As expected, the government has issued further guidance in relation to the Coronavirus Job Retention Scheme (“the Scheme”). This article will summarise the key updates since the guidance issued on 4 April 2020.

The government has produced a number of documents to assist both employers and employees:

• Guidance for employers – https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme
• Step-by-step guide on how to make a claim under the Scheme – https://www.gov.uk/government/publications/coronavirus-job-retention-scheme-step-by-step-guide-for-employers
• Guidance on working out 80% of wages – https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme
• Guidance for employees – https://www.gov.uk/guidance/check-if-you-could-be-covered-by-the-coronavirus-job-retention-scheme

The Scheme has been extended until the end of June. This, in turn, extends the date on which employers who need to make large-scale redundancies must commence their 45-day collective consultation.

The online portal is due to open for applications on 20 April 2020.

Treasury direction

On 15 April 2020, the Chancellor made a Treasury direction in accordance with sections 71 and 76 of the Coronavirus Act 2020. The direction sets out some of the detail of the Scheme in an attached Schedule and requires HMRC to be responsible for the payment and management of amounts to be paid.

As this direction was made pursuant to statute, it will no doubt supersede the guidance where the two conflict. In the following summary, provisions from the direction will appear in bold.

Employers able to claim

“Employment”, “employed”, “employer” and “employee” for the purposes of the Scheme have the meaning as set out in section 4 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA).

The Scheme uses the definitions from ITEPA 2003 rather than the Employment Rights Act 1996. 

The employer must have created and started a PAYE payroll scheme on or before 19 March 2020.

An RTI submission notifying payment in respect of the employee must have been made to HMRC on or before 19 March 2020.

Employees that can be claimed for

The employee must have:

• been on the payroll on or before 19 March 2020;
• not been notified of a date of cessation of employment prior to 19 March 2020; and
• been furloughed under the Scheme.

An employee is furloughed if:

• they have been instructed by their employer to cease all work in relation to their employment;
• the period for which they have ceased, or will have ceased, all work for their employer is 21 calendar days or more; and
• the instruction is given by reason of “circumstances arising as a result of coronavirus or coronavirus disease”.

Where an employee is eligible for statutory sick pay (“SSP”), whether or not a claim for SSP is made, the period in respect of which a claim can be made under the Scheme does not start until the SSP entitlement has ended, although any subsequent period of entitlement to SSP must be disregarded.

The Treasury direction is contrary to the guidance, which says that an employer can decide to furlough an employee on sick leave. Given the supremacy of the direction, an employer will only be able to claim under the Scheme once the employee’s entitlement to SSP has ended.

It is up to employers to decide whether to move employees who become sick during furlough onto SSP or whether to keep them furloughed. There is no inconsistency between the guidance and the direction in this respect as “any subsequent period of entitlement to SSP must be disregarded.”

A further, more significant issue, arises in respect of an employee who is shielding, or who needs to stay at home with someone who is shielding. The guidance says that they can be furloughed (and there is no longer a requirement that they would otherwise have been made redundant). However, such employees are now entitled to SSP. The direction dictates that an employee cannot be furloughed whilst entitled to SSP. This tension is in need of resolution.

An employer can claim back from the SSP rebate scheme and the Scheme in respect of the same employee but not for the same period of time.

If the employee is entitled to contractual sick pay and they become sick during furlough, so long as furlough ends during that period of sickness they will be entitled to that contractual pay. Nevertheless, the employer and employee could agree to reduce contractual sick pay to the level of furlough pay when the original agreement to furlough is made.

Employees returning from family related statutory leave can be furloughed. The grant should be calculated against the employee’s salary, not the pay received whilst on statutory leave.

If an employee went on unpaid leave on or before 28 February 2020, they cannot be furloughed until the date on which it was agreed that they would return from unpaid leave.

No claim may be made in respect of the unpaid leave of an employee beginning before or after 19 March 2020.

The Scheme extends to TUPE transfers and PAYE reorganisations after 19 March 2020. A new employer can make a claim in respect of an employee who:

• on 19 March 2020, was employed by another employer (their former employer);
• after 19 March 2020, becomes employed by the new employer while the employee remains in employment in the same business;
• immediately before the change, the former employer’s PAYE scheme applicable to the employee was a qualifying scheme; and
• any of the circumstances in paragraph 10 apply.

The circumstances referred to in paragraph 10 (9.10) are as follows:

• there is no cessation of employment for the purposes of the PAYE regulations;
• the transfer of the business or undertaking (or part thereof) resulting in the change of employer does not result in the termination of contracts of employment by virtue of TUPE; and
• the transfer of the trade, business or undertaking resulting in the change of employer does not operate to break the continuity of the period of employment for the purposes of section 218 of the Employment Rights Act 1996.

