. The UK Government and devolved Governments have published extensive Guidance on how to make workplaces COVID-19 secure. The tricky issue for many employers has been in deciding who to take off furlough and for how long. Employers must not act in a discriminatory way and will need a fair system of selecting who should come back to work taking into account the business needs and the skills required but with regard to equality and discrimination legislation. Offering flexible furlough may be a fair way of dividing work, but employers are limited by the maximum number of employees they have had on furlough in any previous claim period before 1 July (plus those returning from maternity and other family friendly leave, military reservists and certain transferred employees). Deciding on the length of the flexible furlough could be problematic too. Not all businesses are fully operational at the moment and employers may err on the side of caution and take workers off furlough for only relatively short periods in the first instance.
Furlough agreements under the original scheme covered a range of matters such as the period of furlough, the arrangements with regard to wages, annual leave and what notice is required to end furlough. Employers need to prepare new written furlough agreements to reflect the changed arrangements, whether this is a supplemental letter or a new furlough agreement. Similarly, where there is flexible furlough, the supplemental letter or new furlough agreement will need to specify the arrangements for returning to work. For instance, whether, the individual will be working from home or returning to the workplace. If the latter, then the employer should specify what steps they have taken to make the workplace COVID-19 secure taking into account the Guidance mentioned above.
Whatever decision is made about how to notify staff about the changed furlough arrangements, employers will need their staff’s consent prior to making any changes.
Finally, in relation to annual leave, updated Guidance from 1 July states that if employees are flexibly furloughed then any hours taken as holiday during the claim period should be counted as furloughed hours rather than working hours. Employers should not put employees on furlough for a period just because they are on holiday for that period.
Whilst there is always a balance to be struck, the amendments to the scheme overall appear to avoid the cliff edge scenario and chart a path towards a gradual winding down of the scheme. Nevertheless, some employers may take the view that even though flexible furlough is now permitted, their income is not going to increase sufficiently over the coming months to enable them to make the NICs and pension contributions from 1 August and further employer contributions thereafter. They may feel that they have no alternative but to consider reducing their workforce and making redundancies, regardless of the extension of the scheme to the end of October.
The collective redundancy consultation obligations of at least 45 days where it is proposed to make redundant 100 or more staff within a 90-day period, or at least 30 days for between 20 – 99 staff, mean that employers may already have to begin making decisions about large-scale redundancies if they know that jobs in their organisation are not sustainable, especially as employer contributions start to kick in.
Finally, it is worth mentioning another significant development. HMRC made it very clear from the outset that it takes abuse of the furlough scheme very seriously and on 9 July, it announced the first arrests for alleged furlough fraud. There have been thousands of reports of alleged fraud to HMRC and we may see more arrests in the months ahead.
This article was first written on 1 June and updated on 15 June and 24 July.
Enjoy That? You Might Like These: