The situation with regard to Government support and action is changing regularly. Please contact one of our employment lawyers for the latest position with regard to your own situation.
What is the Coronavirus Job Retention Scheme?
Since the Chancellor’s initial announcement about the Coronavirus Job Retention Scheme (CJRS/the scheme) on 20 March, many key questions such as what does furlough mean, how can I put my staff on furlough and who is eligible have now been answered, and the portal for making claims opened on 20 April.
Claims for 67,000 jobs were made in the first 30 minutes, and 1.3 million individuals were reported as furloughed on its first full day. On 18 May, the Chancellor provided updated figures. There are 8 million workers currently furloughed, 986,000 employers are making use of the scheme and £11.1 billion has been claimed so far.
Government guidance – more clarity or more questions?
Whilst much has been clarified, HMRC Government Guidance, which was first published on 26 and 27 March, has been updated piecemeal on numerous occasions, most recently on 14 and 21 May. To complicate matters, a Treasury Direction was published on 15 April and updated on 20 May under the Coronavirus Act 2020, which is in several places at odds with the HMRC Guidance documents. This article is based on the most recent version of the HMRC publications, updated on 14 and 21 May, and the Treasury Direction of 20 May.
Despite the various contradictions, an HMRC spokesperson stated on 23 April that “HMRC will act at all times in accordance with the Direction. HMRC’s interpretation of the Direction is set out in our published guidance. It is our expectation that customers should consider the guidance in the first instance when seeking to understand the operation of the scheme and HMRC’s interpretation of the Direction.”
The main HMRC Guidance publications are:
- Guidance for employers about claiming through CJRS
- Guidance for employers about how to calculate wages for CJRS
- Guidance for employers about claiming for wages online
- Guidance for employees
- Guidance on reporting payments in Real Time Information (RTI) under the scheme
- New guidance for employers about which employees they can put on furlough
- New guidance for employers with examples of how to work out the 80% calculations
Public health is a devolved matter and the lockdown regulations vary across the UK. England was the first to announce an easing of the lockdown regulations. As business uncertainty is likely to continue for the weeks and months to come, the financial measures and support announced by the Government have become even more important for an organisation’s capacity to survive the COVID-19 crisis.
Who may be put on furlough?
If employers cannot maintain their current workforce because their operations have been severely affected by coronavirus, they can furlough employees and apply for a grant from HMRC. The scheme is designed to help employers to retain their employees and protect the UK economy.
All employers are eligible for the grant – and it is clear from the guidance that it is a grant and not a loan. The scheme is very comprehensive and covers all UK employers that had created and started a PAYE payroll scheme on or before 19 March 2020 (this was amended from previous versions which referred to 28 February), enrolled for PAYE online and have a UK bank account. This includes businesses, charities, recruitment agencies and public authorities, although the guidance notes that few public authorities should be furloughing because most of their staff will be providing essential public services. Note that employers who receive public funding for staff costs will generally not be allowed to furlough staff, although there are some exceptions.
The intention is clearly to save jobs with this scheme. The scheme was originally due to run from 1 March to 31 May. On 17 April, it was announced that the initial period of three months would be extended to four months, i.e. until the end of June, for those on the employer’s PAYE on or before 19 March 2020. Significantly, the scheme also covers employees who were made redundant, or stopped working for their employer on or after 28 February 2020 and prior to 19 March 2020. They can be re-hired by their employer and put on furlough and a claim made for their wages through the scheme (although they do not have to be).
On 12 May, the Chancellor announced that the scheme would be extended for another four months, to 31 October. There will be no changes to the scheme until the end of July. However, from 1 August, the scheme will enable furloughed workers to work part-time and employers will be required to contribute towards the level of wages paid by the Government, see our article for more details.
Note that the Treasury Direction of 20 May extends the scheme to 30 June but it does not deal with the extension to 31 October or the changes from 1 August. A further Treasury Direction will be needed in due course.
Previously the guidance stated that fixed- term workers whose contracts had come to an end and who did not have their contract renewed or extended on or before 19 March could not qualify for the furlough grant. However, on 23 April the guidance was changed to allow those whose fixed- term contracts ended after 28 February, or after 19 March, to be rehired and put on furlough, providing a RTI payment submission for the worker had been notified to HMRC on or before the 28 February or 19 March respectively.
