On 20 March 2020, the UK Government announced the largest state economic intervention in peacetime, to prevent hundreds of thousands of employees being placed on lay-off or made redundant. Through the Coronavirus Job Retention Scheme (CJRS), the Government have committed to reimbursing 80% of employees’ wage costs, up to a cap of £2,500 per month. The scheme is open to all UK employers, regardless of size.
When will the CJRS end?
Initially the CJRS was set to run for four months starting on 1 of March. It has now been extended and will continue in its current form until the end of July. From 1 July, employers currently using the scheme will have more flexibility to bring their furloughed employees back to work part time whilst still receiving support from the scheme.
The revised form of CJRS will run for three months from August through to 31 October. Employers will be asked to pay a percentage towards the salaries of their furloughed staff. The employer payments will substitute the contribution the government is currently making, ensuring that staff continue to receive 80% of their salary, up to a total cap of £2,500 a month.
The Treasury direction has outlined how the scheme will be tapered up to the end of October as follows:
The cap will be proportionate to the hours not worked.
|Government contribution: employer NICs and pension contributions||Yes||No||No||No|
|Government contribution: wages||80% up to £2,500||80% up to £2,500||70% up to £2,187.50||60% up to £1,875|
|Employer contribution: employer NICs and pension contributions||No||Yes||Yes||Yes|
|Employer contribution: wages||–||–||10% up to £312.50||20% up to £625|
|Employee receives||80% up to £2,500 per month||80% up to £2,500 per month||80% up to £2,500 per month||80% up to £2,500 per month|
Can employees on maternity leave be furloughed?
Yes, nothing in the Treasury Directions or HMRC guidance prohibits employees being simultaneously on furlough and on maternity leave.
However, this is subject to the following:
Please note the cut-off date that you can submit claims for periods ending on or before 30 June is 31 July.
Can employers rotate their employees who are placed on furlough leave?
The guidance states that employees can be furloughed multiple times. Until 1 July employees must be furloughed for a minimum period of 21 calendar days.
From 1 July there will be no minimum furlough period but the claim submitted to HMRC must still cover a period of at least a week.
Employers do not have to furlough all of their employees and they can therefore rotate the employees that they place on furlough leave on a 3-weekly basis up to 1 July, and in shorter cycles after 1 July.
From 1 July, part-time furloughing will be permitted. Working arrangements must be agreed in writing with employees. To calculate payments for flexible furlough, the following approach is advisable:
Employers will need to report and claim for a minimum period of one week.
Can foreign nationals be furloughed?
The guidance states that foreign nationals are eligible for furlough.
Can directors be furloughed?
The Government guidance has confirmed that directors, including those who are directors of their own personal service companies, can be furloughed.
What can directors do whilst on furlough?
Directors can be furloughed but still carry out those particular duties that are reasonably necessary to fulfil their statutory obligations. If a director delegates work to another member of staff, we believe they would then fall outside of the scheme.
It is our view that directors’ duties will be construed narrowly, and will include anything which keeps the business running/generates a commercial revenue. If the director engages in activities for shareholders or undertakes any duties set out in their service agreement whilst on furlough leave (with the exception of those that are reasonably necessary to ensure that they fulfil their statutory obligations), they may fall outside the scope of the scheme.
What happens to apprentices?
Apprentices can be furloughed in the same way as other employees and they can continue to train whilst furloughed.
However, they must be paid at least the Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage (AMW/NLW/NMW) as appropriate for all the time they spend training. This means that employers have to cover any shortfall between the amount employers can claim for their wages through this scheme and their appropriate minimum wage.
Can employees study and/or train whilst on furlough leave?
The new Treasury direction permits employees to study or train, if the following 3 conditions are met:
Can employees who voluntarily left work after 28 February be re-employed and placed on furlough?
Revised Government guidance has now confirmed that if an employee has stopped working for an employer after 28 February, for any reason (e.g. to care for a dependent), the employer can agree to re-employ the employee, place them on furlough leave and claim for their wages from the date on which they were furloughed through the CJRS. This applies even if the employer does not re-employ the employee until after 19 March. However, the employee must have been on the payroll as at 28 February and have been notified to HMRC on an RTI submission on or before 28 February 2020. This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 28 February 2020.
What if employees have already been placed on unpaid ‘lay-off’ or made redundant?