Employees that were employed as of 28 February 2020 and on payroll (i.e. notified to HMRC on an RTI submission on or before 28 February) and were made redundant or stopped working prior to 19 March 2020, can also qualify for the scheme if the employer re-employs them and puts them on furlough. They can be re-employed after 19 March 2020.

There is a question to be asked where an employee was made redundant between 28 February 2020 and 19 March 2020 for reasons that do not arise “from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease.” If such an employee was re-employed, that would seem anathema to the purpose of the Scheme. Yet there is further conflict here because the Chancellor has said on Twitter that employees can be rehired where they left “for whatever reason”.

If an employee is being furloughed by their current employer, their former employer(s) should not re-employ them, put them on furlough and claim for their wages through the Scheme.

If a public sector organisation wishes to furlough a contractor, they have to confirm this with both the contractor’s Personal Service Company (PSC) and the fee-payer (as set out in the off-payroll working rules, usually the agency paying the contractor’s PSC). It should be formally agreed between these parties that the contractor is to do no work for the public sector organisation during their period of furlough.

Where a contractor is receiving payments through the Scheme, that income should be excluded from any calculation of the reference pay if the contractor also decides to furlough themselves as an employee or director of their own company.

When an employer can furlough an employee

No claim may be made in respect of an employee if it is abusive or is otherwise contrary to the exceptional purpose of the Scheme.  

The purpose of the Scheme is “to provide for payments to be made to employers on a claim made in respect of them incurring costs of employment in respect of furloughed employees arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease.” 

This provides some much-needed clarity. The direction has effectively removed the suggestion that employees should only be furloughed if the other available option is redundancy. There is no requirement for a redundancy situation before an employer can make use of the Scheme. All that must be established is that employees were furloughed due to health, social and economic conditions caused by Covid-19.

This brings the question of consideration to the forefront. In the previous article, it was suggested that continued employment would provide the necessary consideration to amend contracts of employment. If redundancy is not the only other option on the table, the consideration which would support a variation to a contract of employment is less clear. Employers may need to execute proposed amendments by deed.

An employee can be made redundant while on furlough or afterwards. An employee’s redundancy rights will not be affected by being furloughed.

How to furlough employees

A separate claim must be made in respect of each PAYE scheme.

The claim must contain such information as HMRC may require at any time (whether before or after payment of the claim) to establish entitlement to payment under CJRS.

The direction leaves open the possibility to request further information even after the claim has been paid, so as to check its legitimacy. The guidance maintains the warning that the government may retrospectively audit and claw back fraudulent claims.

The payment must be returned to HMRC immediately if the person making the claim becomes unwilling or unable to use the payment for the purpose of the Scheme.

An instruction to cease all work is only valid for the purposes of the Scheme if the employer and employee have agreed the instruction in writing.

This is a hugely important provision introduced by the direction. It follows that if the furlough agreement is not reduced into writing, an employer will not be able to make a claim.

 Furloughed employees can undertake training, provided that the training is directly relevant to their employment and is agreed between them and their employer before being undertaken.

A director is permitted to fulfil a legal obligation to file company accounts or provide other information relating to the administration of their company.

This is narrower than the guidance, which states that directors can “continue to carry out such duties as are reasonably necessary to fulfil the statutory obligations they owe to their company.”

Directors’ dividends cannot be taken into account when calculating furlough pay as it is not possible to identify which dividends have been received in lieu of wages.

The updated guidance sets out further information required to submit a claim:

• national insurance numbers for the furloughed employees;
• names of the furloughed employees;
• payroll/employee number for the furloughed employees (optional); and
• Self-Assessment Unique Taxpayer Reference, Corporation Tax Unique Taxpayer Reference, Company Registration Number or Employer Name (as appropriate).

If an employer has fewer than 100 furloughed staff, the details of each employee will need to be entered directly.

If an employer has more than 100 furloughed staff, they will need to upload a file with the information rather than input it directly into the system. The accepted file types are .xls .xlsx .csv .ods.

The current aim is that HMRC will pay employers four to six working days after submission of their claim. Employers will then be able to claim 14 days before payments are due to employees.

The ACAS guidance advises that HMRC will make payments every three weeks, because three weeks is the shortest period furlough can last.

How much an employer can claim

Claims can be made in respect of reimbursement for expenditure incurred, or to be incurred, by the employer in respect of the employee.  

