The Coronavirus Job Retention Scheme (“the Scheme”) was announced by the government on 20th March 2020.
The government’s published guidance states that “it is designed to help employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy.”
The Scheme allows all UK employers to claim a grant of 80% of the wages of employees/PAYE workers who are not working, up to £2,500 per calendar month for each employee, plus employer national insurance contributions and minimum automatic enrolment employer pension contributions on those wages.
In short, employers can recover a proportion of employees’ wages if they agree to put employees on a period of leave (furlough).
The Scheme is in place for 3 months starting from 1 March 2020, but it may be extended.
This article will summarise the Scheme and provide associated guidance.
Employers able to claim
Any entity, including individuals, with a UK payroll can apply for a contribution to employee wages. However, the employer must have:
The government has clarified that household staff eg nannies and housekeepers are eligible for the Scheme. The government expects that the Scheme will not be used by many public sector organisations as their employees are still providing essential public services. Where employers receive public funding for staff costs, staff should be paid in the usual fashion and not furloughed.
The Scheme may be appropriate where organisations are not primarily funded by the government and staff cannot be redeployed to assist with the coronavirus response.
Administrators can access the Scheme but should only do so if there is a reasonable likelihood of rehiring the workers.
Employees that can be claimed for
Provided that they were on the employer’s payroll on or before 28 February 2020, the following employees/workers paid via PAYE are covered by the Scheme:
NB, there is no obligation on employers to re-engage employees who were made redundant or stopped working on or after 28 February 2020. But an employer can re-engage and furlough such an employee.
The guidance is silent on whether an employer can claim the wages during the notice period of an employee who was given notice of redundancy after the Scheme came into force.
The Scheme does not prevent employers making furloughed employees redundant. However, this may expose the employer to a claim for unfair dismissal.
Employees on fixed term contracts can have their contracts renewed or extended during the furlough period.
Where the office holder is a company director or member of an LLP, the furlough arrangements should be adopted formally as a decision of the company or LLP.
Furloughed directors are entitled to continue to carry out such duties as are reasonably necessary to fulfil the statutory obligations they owe to their company. They should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company. This also applies to salaried individuals who are directors of their own personal service company (PSC).
To furlough a member, the terms of the LLP agreement (or any such agreement between the LLP and the member) may need to be varied by a formal decision of the LLP, for example to reflect the fact that the member will perform no work in the LLP for the period of furlough, and the effect of this on their remuneration from the LLP.
As with employees, agency workers should perform no work for, through or on behalf of the agency that has furloughed them while they are furloughed, including for the agency’s clients.
Where an employee has more than one job, their employments are treated separately. The reimbursement cap applies to each employer individually.
Employees who were unable to work because of caring responsibilities (e.g. looking after children) arising from COVID-19 can be furloughed.
Employees who are shielding, or staying at home because they live with someone who is shielding, can only be put on furlough if they would otherwise have been made redundant.
Employees who are working, but on reduced hours, or for reduced pay, are not eligible. The employee must be furloughed before an employer can make a claim.
Employees who are on sick leave or self-isolating should receive statutory sick pay rather than being furloughed, but can be furloughed once they are no longer receiving it. There is no guidance yet on what should happen if an employee becomes sick during furlough or whether they remain entitled to contractual sick pay.
Given the requirement for an employee to be on the employer’s payroll on or before 28 February 2020, there is an interesting question as to whether an employer can furlough an employee transferred under TUPE after 28 February 2020. A strict reading of the Scheme would suggest not. However, this would be contrary to the concept of a TUPE transfer, in particular to the preservation of the employee’s rights, and to common sense. Further guidance is needed from the government. This also applies to employees who are TUPE transferred to an employer which didn’t have a UK payroll set up on 28 February 2020.
When an employer can furlough an employee
The Scheme doesn’t set out any specific requirements before an employer can make use of it.
The overarching policy of the Scheme is to help employers who have been “severely affected” by COVID-19 to retain their employees. As noted above, that Scheme provides guidance that organisations receiving public funding should only furlough staff if they cannot be redeployed and, somewhat anomalously, shielding employees are only eligible if they would otherwise be made redundant. The government’s business support website goes further than the Scheme by saying that support is available “for those that would otherwise have been laid off during this crisis… to safeguard workers from being made redundant.” We are aware that some employers have ‘furloughed’ employees and are still expecting them to work. Such practices are not lawful and do not meet the requirements of the Scheme.
In the Chancellor’s speech announcing the Scheme, he said that employers could apply for a grant to cover most of the wages of people who are furloughed “rather than being laid off”, which meant workers could retain their jobs “even if their employer could not afford to pay them.” He asked employers to “look very carefully at [the support available] before making any decisions to lay people off”.
