On 26 March the Government (HMRC) published guidance giving details of its Coronavirus Job Retention Scheme. The guidance has since been updated a number of times; on 4 April, 9 April, 15 April, 17 April and most recently on 20 April. The current, updated guidance can be seen here.
On 15 April the Treasury also issued a direction to HMRC which contains the legal framework on how it must operate the furlough scheme. Legally, this is the definitive statement of the scheme with any guidance complimentary to it.
On 17 April the government published a guide to employers detailing how to submit claims and calculate the amount claimed. The guide can be seen here.
The scheme supports employers by paying 80% of a “furloughed worker’s” pay up to a cap of £2,500 per month.
Which employers are covered?
- Any UK organisation with employees who had created and submitted real time payroll data through a PAYE payroll scheme on or before 19 March 2020 for those employees and who has a UK bank account.
- This includes businesses, charities, recruitment agencies (agency workers paid through PAYE) and public authorities. However, HMRC expects public authorities or employers receiving public funding for staff costs or specifically to provide services necessary to respond to COVID-19 not to furlough staff.
- Individuals who employ nannies can furlough them provided they paid them through PAYE and they were on their payroll before 19 March 2020.
- Following the recent case involving Carluccio’s restaurants, it has now been confirmed that administrators appointed by a company shall have access to the scheme and so shall be able to place its workers on furlough leave. However, the guidance confirms that HMRC expects that administrators will only do so if there is a “reasonable likelihood” of the workers being able to return to work.
Which employees are covered?
- The Treasury direction states that the scheme applies to employees who are furloughed for reasons “arising from the health, social and economic emergency in the UK resulting from coronavirus and coronavirus disease”. This is broader than previously set out in government guidance, and means that the scheme is not just restricted to those employees who would otherwise have been made redundant.
- All current employees on any type of contract, including those on full-time, part-time, agency, flexible, apprenticeship or zero-hour contracts, but not any who have been hired after 19 March 2020.
- The scheme will not apply to any employees who are working. The Treasury direction indicates that employees must have “been instructed by the employer to cease all work in relation to their employment.” This means any employees who are working (including any employees working on reduced hours or reduced pay, and whether or not at home) are excluded. A furloughed employee is one who is not required to and is not carrying out any work.
- Furloughed employees are able to undertake training and do volunteer work, provided they do not provide services to or make any money for their employer or any linked or associated company. There is an exception for apprentices who can continue to train while furloughed, but when doing so they must be paid at least the minimum wage (Apprentice Minimum Wage, National Living Wage or National Minimum Wage, as appropriate).
- Employees on maternity leave (where normally eligible) will continue to be entitled to statutory maternity pay (or allowance) at the normal rates. Employers that pay enhanced maternity pay will be able to claim for that enhanced pay under the scheme (subject to the scheme limits).
- The scheme will cover employees made redundant or who stopped working on or after 28 February 2020 and before 19 March 2020 if they are rehired by their employer. However employees must have been on the payroll on or before 28 February 2020 in order for employers to rehire and furlough them. This means that those hired after this date and before 19 March 2020 will not be captured.
- Employees who are shielding in line with public health guidance issued to the most vulnerable, or who need to stay at home with someone who is shielding, can be furloughed.
- Employees with caring responsibilities resulting from COVID-19 (e.g. they are looking after children as a result of school closures) can be furloughed if these responsibilities mean they are unable to work.
- Employees who are on short or long term sick leave can be furloughed if required for business reasons; however the minimum period of furlough is three weeks and so it is not intended to be used in cases of short term sickness absence. The Treasury direction indicates that, if an employee is eligible to receive statutory sick pay (SSP) when they are furloughed, the 21 day minimum period of furlough will not begin until that entitlement to SSP has ended. This suggests that an employee must have become fit for work before the employer may claim payments under the scheme in respect of them. Employees who become sick whilst furloughed are entitled to statutory sick pay and it is in the employer’s discretion to decide whether to move sick employees onto statutory sick pay for this period or to keep them on furlough, at their furlough rate.
- The scheme covers the following if they are paid via PAYE: office holders (including Directors); salaried members of LLPs; agency workers (including those employed by umbrella companies); and workers paid through PAYE.
- Directors that are furloughed can only carry out very limited work in fulfilling their director’s duties, covering only what is required in relation to the filing of company accounts or the provision of some other information relating to the administration of the company.
- If employees have more than one job they can be furloughed from each job separately. Each job is separate, and the cap applies to each employer individually. Employees may be furloughed from one job while continuing to provide work for the other. If an employer furloughs an employee that the employee can start a new job with another employer, if contractually allowed (provided the new employer is not connected to the current employer).
- If an employee started unpaid leave after 28 February, they can be put on furlough leave instead. If they started unpaid leave on or before 28 February they cannot be furloughed until the date it was agreed they would return to work.
- If employees are on fixed term contracts they can be furloughed and the employer can choose to renew or extend the contract during the furlough period.
- Employees on all types of visa can be furloughed, this will not breach the terms of the visa.
- Where workers have transferred to a new employer after 19 March as a result of a TUPE transfer they can be furloughed by the new employer.
How does an employer furlough an employee?
- Employers should discuss furloughing with their staff and make any changes to the employment contract by agreement. The Treasury Direction suggests that the employee must agree in writing, but the guidance states that the employee does not have to provide a written response. Any decision to place an employee on furlough (even if the terms of their employment contract are not changing) should be agreed with the employee in writing to ensure compliance. A record of this must be kept for 5 years.
- If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.
- So, unless an employment contract already allows an employer to reduce hours and pay, employee agreement should be sought first and collective consultation may be required where 20 or more employees are involved. This reflects the Government’s previous announcement that normal employment laws continue to apply.
- All employees do not need to be placed on furlough so some groups or individuals can be placed on furlough. Equality and discrimination laws will continue to apply in the usual way to the decisions made in the process including who to offer furlough to so care needs to be taken.
- Employees can be rotated on and off the furlough scheme provided that the minimum length an employee is furloughed for is 21 days.
- The guidance for employees states that employees can take holiday while furloughed and that employers must top up pay to normal holiday pay rates for such periods. The guidance for employers is silent on this, but we anticipate this will be updated to be consistent with the guidance for employees. There is some uncertainty over whether employers can insist on employees taking their holiday entitlement during the furlough period. If the furlough scheme is extended beyond the end of June this may become an increasing issue for businesses whose employees will have a large amount of untaken holiday which may have to be carried over into the next holiday year. Our view is that, in relation to any holidays accrued under the Working Time Regulations, employers can continue to require employees to take this at prescribed times provided they follow the notice provisions under those Regulations (i.e. employers must give employees twice the amount of notice as the period of holiday that they wish for the employee to take, so an employer must give two weeks’ notice to an employee that they must take one week’s holiday leave, for example.)
- Furloughed workers retain their existing employment rights as they continue to be employed e.g. statutory sick pay entitlements, maternity rights, other parental rights, unfair dismissal rights and rights to redundancy payments.
What can an employer claim for?
- Employers can only claim once every 21 days for a reimbursement. Claims can be backdated to 1 March 2020. Claims can be made by notifying HMRC thorough a new online portal available from 20 April 2020 and payment will be made to employers within 4-6 working days of making a claim.
- Under the scheme, employers can claim the following wage costs:
- 80% of an employee’s regular gross salary (as last paid on or before 19 March 2020) excluding anything which is not regular salary or wages, such as discretionary commission, discretionary bonuses, tips, conditional payments and non-cash payments, but including fees, compulsory commission payments and past overtime, subject to a cap of £2,500 per month; plus
- the associated Employers’ NIC and minimum automatic enrolment employer pension contributions on this subsidised wage.
- For employees with irregular hours and pay who have been employed for a full 12 months prior to a claim, their reference pay is to be the higher of their pay in the same month in the prior year or their average monthly pay for the 2019/20 tax year.
- The Employer may, but is not obliged, to top up pay to the employee’s usual level.
- Wage costs do not include the cost of non-monetary benefits including taxable benefits in kind. Benefits provided by the employer through a salary sacrifice scheme that reduce taxable pay should not be included in the wage costs. If the employer continues to provide benefits to furloughed employees this should be in addition to the wages paid under the scheme. It is not possible to make deductions to the wage costs for administrative charges or other costs borne by the employer and the employee should receive the full amount claimed. HMRC have agreed that COVID-19 counts as a life event that could warrant changes to an existing salary sacrifice arrangement.
- In terms of tax treatment, the guidance states that payments received by a business under the scheme are made to offset these 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. Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.
What happens when the scheme ends?
- The scheme is temporary and in place until 30 June 2020, but may be extended. When the scheme comes to an end, employers will need to decide if employees can return to their roles or if they need to consider redundancy.
- HMRC will retain the right to retrospectively audit all aspects of an employer’s claim so employer’s should ensure their claims are accurate and can stand up to scrutiny.
Please get in touch with any of the authors of this article, or your usual Fladgate contact, if it would be helpful to discuss these themes or others in the context of any issues that you might be facing.