Coronavirus Job Retention Scheme
Coronavirus Job Retention Scheme
The Government has updated its guidance on the operation of the Coronavirus Job Retention Scheme (the Scheme). This follows the publishing of formal directions from the Treasury to HMRC on the operation of the Scheme on 15 April 2020.
This advice note is kept under review but does not constitute legal advice and is only up-to-date at the time of publishing. As the Scheme is subject to change, you should take specific legal advice before relying on its contents.
What does the Scheme do?
The Scheme allows eligible employers to access unprecedented emergency support to cover the cost of paying wages to employees who would otherwise have been laid off or made redundant due to business downtown caused by the Coronavirus outbreak. These employees must be designated as “furloughed” and cannot undertake any work.
Under the Scheme, eligible employers can claim a grant to cover 80% of furloughed employees’ monthly wages, capped at £2,500 per employee per month. Claims can be backdated to 1 March 2020. The Scheme is currently intended to run until the end of June 2020.
Who is eligible to apply?
As originally announced, the Scheme is open to all UK employers regardless of their size. However, the new guidance makes several important clarifications:
- Employers must have created or started a PAYE scheme on or before 19 March 2020.
- Employers must have a UK bank account and enrolled for PAYE online.
- The Government does not expect public bodies to apply if they already receive funding for staff costs, or where their employees are engaged in essential services and furlough will not be appropriate.
Recruitment agencies can apply for agency workers on PAYE.
Administrators can apply on behalf of businesses which they have been appointed over. However, HMRC state that they only expect administrators to apply where the is a “reasonable likelihood” that the furloughed employees will be rehired, such as where the administrator is pursuing a sale of the business in administration.
Which employees can be claimed for?
Employees must meet several conditions to be considered as “furloughed employees”.
To be eligible, employees must have been on PAYE payroll on or before 19 March 2020 and notified to HMRC in an RTI submission on or before 19 March 2020. They must have been placed on furlough.
An employee will be considered as furloughed if:
- They have been instructed to cease all work for their employer for a period of at least three weeks.
- They have agreed to this instruction to cease all work in writing.
- This instruction is given “by reason of circumstances arising as a result of coronavirus or coronavirus disease”.
The Scheme will cover employees that were made redundant or stopped working on or after 28 February 2020. These employees can be reengaged and placed on furlough.
This will be the case even for employees who have not been reengaged until after 19 March, so long as they were on payroll as at 28 February and have been notified to HMRC on an RTI submission on or before 28 February 2020.
The Scheme will cover eligible employees regardless of whether they work full-time, part-time, flexible or zero-hours. Agency workers are eligible, so long as they do not undertake any work.
Employees who were placed on unpaid leave after 28 February 2020 can be placed on furlough instead. Employees who began a period of unpaid leave on or before this date cannot be placed on furlough until the date they had previously agreed to return to work.
Employees with more than one job who are still working for one employer can be placed on furlough by the other. However, an employee who has had more than one employer over the past year but has not worked for more than one employer at a time, should not be placed on furlough by a former employer if they have already been placed on furlough by their current employer.
Apprentices can be placed on furlough, so long as they receive at least minimum wage for any time spent training.
Working reduced hours
Crucially, employers cannot claim in respect of employees who are still working, even if their hours and/or pay are reduced. In this instance, employees should be paid in accordance with their terms and conditions of employment and where necessary, any reductions must be agreed with them.
What can be claimed?
Eligible employers will receive a grant from HMRC to cover the lower of 80% or £2,500 of each furloughed employees’ “regular” wages each month. Employers are still required to pay National Insurance contributions and minimum automatic enrolment employer pension contributions, based on the furloughed rate of pay, and can reclaim these costs as well.
Employers are free to “top up” the employee’s wages above 80% at their own cost and cannot reclaim National Insurance or auto-enrolment pension contributions in excess of the subsidised amount.
Where a furloughed employee is normally paid an amount which varies from month to month, their employer can claim support based on the furloughed employee’s (1) monthly earnings for the same month in the previous year or; (2) their average monthly earnings from the 2019-2020 tax year.
The updated guidance clarifies that the reclaimable amount will be limited to “any regular payments you are obliged to pay your employees”. This includes wages, past overtime, fees and “compulsory” commission payments.
Payments which are conditional or discretionary, including payments made due to business performance, an employee’s contribution to business performance or their own performance of their employment duties, will not be covered. This means that pay elements such as discretionary bonuses are not reclaimable under the Scheme.
Relationship with other employment rights
There has been much speculation about how the Scheme will affect other employment rights, and especially other type of paid leave. The Government’s updated guidance advises as follows.
- Sick leave and Statutory Sick Pay. Employees who are not fit for work due to incapacity (for whatever reason, including Coronavirus) or who are self-isolating may be eligible for Statutory Sick Pay, and/or enhanced payments in accordance with their employment terms or relevant internal procedures. They can be furloughed after their period of sick leave. The updated guidance makes clear that the Scheme is not intended for short-term absences related to sickness.
Employers can still furlough eligible employees for business reasons who are currently off sick. These employees would be considered as furloughed and should be paid on this basis rather than receive sick pay.
Employees on long-term sick leave can be placed on furlough instead.
Employers can claim from both the Coronavirus Job Retention Scheme and the SSP rebate scheme for the same employee but not for the same period of time. When an employee is on furlough, claims can only be made through the Coronavirus Job Retention Scheme.
If an employee who has not been placed on furlough falls ill, needs to self-isolate or be shielded, employers may qualify for an SSP rebate of up to two weeks SSP for that employee.
- Falling sick during furlough. Furloughed employees who become ill retain their usual employment rights and must be paid at least their Statutory Sick Pay entitlement. Employers can decide whether to move the employee onto Statutory Sick Pay or keep the employee on furlough, at their furloughed rate.
If a furloughed employee is moved onto SSP, this must be paid by the employer and cannot be claimed under the Scheme, although a separate rebate for up to 2 weeks of SSP is available. If the furloughed employee is kept on their furloughed rate, this can still be reclaimed under the Scheme. HMRC has updated its payments manual to make clear that employees cannot qualify for SSP whilst also furloughed.
- Employees who are unable to work because they are required to follow current medical guidance on “shielding” themselves or others can be placed on furlough.
- Care responsibilities. Employees who are unable to work due to caring responsibilities resulting from coronavirus can be furloughed.
- Annual leave. Furloughed employees can take annual leave, which should be paid in accordance with the usual rules set out in the Working Time Regulations (Norther Ireland) 2016. This means that furloughed employees must receive their normal pay for annual leave taken during furlough. The Scheme will not reimburse employers for this additional cost.
- Employment status. The Scheme can cover eligible persons who are not employees, so long as they are paid via PAYE. This can include company directors, salaried partners or limb (b) workers. Specific rules are in place for contractors working off-payroll in the public sector.
- The updated guidance has clarified the position on TUPE. Where TUPE applies to a business transaction, the transferee will be eligible to claim under the Scheme in respect of employees transferred after 19 March 2020.
- Statutory leave. The usual rules for maternity, paternity, adoption and shared parental leave and pay continue to apply.
Employees who have given birth are still required to take maternity leave for (at least) the first two weeks following childbirth.
Employers who offer enhanced pay during statutory leave can include this as a reclaimable wage cost under the Scheme.
When an employee returns from statutory leave and is placed on furlough, their furlough rate of pay should be calculated against their usual salary, not the pay they received whilst on statutory leave.
- Benefits in kind. The total salary used to calculate an employee’s furlough pay rate should not include the cost of non-monetary benefits, including any taxable benefits in kind. Benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should not be included either.
Furloughed employees must be paid in money. Employers are not permitted to use part of the grant to fund benefits or a salary sacrifice scheme. Where benefits are provided to furloughed employees, they should be provided in addition to the wages paid under the Scheme.
- National Minimum Wage. Furloughed employees are only entitled to receive the National Minimum or Living Wage for any time spent in training during the period of furlough, even if this is more than the subsidised amount. Otherwise, as they are not undertaking work, they may receive less than the National Minimum Wage threshold.
- The usual statutory protections against unlawful discrimination continue to apply. Where necessary, employers may have to adopt fair and reasonable selection processes for furlough which are non-discriminatory.
- Changing employment terms. Placing an employee on furlough in the absence of a relevant existing contractual right to place employees on reduced hours and pay is a change to their terms and conditions of employment which should be agreed with employees in the usual way. This will necessitate holding a consultation process with relevant employees to obtain their consent.
- Other employment rights. The Government guidance states that furlough does not affect an employee’s other employment rights. This means that entitlements such as annual leave will continue to accrue, as well as rights such as the right not to be unfairly dismissed. There is no indication that furlough will break continuity of service.
There are several relevant considerations for employers in implementing the Scheme. These include:
- The Treasury’s clarification that employees will be eligible for furlough if they are not required to undertake any work for at least three weeks “by reason of circumstances as a result of coronavirus or coronavirus disease” is helpful, in that it confirms that the Scheme is not narrowly limited to only those employees who would otherwise have been made redundant.
- Employees can be rotated in periods of “on” or “off” furlough but must be furloughed for minimum blocks of three weeks to attract support under the Scheme.
- Where there is still some work available, employers will have to decide who should be retained and who should be furloughed. Employers must not act in a discriminatory manner when making these selections and will have to adopt some sort of fair process, akin to the process of pooling and selection in a redundancy situation.
- Employers who are engaged in providing essential services, or who can still provide work for employees to complete, may be approached by employees who want to be placed on furlough and should be prepared to deal with any employment relations issues which arise. This might require engagement with employees directly or through trade unions.
- Given the current circumstances, employers should be able to prioritise vulnerable employees or those with care responsibilities for furlough. It appears likely that prioritising older age groups, such as those over 65 or 70, would be justifiable. Those who suffer from relevant pre-existing health conditions which place them in the vulnerable group be prioritised, as anti-discrimination legislation does not protect those without a health condition from alleged “less favourable” treatment.
- It is very likely that employers will be approached by former employees who have been made redundant or otherwise stopped working for them. Employers should adopt a consistent policy for dealing with requests to be rehired and placed on furlough. These requests may include circumstances where employment was not terminated due to Coronavirus, such as due to conduct or performance issues.
- Employers should write to relevant employees and propose to place them on furlough or, where there is an existing contractual right to reduce their hours and pay, to notify them. Where consent is needed, it should be given in writing. Regardless, both employer and employee must agree in writing that the employee will cease all work during furlough.
- Employers do not need to “top up” wages to meet the National Minimum Wage threshold if their furloughed employees are not undertaking training during furlough. Employers can provide enhanced pay to some but not all employees, keeping in mind their obligation not to discriminate.
- Employers will need to consider their approach to discretionary bonuses. This will include discretionary bonuses which have already been earned but have not been paid, or which the employee would ordinarily be working towards if not on furlough.
- Employers should consider how to deal with annual leave during this period. As the cost of providing holiday pay at an employee’s normal pay rate is not covered by the Scheme, employers might wish to restrict employees from taking annual leave until circumstances improve, subject meeting their overarching annual leave obligations under the Working Time Regulations (Northern Ireland) 2016. On the other hand, employers might prefer to avoid employees having accrued a large amount of annual leave by the time normality resumes.
If you are affected by any of the above, please do not hesitate to contact Jack Balmer email@example.com or your usual Tughans contact for further advice and guidance.
While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.