Employees already on unpaid lay off on 28 February 2020 will still be on the payroll and can therefore have their status changed to furloughed worker once their unpaid leave has come to an end
Employees who have been made redundant after 1 March 2020 can be reinstated and placed on furlough.
If furlough leave is not considered appropriate, what alternatives are there to redundancy?
Organisations may be able to make ‘top level’ cuts e.g. reducing or ceasing bonus payments, reducing director/senior management pay, asking employees to volunteer for unpaid leave or reduced pay.
Can employers make staff redundant following furlough leave?
The Government guidance does not prohibit this or make access to the CJRS conditional upon employers retaining employees once the CJRS ceases.
Can you collectively consult whilst on furlough?
The purpose of furlough leave is to pause employment. Our view is that, although participating in a collective consultation process during furlough is unlikely to amount to work, employers are likely to find it difficult to conclude a fair and lawful collective consultation whilst employees are on furlough. This is due to:
Our view is that, if possible, employers should delay concluding any collective consultation process until they have had the opportunity to evaluate their ongoing business needs and prospects.
Can employees who transferred to a new employer under TUPE be furloughed?
The revised Government guidance states that a new employer can access the CJRS in respect of employees who transferred to them after 28 February 2020 if TUPE applied to the transfer.
What if we have already paid payment in lieu of notice (PILON) and/or holiday pay on termination?
In our view the PILON can be treated as future salary and the amount paid deducted from their salary for following months as appropriate, depending on the length of the notice period.
As PILON’s are now treated as an employee’s salary for tax purposes this should not give rise to tax-related issues, but employers should seek advice from their accountants and or HMRC.
Reinstated employees can also be offered the opportunity to repay any holiday pay received on termination and then have their holiday entitlement reinstated.
Do workers need to be consulted prior to being furloughed?
Government guidance refers to collective consultation potentially being required to obtain consent to the changes being made to terms and conditions where furloughing is proposed, if sufficient numbers of staff will be affected.
But given that employers are likely to start with the assumption that all employees will agree to the changes, it is arguably the case that many of them will not at this stage be proposing any dismissals and there is therefore no requirement to consult. There may also be practical difficulties in electing and consulting with employee representatives where places of work have had to be closed.
However, if employers are proposing redundancies of 20 or more employees if furloughing is not accepted, or if 20 or more employees raise objections to being furloughed, employers will have to collectively consult.
Do we need to the employee’s written agreement/consent to being furloughed?
The updated Government guidance on claiming under the CJRS here states that ‘To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. 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. A record of this communication must be kept for five years’.
The new Treasury Direction states that for claims made from 22 May 2020employers must confirm in writing to their employee that they have been furloughed. There needs to be an auditable written record, but the employee does not have to provide a written response to that confirmation that they have been furloughed.
As to what this correspondence should contain:
If the employer proposes to maintain the full pay of the furloughed workers, the only agreement that is likely to be needed is to the change of status to ‘furloughed worker’.
If the employer proposes to reduce the furloughed workers pay to the 80% maximum up to the £2,500 cap, the workers will need to either agree to this change; or be consulted about the change.
Do employers have to pay employees whilst on furlough?
The Government guidance refers to employers being ‘reimbursed’ for 80% of furloughed workers wage costs, up to a cap of £2,500 per month. This suggests that employers will be expected to make the payments first.
Employers should therefore ideally pay their employees throughout this period to avoid claims for unlawful deductions from wages and reclaim the payments from HMRC once the portal has opened.
Employers who cannot afford to continue to pay wages and need short term cash flow support may be eligible for a Coronavirus Business Interruption Loan (link here).
Is the Government cap of £2,500 gross or net pay?
The Government has confirmed that this is gross pay.
How will the 80% pay be calculated for irregular/seasonal workers?
The Government guidance states that if the employee has been employed for 12 months prior to the claim, they are entitled to claim the higher of:
If the employee has been employed for less than the full 12 months, they can claim for an average of their monthly earnings since they started work
Will commission or bonus be included in the 80% pay calculation?
The Government guidance on this point has changed. Previously, it stated that fees, commission, and bonuses should not be included in the calculation of wages. Under the updated guidance you can now include regular payments that you are obliged to pay including past overtime, fees and compulsory commission payments. Additionally, any pay made to employees who undertake additional or exceptional responsibilities should be included.