Notwithstanding a clear statement that all UK employers are eligible, it is submitted that to comply with the spirit of the Scheme, employers should only furlough employees when they have been severely affected by COVID-19 to the extent that they are left with a choice between furloughing employees or making them redundant/laying them off. As a side note, this might just be the thinking behind the U-turn taken by Liverpool Football Club and the public pressure which caused it. Such an approach would cohere with the Scheme’s requirement to amend the employment contract by agreement. If furlough is the alternative to redundancy, then continuing employment would constitute the necessary consideration to alter the contract.
Employers should be mindful of the government’s assertion that they will retain the right to retrospectively audit all aspects of the Scheme with scope to claw back fraudulent or erroneous claims. There are no specific requirements and the test in the foregoing paragraph is simply a suggestion, but the Scheme should not be abused.
The Scheme does not mandate an employer to furlough an employee rather than make them redundant. However, this might provide the basis for an unfair dismissal claim.
How to furlough employees
The Scheme gives the following straightforward guidance and requirements in relation to how an employer furloughs employees:
“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.
To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. A record of this communication must be kept for five years.
You do not need to place all your employees on furlough. However, those employees who you do place on furlough cannot undertake work for you.”
It should also be borne in mind that employees must be furloughed for a minimum period of 3 consecutive weeks. Employees can be furloughed multiple times, but each separate instance must be for a minimum period of 3 consecutive weeks.
An employer should therefore take the following steps:
It is expected that an employee will agree to furlough over redundancy. There is nothing to stop employees asking employers for furlough leave but, ultimately, the employer must agree to it.
Employers should also discuss when the employee(s) will receive their subsidised pay. This might be significant if the employer cannot pay the employee their wage until the government payments kick in.
Employees should note that, subject to their contractual obligations, they are entitled to work for another employer, or volunteer for another employer, whilst furloughed.
The Scheme sets out the following details that will need to be submitted in order to make a claim:
Claims can be backdated until 1 March 2020 where employees have already been furloughed.
HMRC will check the claim and pay by BACS into the employer’s UK bank account. Each employee must receive the entirety of the grant awarded for them.
An employer can top-up an employee’s salary but they do not have to. If they do, they can only claim back employer national insurance contributions and minimum auto-enrolment payments up to the cap.
How much an employer can claim
Employers can claim the lower of 80% of the employee’s gross salary as at 28 February 2020 or £2,500 per month per employee, plus employer national insurance contributions and minimum automatic enrolment employer pension contributions.
An employer can claim for “any regular payments you are obliged to pay your employees. This includes wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments should be excluded.” This tells an employer what should be included in the calculation.
However, “the reference salary should not include the cost of non-monetary benefits provided to employees, including taxable Benefits in Kind. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included in the reference salary. Where the employer provides benefits to furloughed employees, this should be in addition to the wages that must be paid under the terms of the Job Retention Scheme.”
In relation to employees whose pay varies, the guidance is as follows:
“If the employee has been employed for 12 months or more, you can claim the highest of either the:
If the employee has been employed for less than 12 months, claim for 80% of their average monthly earnings since they started work.
If the employee only started in February 2020, work out a pro-rata for their earnings so far, and claim for 80%.”
Employees do not need to be paid the minimum wage if the lower of 80% of their salary or £2,500, based on their usual working hours, would be below the minimum wage.
Time spent training is treated as working time for the purposes of the minimum wage calculations and must be paid at the appropriate minimum wage. Employers will need to ensure that the grant covers these training hours. Where the payment is less than minimum wage entitlement for the training hours, the employer must pay the additional wages to ensure at least the minimum wage is paid for 100% of the training time.
The normal rules for maternity and other forms of parental leave and pay apply. An employer can claim for enhanced (earnings related) contractual pay for employees who qualify for either:
Employees may choose to work elsewhere whilst they are furloughed. They should check their contractual provisions to ensure that the same is permitted and preferably come to an agreement with their main employer.
Tax treatment of furlough pay
While on furlough, the employee’s wage will be subject to usual income tax and other deductions.
Apprenticeship Levy and Student Loans are paid as usual. They should come out of the grant paid to the employee.
Payments received by a business under the Scheme are made to offset deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.
The foregoing is a summary of the Scheme as set out in the government guidance. That guidance was updated on 4 April 2020 and should be referred to by employers and employees if necessary.
Some question marks remain over the updated guidance and the government will no doubt keep up with the pressures which present themselves by issuing further guidance. Nevertheless, the bones of the Scheme are there and a useful step-by-step guide can be distilled.
When the government ends the Scheme, employers must make a decision as to whether employees can return to their duties or whether they should be made redundant. It is hoped that the Scheme achieves its purpose of retaining as many workers as possible. For specific advice, please contact the authors.