The Coronavirus Job Retention Scheme (“the Scheme”) is designed to help businesses avoid having to temporarily lay off staff, or make them redundant, in the face of the unprecedented disruption caused by COVID-19 (also known as coronavirus).
All businesses with a PAYE scheme in place on or before 19 March 2020, who have enrolled for PAYE online and have a United Kingdom bank account, regardless of size or sector, will be able to benefit from the Scheme. Under the Scheme, the Government will reimburse employers up to 80% of their employees’ wages (up to a maximum of £2,500 per month, providing the employee was employed on or before 19 March 2020 and real time information had been submitted to HMRC prior to this date) plus employer’s National Insurance contributions and employer’s auto-enrolment pension contributions.
Employees on agency contracts and flexible or zero hours contracts can also benefit from the scheme. In addition, any employees who were on the payroll on 28 February 2020, but made redundant after this date but before 19 March 2020, can benefit from the Scheme if they are rehired by their employer.
It does not matter if the employee is rehired prior to 19 March 2020 or after this date. The Scheme, originally set to run from 1 March 2020 until 31 May 2020, but subsequently extended to 30 June 2020, has just been further extended until the end of October 2020.
Furloughed workers: what does that mean?
Businesses have to ‘designate affected employees as Furloughed Workers and notify their employees of this change’. However, employers still have to heed employment law. This means that employers must obtain the employee’s consent to be designated as a Furloughed Worker (and in relation to any changes they may wish to make surrounding such employee’s salary, e.g. a reduction to 80% up to a maximum of £2,500 as this is what the employer can reclaim under the Scheme). Such consent should be written, and the company should retain it on file for 5 years in line with Government guidance. Given the extraordinary situation prevailing at the moment, and given the less favourable alternatives to being furloughed, it is likely that most employees will agree to such changes to the terms of their employment. For those employees who do not agree, they will either have to take unpaid leave for an indeterminate period, or employers are likely to have to go down the redundancy route. It should be noted that Furloughed Workers are designated as such by the employer – an employee cannot ‘self-designate’.
Employees added to the payroll after 19 March 2020 are excluded from the Scheme, presumably to stop people cheating the system by hiring family members after the Scheme was announced and subsequently designating them as Furloughed Workers. However, as noted above, those businesses that have made people redundant since 28 February 2020, can re-employ such individuals and then furlough them, provided the employee was made redundant prior to 19 March 2020. Furthermore, Government guidance confirms that there can be exceptions to this in relation to payroll consolidation and TUPE transfers. Please seek further guidance on such exceptions if you believe these may be applicable to you.
To qualify for payment under Scheme, an employee must be furloughed for a minimum of three consecutive weeks. It is likely the Government introduced this minimum period in order to prevent employers putting staff on a furlough ‘rota’ i.e. one week on furlough, one week off.
Who can be furloughed?
Government guidance has now confirmed that employees who are on a period of sickness absence, including those who are self-isolating in accordance with Government guidance, can be furloughed despite being ill (this was previously not permitted), provided their employer has genuine business reasons to designate them as Furloughed Workers. However, it should be noted that the Scheme is not intended to be applied to those simply on short-term sickness absence, hence the three consecutive week minimum period required for employers to be able to claim the grant through the Scheme. Employees who are “shielding” in line with public health guidance or need to stay at home to care for someone who is “shielding” are also eligible to be furloughed.
Employees on Maternity Leave can be furloughed if they agree to return to work early or change to Shared Parental Leave and then return to work; alternatively, they will remain on Statutory Maternity Pay where this is applicable and will not be furloughed until their return to work. We are still waiting for confirmation from the Government as to whether an individual can be on Maternity Leave and be designate as Furloughed Workers, given Government guidance suggesting employers can use the scheme to reclaim Company Maternity Pay.
Government guidance has also confirmed the Scheme can be used in respect of certain individuals who are not employees, specifically Office Holders (including Company Directors), salaried members of Limited Liability Partnerships, Agency Workers and Limb (b) Workers.
When agreeing changes and moving to furlough status, it is important to remember that normal employment law processes apply. Employers must be careful not to discriminate against any employees when deciding who to designated as Furloughed Workers.
Furloughed workers remain employed but must not work
Assuming an employee has agreed to be designated as a Furloughed Worker, they will remain employed by their employer. During their period of furlough, they cannot undertake any work for their employer, or any organisation linked or associated with their employer, at all. If the employee continues to work, even reduced hours, they will not be eligible for the Scheme.
The good news for Furloughed Workers is that they can volunteer (including for the NHS) or undertake training, providing neither activity generates income for their employer. Unexpectedly, Government guidance has also confirmed that Furloughed Workers, if contractually allowed, can commence work for another employer and receive a salary for this work.
What the Government will pay
While furloughed, the Government will pay related employment costs including auto-enrolment pension contributions of 3% minimum employer contribution and employer’s National Insurance contributions, in addition to wages. Employers can make up the missing 20% of their employees’ salaries, but there is no legal obligation for employers to top up the salary to 100%, provided they have the written consent of the employee to a reduction in salary (please see above). Any contractual clauses regarding withholding pay and deductions should be taken into account when this decision is being made. For those employees who are designated as Furloughed Workers, their employment status will change but their employment record remains continuous.
How does furlough work for businesses
The HMRC portal through which repayments can be claimed by employers is currently estimated to be up and running on Monday, 20 April 2020. It is hoped that the first payments will be made to employers on 30 April 2020. HMRC has confirmed that the current aim is for employers to be provided with payments 4-6 days after submitting their claims through the portal, allowing HMRC time to check for any fraudulent claims. Employers are likely to only be able to make one claim through the portal in each pay period, i.e. weekly if they pay employees on a weekly basis, or monthly. It is currently understood from HMRC that such claims can be made up to 14 days ahead of the end of the pay period.
The Treasury has recently issued a Direction to HMRC under the powers conferred by the Coronavirus Act 2020, which provides further guidance on how payments will operate under the Scheme.
In order to make a claim, employers will need the following information:
- Their PAYE reference number;
- The number of employees being designated as Furloughed Workers;
- National Insurance Numbers for the employees being furloughed;
- Names of the employees being furloughed;
- Payroll/works numbers for the employees being furloughed;
- Their Self-Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number;
- The claim period (start and end date);
- The amount being claimed (per the minimum length of furloughing of 3 consecutive weeks);
- Their bank account number and sort code;
- Their contact name; and
- Their phone number.
Employers will also need to calculate the amount they are claiming. If an employer is claiming for fewer than 100 Furloughed Workers, they will be required to input the details of each employee directly. However, an employer claiming for 100 or more Furloughed Workers will be asked to upload a file containing the relevant information (i.e. name, National Insurance Number, claim period, claim amount and payroll number for each employee). Whichever means is used, it is important that the data used to make such calculations in respect of claims is retained by the employer.
Employers will continue to pay their employees as usual via PAYE, and then apply for funding through the portal (on the basis laid out above and in subsequent guidance) to cover 80% of their employees’ wages (up to £2,500 per month of gross pay). Employers will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated employer National Insurance contributions and minimum auto-enrolment employer pension contributions on that subsidised wage. The amount an employer can claim for through the HMRC portal will not only include regular wages, but other regular compulsory payments, i.e. past overtime, fees and compulsory commission payments. We are currently awaiting further guidance on what past overtime and fees will cover. Other types of discretionary payments such as commission and bonus will not be included. Furthermore, any non-monetary benefits, including Benefits in Kind, or benefits provided through salary sacrifice schemes cannot be claimed back in the grant from HMRC. For employees whose pay varies, the 80% is based on the higher of:
- the earnings in the same pay period in the previous year; or
- the average earnings in the previous 12 months (or less, if they've worked for less).
If employees paid the minimum wage are furloughed, the fact that 80% of their earnings will bring their wages below the National Minimum Wage (“NMW”) does not contravene the legislation as people are only entitled to the NMW if they are working. They can, however, claim the NMW if undertaking training for their employer whilst designated as a Furloughed Worker.
Changes to the Scheme
Whilst the Scheme is set to run as outlined above until the end of July 2020, from 1 August 2020 until its scheduled end on 31 October 2020, it will become more flexible to support the transition of employees back to work. While we wait for more detail on the revised Scheme, the Chancellor, Rishi Sunak, has confirmed that furloughed employees will be able to return to work part-time from 1 August. To support this lengthy continuation of the Scheme, while maintaining the current level of support to employees (i.e. 80% of salary up to a maximum of £2,500 per month), employers will be asked to ‘share the cost’ of the Scheme from August. Obviously, we will continue to keep this under close review.
We will update this guide as and when we receive new Government guidance. In the meantime, if you need any advice on this, or any other employment-related matter, please contact our Employment Law team.