However, discretionary bonuses including tips, commission payments and non-cash payments (such as the value of benefits in kind) must still be excluded from the calculation of wages.
Benefits provided through salary sacrifice arrangements (including pension contributions) that reduce an employee’s taxable pay should also be excluded from the calculation. Where employers provide benefits to furloughed employees, these should be continued unless a different arrangement is agreed with the employee.
HMRC has confirmed that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements if the relevant employment contract is updated accordingly.
The new direction from HRMC states that the employer cannot claim for salary which is conditional on any matter. Therefore, this could exclude salary payments which the parties have agreed are conditional on receipt of a CJRS payment. Further clarification on this point is awaited.
Will the 80% pay calculation include Employer National Insurance and auto-enrolment pension contributions?
No, employers will receive the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on the 80% pay.
The Government will be proving further guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions.
Will employees continue to accrue holiday entitlement during furlough leave?
Furlough leave only varies an employee’s right to work and to be paid. Employees will continue to accrue statutory holiday in accordance with the Working Time Regulations. This is supported by the updated HMRC guidance and the Acas guidance on Coronavirus (https://www.acas.org.uk/coronavirus/using-holiday). The HMRC guidance states that holiday pay should be paid at the employee’s normal rate of pay. This means that employers will need to top up the 80% furlough payments. The Acas guidance suggests that employers can still request employees on furlough to take holiday as long as they give twice the amount of notice as the amount of required holiday. However, it remains unclear whether taking holiday breaks a period of furlough leave.
Employers may be able to vary any additional contractual entitlement to holiday so that this does not accrue, either by mean of a contractual right to vary or through agreement.
Can we reduce employees to short time working and cover their reduced hours under furlough?
The Government guidance states that employees must not undertake any work for their employer for furlough to apply.
However, the CJRS will become made more flexible after 1 July. Employers currently using the scheme will then be able to bring furloughed employees back part-time.
Until then, employers can furlough some workers and keep others at work (the latter possibly on reduced hours or pay). We believe that employers are likely to need to undertake some form of robust and documented selection process when deciding who should be furloughed.
Employers should also ensure that the selection process is not discriminatory
Can staff on long-term sick be placed on furlough?
If an employee is not available for work due to sickness, our view at present is that that will not be eligible for furlough.
However, an employee can be placed on furlough if they provide a medical fit note confirming that they are able to return to work.
What if employees become sick whilst on furlough?
Employees placed on furlough will still retain their right, if eligible, to Statutory Sick Pay (SSP). This means that sick employees must be paid at least SSP although employers can choose whether to move these employees onto SSP or to keep them on furlough, at their furloughed rate. When deciding which course of action to take, employers should be alert to the possibility of discrimination.
If employers move employees from furlough leave to SSP, employers cannot claim for furloughed salary whilst the employee is receiving SSP. Employees must pay SSP themselves as usual. Moving a furloughed employee onto SSP if they become sick appears to be of little advantage to employers.
If an employee is already on SSP, the new Treasury direction allows for employers and employees to agree when that period of incapacity is ended, and the furlough leave can begin.
If an employee is on a prolonged period of unpaid sick leave, the new direction states that the employee and employer can agree to end the period early but only if this variation was agreed by 20 March 2020.
Will furlough apply if we reopen and then close our business further down the line?
Given that the Government is keen to encourage the retention of workers, our view is that employers would still be able to furlough employees in these circumstances as long as the closure was expected to be on a temporary basis only.
Can employees work for another employer whilst on furlough leave?
The Government has confirmed that it permits employees placed on furlough leave by one employer to continue to work for another employer. This is subject to the contract of employment between the employee and the primary employer permitting working elsewhere.
An employee can take part in volunteer work, provided the employee does not provide services or generate revenue for or on behalf of your organisation.
Can we continue dealing with disciplinaries, grievances and performance issues during furlough?
Once again, the question here is whether the furloughed employee who is participating in a disciplinary, grievance or performance improvement process (PIP) will be ‘working’. The answer is likely to be ‘no’ in relation to the employee concerned – (except in relation to PIPs as these clearly cannot be dealt with whilst the employee is on furlough) and these processes could therefore in theory continue during furlough.
Who has to notify HMRC about furloughed employees?
The Job Retention Scheme 80% contribution is a grant paid to the employer. As a result, it is the employer’s responsibility to: