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 continued for many months even though extensive guidance was published on changes to the scheme (which took effect from 1 July) and a Treasury Direction was issued on 25 June, the complexities of flexible furlough, particularly the calculations for working out pay, generated a great deal of debate. These changes had considerable implications for employers and their staff and for furlough agreements.
This article was first written on 1 June and last updated on 28 October.
UPDATE: On 5 November, the Chancellor announced an extension of the furlough scheme to the end of March 2021 for all parts of the UK. The Government’s contribution to employees’ wages will be 80% for hours not worked up to a cap of £2,500 per month but this will be reviewed in January. The Job Support Scheme is postponed. For more details see our article.
However, it is not just the provisions about flexible furlough that were newsworthy. On 8 July, the Chancellor announced a Coronavirus Job Retention Scheme Bonus in his “Plan for Jobs”. For more details on this, please see our article here.
We are now just a matter of days away from the ending of the furlough scheme on 31 October. Employers should note however that 30 November is the last day they can submit claims for periods ending on or before 31 October. After this date, they will not be able to submit any further claims or add to existing claims.
With the imminent closure of the furlough scheme, attention has now turned to its replacement, the Job Support Scheme (JSS) from 1 November and for more details, see our recent article on the JSS.
There are in fact two JSSs and these are JSS Open and JSS Closed.
JSS Open relates only to those businesses that are open but that are facing lower demand.
JSS Closed relates to those businesses that are required to close their premised due to coronavirus restrictions set by one or more of the four UK Governments. See our article for more details.
A number of high profile businesses have announced that they will not be taking up the option of the Bonus. 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 could not maintain their current workforce because their operations had been severely affected by coronavirus, they could furlough workers and apply for the grant from HMRC as mentioned above. An employer could choose to top up a worker’s salary beyond the 80%, but was not obliged to do so. However, it is important that employers have the agreement of furloughed staff to a reduction in pay if they are not topping up. There was considerable discussion and speculation about a possible change to the stated purpose of the scheme. This was 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 had potential implications for working out notice including on redundancies and caused some uncertainty. On 17 July however, HMRC confirmed that employers could continue to claim for a furloughed employee who was serving a statutory or contractual notice period, but grants could not 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. Since 1 July, the revised scheme allowed furloughed workers to work part-time (flexible furlough) for any amount of time and any shift pattern and employers were required to pay employees in full for the hours worked.
As at 20 September, a total number of 9.6 million workers had been placed on the Government’s furlough scheme, which has cost £39.3 billion so far. The similar programme for self-employed workers (i.e. the Self-Employment Income Support Scheme) has seen 2.7 million claims worth £7.8 billion made under the first tranche of the scheme, which closed on 13 July, and, so far, a further 2.2 million claims worth £5.6 billion made under the second tranche of the scheme, which opened on 17 August.
Clearly, the ongoing cost of the furlough 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, most recently on 2 October and Guidance was also published to assist employers in making the appropriate calculations for establishing “usual hours” worked and “furloughed hours”.
Headline changes as of July
- As we know, the scheme remained in place for all sectors and regions of the UK, although in the Guidance published on 12 June, employers were reminded that if they had staff costs that were 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 was no change in how the scheme operated until the end of July in relation to any employer contribution. This meant that the Government continued 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 did not apply to those returning from maternity, paternity, adoption, shared parental or parental bereavement leave, providing the employer had previously furloughed some employees. On 19 June, the Government announced that the cut-off date did not apply to military reservists either. Employers could furlough an employee who is a military reservist returning to work after a period of mobilisation that ended after 10 June, even if they were being furloughed for the first time provided that the employer had 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 and made a claim for them by 31 July.
- 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 would have to pay employer NICs and pension contributions from that date. For the average claim, this represented 5% of the gross employment costs the employer would have incurred had the employee not been furloughed. The Government would still pay 80% of wages where someone was fully furloughed.
- From September, the Government contributed 70% of wages and employers had 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’s contribution was cut to 60% of wages with the employer element increased to 20% in addition to NICs and pension contributions.
- The revised scheme allowed 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 needed 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 were paid under the scheme, subject to the relevant cap which is proportional to the hours not worked. Guidance on flexible furloughing, how the scheme operated, and how employers should calculate claims was published and updated – see further below.
- Under the new scheme, (i.e. which took effect from 1 July), the maximum number of employees that the employer could claim for at any one time could not 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 were some exceptions where the cap may not apply and these were family leave returners and military reservists mentioned above. Another important exemption was “relevant transferred employees” in the context of TUPE. The transferee was 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 and a claim was made for them by 31 July. These transferring employees could be added to the transferee’s “high watermark number”. This cap had an impact on how many employees an employer could 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, continued from 1 July was set out in the various updated Government websites. Important points to note from the updated Guidance are that:
- Previously furloughed employees included anyone furloughed for at least three consecutive weeks between 1 March and 30 June. This removed the previous concern of some employers that it might only apply to those actually on furlough on 30 June.
- Staff could still be on full furlough – whilst the focus was on a return to work and flexible furlough, the scheme was not limited to part time working after 1 July. This was of course very important to certain sectors, particularly, for example, the hospitality, leisure and entertainment sectors, where many staff remain on furlough .
- Importantly, the Guidance of 10 July, had slightly different wording about an employee’s agreement to flexible furloughing. For previously furloughed employees the updated Guidance said: “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 said: “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.” Was this an intentional difference? The safest course could be to view it as intentional, firstly because there was no corresponding wording about the employee not having to provide a written response, and secondly because if an employee was working part time hours it made sense that it had to be completely agreed and recorded between the parties. However, the third Treasury Direction, which took precedence over the Guidance, made no mention of “the employee’s response”. It said 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 five years and keep records of how many hours their employees worked and the number of hours they are furloughed (i.e. not working). See “Furlough agreements” below. (In reality, regardless of what was 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 had been reduced to less than 100% of pay.)
- The Guidance gave 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 could be added to the maximum claim number as could 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 took them past 1 July. It was only those who were put back on furlough starting from 1 July who could have a shorter furlough period. In addition, claims for periods after 30 June could only be made from 1 July.
- The claim period was a minimum of one week. Employers could only claim for less than seven days where it included the first or last day of a calendar month and the employer had already claimed for the period ending immediately before it (because claims could not overlap calendar months from end June).
If there was an error and employers have over-claimed, they could correct this in the next claim and had to t pay back the relevant amount to HMRC and there is Guidance on this. The Guidance also states that if employers wanted to delete a claim in the online service, they had to t do this within 72 hours. For under-claiming, employers had to contact HMRC. Employers should keep a record of any adjustments for 6 years.
On 22 July, the Finance Act 2020 received Royal Assent and included provisions for repayments of grants the employer was not entitled to, the requirement to notify HMRC of any such amounts and the imposition of penalties where the employer knew they were not entitled to the grant at the time it was received, or alternatively, if the employer knew that they ceased to be entitled to it.
On 28 July, new Guidance was published for employers who had over-claimed or under-claimed when using the scheme.
As mentioned above, where an employer has claimed too much, they must pay this back to HMRC. This could either be done as part of the next claim (which will be reduced) but if no other claim is being submitted the employer needed to contact HMRC to make the payment. Significantly, where an employer had over-claimed and not repaid it, they had to notify HMRC by the latest of either:
90 days after the date they received the grant they were not entitled to;
90 days after the date they received the grant that they were no longer entitled to keep because their circumstances changed; or
20 October 2020.
Failure to do this could result in having to pay a penalty. The Government guidance links to other guidance about what factors HMRC will take into account when assessing the amount of the penalty and how to appeal against a penalty.
Details on the calculations to be made were 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 was one of the last sectors to re-open, any payments that employers were required to make might have been too high. Even though no employer contribution to wages was required until September, employers in the hospitality sector, for example, were still not generating significant income due to falling consumer demand. Accordingly, they struggled to fund the NICs and pension contributions. Many had already made the difficult decision to implement redundancies.
The new JSS Closed will help employers in those sectors where their businesses are required to close, for instance, those placed in Tier 3 in England or because of the firebreak in Wales.
The new JSS Open will help employers that are open but are facing lower demand.
Flexible furlough was welcomed by both employers and staff. Employers needed to consider for how long staff could be taken off furlough and whether the return to work was, either to work 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 was in deciding who to take off furlough and for how long. Employers must not act in a discriminatory way and 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 was possibly a fair way of dividing work, but employers were limited by the maximum number of employees they could have 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 have been problematic too. Not all businesses were fully operational in the summer and employers erred on the side of caution and took 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 was required to end furlough. Employers had to prepare new written furlough agreements to reflect the changed arrangements, whether this was a supplemental letter or a new furlough agreement. Similarly, where there was flexible furlough, the supplemental letter or new furlough agreement had to specify the arrangements for returning to work. For instance, whether, the individual would be working from home or returning to the workplace. If the latter, then the employer should have specified what steps they had taken to make the workplace COVID-19 secure taking into account the Guidance mentioned above.
Whatever decision was made about how to notify staff about the changed furlough arrangements, employers needed their staff’s consent prior to making any changes.
Finally, in relation to annual leave, updated Guidance of 1 July stated that if employees were 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 have put employees on furlough for a period just because they were on holiday for that period.
Whilst there is always a balance to be struck, the amendments to the scheme overall appeared to avoid the cliff edge scenario and charted a path towards a gradual winding down of the scheme. Nevertheless, some employers took the view that even though flexible furlough was permitted, their income was not going to increase sufficiently in the subsequent months to enable them to make the NICs and pension contributions as of 1 August and further employer contributions thereafter. They felt that they had no alternative but to reduce their workforce and make redundancies, regardless of the extension of the scheme to the end of October. There was a significant development on 31 July with the implementation of the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020. The Regulations provide that furloughed employees who are made redundant will receive redundancy pay based on their normal pay, rather than their furlough pay which is often less. The Regulations also apply to notice pay and to basic awards for unfair dismissal claims.
With the initial announcement on 24 September about the Job Support Scheme and the significant changes to it, announced on 22 October, many employers may now be in a position to retain their staff especially if they take into account the other sources of financial support provided by the Government. Finally, it is worth mentioning that HMRC made it very clear from the outset that it takes abuse of the furlough scheme very seriously. 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.
Interestingly, unlike the furlough scheme, HMRC intends to publish the names of employers who make use of the new JSS.
This article was first written on 1 June and last updated on 28 October.
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