The following types of expenditure are covered:

• the gross amount of earnings paid, or reasonably expected to be paid, by the employer to the employee;
• any employer national insurance contributions arising from the gross amount of earnings; and
• the allowable pension contribution calculated in line with paragraph 8.9 of the Schedule.

 The maximum level of employer pension contributions is set in line with the minimum automatic enrolment employer contribution of 3% on qualifying earnings. Claims can be made up to this cap provided the employer will pay the whole amount claimed to a pension scheme for the employee as an employer contribution.

A person is a fixed rate employee if:  

• the person is an employee in accordance with section 4 ITEPA 2003 or a member of an LLP;
• the person is entitled under their contract to be paid an annual salary;
• the person is entitled under their contract to be paid that salary in respect of a number of hours in a year whether those hours are specified in or ascertained in accordance with their contract (“the basic hours”);
• the person is not entitled under their contract to a payment in respect of the basic hours other than an annual salary;
• the person is entitled under their contract to be paid, where practicable and regardless of the number of hours actually worked in a particular week or month in equal weekly, multiple of weeks or monthly instalments (“the salary period”); and
• the basic hours worked in a salary period do not normally vary according to business, economic or agricultural seasonal considerations.

 For employees who are not a fixed rate, if they have been employed (or engaged by an employment business) for a full 12 months prior to the claim, the employer 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, the employer can claim for an average of their monthly earnings since they started work until the date they are furloughed.

In calculating the employee’s reference salary, no account is to be taken of anything which is not regular salary or wages.

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.”

The salary reference date for the purposes of calculating furlough pay is now the last pay period before 19 March 2020, rather than the employee’s salary as at 28 February 2020. However, if the employer has already calculated the claim based on the employee’s wages as of 28 February 2020, and this differs from the wages in the last pay period prior to 19 March 2020, the employer can choose to still use this calculation for their first claim.

All the grant received to cover an employee’s subsidised furlough pay must be paid to them in the form of money. No part of the grant should be used to provide a benefit or for a salary sacrifice scheme.

Annual leave

Employees will continue to accrue annual leave, and can take annual leave, during furlough. This is in accordance with the Working Time Regulations 1998. Conversely, employers have the right to require employees to not take their annual leave during furlough where there is a business need. Annual leave may also be suspended on return to work.

The restriction on carrying over the four weeks’ leave derived from the Working Time Directive (2003/88/EC) has been relaxed with effect from 26 March 2020. Employees are permitted to carry-over any untaken WTD leave where it was not reasonably practicable to take it in the leave year.

However, as it is possible to take annual leave during furlough, it follows that it will almost always be reasonably practicable to take the annual leave during the holiday year. If, on the other hand, the employer directs that no annual leave may be taken, then it would not be reasonably practicable to take the leave.

An employee must of course give the required notice to take annual leave and this is subject to the employer requiring that no annual leave be taken during furlough.

Employers may require employees to defer taking annual leave because employees will be entitled to their usual holiday pay during annual leave. As such, employers may have to top up the employee’s furloughed pay. Employers will need to weigh up the requirement to top up pay during annual leave with the employee’s ability to carry annual leave over to the next two holiday years.

Employers and employees can agree to vary holiday pay entitlement as part of the furlough agreement, however almost all workers are entitled to 5.6 weeks of statutory paid annual leave each year which employers cannot go below.

Employer may also direct employees to take annual leave. Importantly, however, if the employee is self-isolating, they are arguably unable to enjoy rest and relaxation. This means the period of self-isolation could not be designated as annual leave and pre-arranged annual leave could be rescheduled.

Employers can cancel pre-arranged annual leave which falls during furlough. Employees should look at their contract of employment to see if they can cancel such annual leave. Even if there is no contractual entitlement, employers should deal with requests reasonably.

If an employee usually works bank holidays, their employer can agree that this is included in the grant payment. If the employee usually takes the bank holiday as leave then the employer would either have to top up the pay to the usual holiday pay, or give a day of holiday in lieu.

Conclusion

Some significant gaps have been filled since 4 April 2020. We now have an authoritative Treasury direction and more comprehensive guidance. That guidance has addressed the thorny question of annual leave. However, some points remain in need of resolution and this is compounded by the proximity of the online portal. Employers and employees should follow the Scheme as it currently stands but beware that future changes may well be made and the direction itself specifically anticipates further amendments. Furlough agreements should focus on the particular circumstances of each case and be flexible enough to achieve the desired result in a changeable regulatory landscape.

This update on The Coronavirus Job Retention Scheme was written by Heather Platt and Oliver Foy, if you’d like any further information on either counsel please contact Jonathan Cue on 020 7353 0711 or via email.