This means that most PAYE fixed term workers can be rehired and put on furlough, except where they began and ended their fixed-term contract between 28 February and 19 March. With this change, HMRC has bowed to pressure to put fixed -term workers on the same footing as others who were made redundant or stopped working for the employer between 28 February and 19 March, rectifying perceived unfairness.
Earlier versions of the guidance for Employers contained an extensive list of employees eligible for the scheme. There is now separate guidance, published on 14 May, on employee eligibility (covering the same information), and it includes full-time and part-time employees, employees on flexible or zero-hour or fixed-term contracts, and also makes clear that PAYE “workers” are eligible. It also deals with agency workers, apprentices, office holders, company directors, salaried members of Limited Liability Partnerships (LLPs) and contractors currently subject to the public sector IR35 off-payroll working rules. The guidance of 30 April states that company directors who are paid annually are eligible to claim under the scheme provided that they meet relevant conditions. This includes being notified to HMRC on an RTI submission on or before 19 March 2020, which relates to a payment of earnings in the 19/20 tax year.
Interestingly, the guidance refers specifically to employees who are unable to work because they have caring responsibilities resulting from coronavirus. For example, employees that need to look after children can be furloughed (but do not have to be).
Specific rules relate to those on sick leave or entitled to SSP see further below.
There is also a question mark over employees who transferred under TUPE after 28 February. Whilst the guidance does now deal with TUPE, it may only apply to “business transfers” and not “service provision changes” (where a service such as cleaning or catering is transferred from in-house to a contractor, or taken on by another contractor, or taken back in-house). No changes were made to clarify this in the recent updates to the guidance.
Pay can be backdated to 1 March for those furloughed. If they were furloughed after 1 March, remember that the scheme only applies to them from the date they were actually furloughed.
An important update is that HMRC states that it will check claims made through the scheme. Payments may be withheld or need to be repaid in full to HMRC if the claim is based on dishonest or inaccurate information. If employers knowingly defraud HMRC there could be criminal prosecutions. HMRC has also put in place an online portal for employees and the public to report suspected fraud under the scheme. At the time of writing, there have been almost 800 reports of suspected fraud so far with a number relating to employers asking employees to work while furloughed.
What do employers need to do to put an employee on furlough?
The guidance was initially updated to state that “Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.” However, subsequent updates have included that employers will need to confirm in writing to their employees that they have been furloughed and keep a record of this for five years.
An important update on 17 April was added that “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 appears to be dealing with a contradictory provision in the 15 April Treasury Direction which requires the individual to have agreed in writing – one of the many examples of the HMRC Guidance and the Treasury Direction not lining up with each other.
On 23 April, a spokeperson for HMRC stated: “I can confirm that we stand by the interpretation that we have articulated in our guidance which is consistent with the Direction…Put simply, the employer and the employee must reach an agreement and an auditable written record of this agreement must be retained. It does not necessarily follow that the employee will have provided written confirmation that such an agreement was reached in all cases.”
On 23 April, this part of the guidance was updated with additional wording to the effect that “Collective agreement reached between an employer and a trade union is also acceptable for the purposes of such a claim.” Whilst this may be sufficient for the purposes of receiving the HMRC grant, employers who have not received written consent from employees to vary the contract of employment in terms of the amount of pay they will receive leave themselves potentially exposed to a claim for unlawful deduction from wages. The Government is being asked how they intend to resolve this issue for the many employers who may not have obtained valid consent to reduce wages before putting employees on furlough in light of the guidance.
The Treasury Direction of 20 May clarifies the position. It contains provisions about the form of the agreement required to furlough an employee and removes the original requirement that an agreement must be in writing. Instead, it states that the agreement must specify “the main terms and conditions upon which the employee will cease all work in relation to their employment”, be incorporated (expressly or impliedly) into the employee’s contract, and be made in writing “or confirmed in writing” by the employer and this can include email. The agreement or confirmation should be retained by the employer until at least 30 June 2025.
How to agree and communicate furlough to staff raises a few issues:
- There is no UK definition of a furloughed worker. The reference to existing employment law is likely to mean changes to terms and conditions and seeking employees’ agreement to be designated as furloughed workers. Faced with the alternative of receiving no pay (if lay-off is an option) or being made redundant, it is likely that many employees will agree to furlough leave as a (hopefully) temporary change. However, this should be approached with caution. There may be some employees who would be entitled to a hefty redundancy payment and prefer that alternative, or high earners whose contractual termination rights would lead them to reject the furlough option. The way it is presented to staff is key, and it could be that you are already considering the cost if certain employees were to reject it, and therefore whether to offer it in the first place (subject to normal redundancy-type criteria). In many cases the reason they are put on furlough is because they would otherwise have lost their jobs, it could be difficult to refuse redundancy for a person who has rejected the furlough option. However, it would of course be necessary to have followed a fair redundancy dismissal process before making any redundancies, including collective consultation where this is required. On the other hand, making people redundant without offering them the furlough option could well be deemed an unfair dismissal.
- A fair way of selecting employees for furlough should be adopted which will be partially related to those whose skills are needed, but also with regard to equality and discrimination laws. For example, whilst carers of young children can and may want to be furloughed, no assumption should be made that this would relate to female rather than male staff. Similarly no assumptions should be made in relation to staff who are deemed disabled.
- The wording of any communication to employees should be carefully drafted. Letters to employees should refer to a variation in terms and conditions (particularly if the employer is not going to top up to the employee’s usual pay), the CJRS scheme and some key points (such as the fact that the employee cannot do any work for the employer during the furlough period). There may be other aspects employers should consider addressing in such communications, for example the interplay with sick leave and any contractual sick pay, the employer’s discretion to end a period of furlough to rotate staff and what notice they will give to employees to end furlough.
- Normally there is an obligation to collectively consult over changes to terms and conditions which involve 20 or more employees at one establishment if non-acceptance could result in their dismissal. There are differing views currently over whether employers can realistically do that in relation to furlough leave or should attempt to do so in the immediate circumstances they find themselves in, but note that the guidance says: “Employers should discuss with their staff and make any changes to the employment contract by agreement. Employers may need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment”. Please speak to us about the risks of not doing this in relation to your organisation’s particular circumstances.
For the purpose of the scheme, being furloughed means an agreed temporary period of absence from work. Employment law principles continue to apply and employees who have been furloughed have the same rights as they did previously. These include maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments and annual leave continues to accrue. On 25 April, legislation came into force to ensure that employees with entitlements to statutory maternity and other parental pay (adoption, paternity, shared parental and statutory bereavement pay) after a period of furlough will have those payments based on their pre-furlough pay, if furlough pay was at a reduced level.
How to claim for furlough
All employers will need to use the HMRC online portal to claim. Employers will need:
- To be registered for PAYE online and their employer PAYE scheme reference number
- The number of employees being furloughed
- Each employee’s National Insurance number (employers will need to search for the number if they don’t have it or contact HMRC if their employee does not have a National Insurance number
- Each employee’s payroll or employee number (optional)
- The claim period (start and end date)
- The full amount claimed including employee wages, employer National Insurance Contributions and employer minimum pension contributions (per the minimum length of furloughing of 3 consecutive weeks)
- Their bank account number and sort code (where a BACS payment can be accepted) and the billing address on their bank account
- Their contact name and phone number along with additional identifying information such as their Corporation Tax unique taxpayer reference or company registration number
Claims for more than 100 employees can be uploaded in file format. Employers will need to calculate the amount they are claiming and HMRC will retain the right to retrospectively audit all aspects of their claim. Employers must keep a copy of all records, including:
- The amount claimed and claim period for each employee
- The claim reference number
- The employer’s calculations in case HMRC need more information about the claim
Significantly, the guidance updated on 14 May states that employers will need to keep a copy of these records for at least 6 years. Employers cannot make more than one claim during a “claim period” and should claim for all furloughed employees in each period. The guidance from 23 April confirms that an employer can choose the length of the “claim period” but should bear in mind both how frequently they run their payroll and how many employees are to be included in the same claim period, because they cannot make another claim in the same period, or for one which overlaps. On 7 May, the service was updated so that employers can “save” a claim and finish it later.
What will be paid for employees on furlough?
Employers can claim for:
- 80% of their employees’ wages (even for employees on National Minimum Wage) – up to a maximum of £2,500.
- Minimum automatic enrolment employer pension contributions on the subsidised wage.
- Employer National Insurance contributions on behalf of their furloughed employees.
Guidance on how to work this out with examples and an online calculator has been updated regularly. On 14 May, new guidance was published with examples of how to work out the 80% calculations.
Employers can claim for any regular payments they are obliged to pay their employees. This includes wages, past overtime, fees and compulsory commission payments. However, any tips (including those distributed through troncs), discretionary bonuses, discretionary commission payments, non-cash payments and non-monetary benefits such as benefits in kind should be excluded. Commission payments are again an area where there are apparent contradictions between the guidance and the Treasury Direction – please speak to us for more information.
The guidance of 14 May added new information on non-discretionary payments clarification and non-discretionary overtime payments. When working out if a payment is non-discretionary, employers should only include payments which they have a contractual obligation to pay and to which their employee had an enforceable right. When variable payments are specified in a contract and those payments are always made, then those payments may become non-discretionary. In that case, they should be included when calculating 80% of the employees’ wages.
As for non-discretionary overtime payments, if the employee has been paid variable payments due to working overtime, these payments can be included when calculating 80% of wages as long as the overtime payments were non-discretionary. Payments for overtime worked are non-discretionary when employers are contractually obliged to pay the employee at a set and defined rate for the overtime that they have worked.
An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme. This is very much a decision for individual employers. Employees must not work or provide any services for the business while furloughed, even if they receive a top-up salary.
Details of how to calculate pay for those on variable hours are included in the guidance and where the employee has been employed for a full twelve months, employers can claim for the higher of either the same month’s earning from the previous year or average monthly earnings from the 2019-20 tax year. If the employee has been employed for less than a year, employers can claim for an average of their monthly earnings since they started work.
Employers must be clear that it is their responsibility to pay employees and seek reimbursement from HMRC. HMRC will not be making payments to employees. Many businesses may have faced difficulty with initial wage costs. However, employers are still under an obligation to pay staff or get their agreement to defer payment of wages until the next payroll.
Can employees work whilst being furloughed?
It is a key principle of the scheme that the individual cannot do any work for their employer whilst furloughed. They can take part in volunteer work or study or training as long as this does not provide services to, or generate revenue for, or on behalf of their employer. The Treasury Direction of 20 May provides guidance on the sort of study and training that is permitted while an employee is on furlough. Where the purpose of the study or training is to to improve the employee’s effectiveness in the employer’s business, or the performance of the employer’s business, that is permitted provided it does not directly provide a service to the employer or generate income or profit for the employer or does not directly contribute significantly in the production of goods the employer intends to supply.
Significantly, the guidance of 30 April states that employees who are furloughed and who are union or non-union representatives may undertake duties and activities for the purpose of individual or collective representation of employees or other workers. This does not count as “work”. However, they must not provide services to or generate revenue for, or on behalf of their organisation or a linked or associated organisation. The Treasury Direction of 20 May specifies that work undertaken by an employee for the sole purpose of fulfilling their duties as a trustee or manager of an occupational pension scheme is permitted.
The Employee Guidance states that an employee can be put on furlough by one employer and continue to work for another, if it is permitted within their employment contract. If the employee has more than one employer, they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
There was some uncertainty initially about whether or not an employee could take up new employment whilst furloughed. The guidance confirms that they can, provided their employment contract allows this. It is not explicit from the guidance that an employer could agree to allow this where the contract specifically prohibits it, but under normal Employment law principles, contractual changes may be agreed between the parties.
Any employee taking up new employment while furloughed will need to complete Statement C of the Employee Statement – this refers to whether they have another job. In reality, where employees may be going in and out of furlough multiple times with their current employer (see below) any new potential employer may think twice about recruiting a furloughed employee if there are plenty of individuals who are already unemployed and available to work.
Can an employer call back an employee from the furlough scheme as and when they need them, and then put them back on furlough when they do not? Yes, subject to the three weeks minimum period referred to above. The guidance of 30 April confirms that each period of furlough can be extended by any amount of time whilst the employee is on furlough. It is possible that those who are not furloughed may contract COVID-19 and employers will then need staff to cover their absence. It would also help share the workload and loss of pay between staff in a fair way, in addition to allowing staff to retain skills rather than losing them if they are off work for several months.
Holiday and holiday pay
Until 17 April, none of the updated guidance expressly stated that furlough leave is distinguished from annual leave or addressed annual leave at all. There was considerable uncertainty as to whether or not an employee/PAYE worker could take some of their paid holiday entitlement whilst on furlough. ACAS Guidance seemed to make clear that this is not only possible, but encouraged. It recognised that an employee/PAYE worker may be unable or not want to take holiday and therefore need to carry it over because they are on furlough, and that employers and workers should do their best to reach agreement on when holiday is taken. Further, whilst on furlough, employees and workers should “get their usual pay in full, for any holidays they take” – i.e. it should not be limited to the 80% furlough grant.
On 17 April, both the Employee Guidance and Wages Calculation Guidance specified that holiday accrued during furlough, could be taken during furlough, and that it should be paid at an individual’s normal rate of pay, rather than the reduced furlough amount. This requires employers to top up pay when holiday is taken if they do not already.
Finally, on 13 May, the Government published guidance on Holiday entitlement and pay during coronavirus.
The purpose of the guidance is to help employers understand their legal obligations regarding workers who continue to work and those who are furloughed. The guidance confirms that workers who are furloughed continue to accrue their holiday entitlements, that holiday can be taken while on furlough and that holiday pay must be based on usual earnings and not the furloughed rate.
See our article for more details.
Sick leave and pay
This was another area where there seemed to be significant contradictions between the April Treasury Direction, the HMRC Guidance, and SSP amendment regulations which were made on 15 April to grant “shielding” employees entitlement to SSP. Employees on sick leave or self-isolating are not furloughed and they should receive Statutory Sick Pay. Although the guidance of 21 May (Check which employees can be put on furlough) states that short-term illness/self-isolation should not be a factor in deciding whether to furlough an employee, if an employer wants to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees. In these cases, the employee should no longer receive sick pay and would be classified as a furloughed employee.
The guidance of 21 May also states that employees who are “shielding” in line with public health guidance (or need to stay home with someone who is shielding) can be placed on furlough. This also includes employees on long-term sick leave, and appears to leave the discretion up to the employer as to whether to furlough them or leave them on sick leave.
The Treasury Direction of 20 May states that where SSP is being paid or due to be paid to an employee who has been instructed to go on furlough, the period of furlough does not begin until immediately after the end of the period of incapacity. However, it appears to suggest that the period of incapacity for work should be determined by an agreement between the employer and employee.
This is a complex area and please contact us for advice about employees in such circumstances.
Finally, the Coronavirus Statutory Sick Pay Rebate Scheme opened on 26 May for employers with fewer than 250 members of staff. Under the scheme, employers can apply to HMRC to recover the costs of paying coronavirus-related SSP for two weeks. The money should be received within six working days. Details of the scheme and how to apply can be found here.
Although we have updated guidance for employers and employees, guidance on wage calculation and the scheme portal has been open to employers for more than a month, we can expect comprehensive changes to the guidance and a new Treasury Direction once the details of the changes to the scheme, effective from 1 August, are announced. Note that although there are some contradictions between HMRC Guidance and the Treasury Direction, and in normal circumstances, the Treasury Direction would take precedence, the claims portal asks employers to declare that they are making the claim in accordance with HMRC Guidance.
Further questions remain such as whether employees can be collectively consulted about redundancies whilst on furlough, and whether notice can run concurrently with furlough. As time goes by, we expect these will becoming more pressing issues for employers. Employers will also need to consider other potential claims which may arise out of their duties towards employees and workers at this extremely difficult time, such as claims for detriment or dismissal for raising concerns that constitute protected disclosures under the whistleblowing legislation or refusing to attend the workplace on health and safety grounds (which require no qualifying period of service), especially now that lockdown restrictions are beginning to be relaxed.
As this area has been changing so often, it is important to contact one of our employment law experts about the current position regarding furlough and the scheme for the most up-to-date information, or for help with any other employment-related queries raised by the COVID-19 crisis. Our Blake Morgan colleagues also remain on hand to advise your business generally and we can put you in touch with the right person for any other queries.
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