On 20 March 2020, the chancellor, Rishi Sunak, announced the Coronavirus Job Retention Scheme (the Scheme) as part of the UK government’s measures to help support businesses through the current COVID-19 pandemic. We have seen various iterations of guidance on the Scheme (on 26 March, 4 April, 9 April, 15 April and 17 April), and on 15 April 2020, a Treasury Direction was issued setting out the legal framework. Here is the updated position, as at 20 April 2020.
About the Scheme
What is the Coronavirus Job Retention Scheme? It is a temporary scheme announced by the UK government on 20 March 2020 as part of its package of measures to help support businesses through the current COVID-19 pandemic.
What does the Scheme do? The Scheme allows an employer to designate certain individuals who are paid wages via the Pay As You Earn (PAYE) system as ‘furloughed’, keeping them on payroll but not requiring them to work. The employer can then seek reimbursement of some of its labour costs from the government (see below).
How is the Scheme accessed? Reimbursement is via an HMRC portal which went live on 20 April 2020.
When does the Scheme start? It will be backdated to start from 1 March 2020 and will run for an initial period of four months, but may be extended. Employers can use the Scheme at any time while it is open.
Is the Scheme compulsory? It does not appear to be a compulsory scheme; employers are not obliged to make use of the Scheme, and workers will need to consent to be furloughed if it means a change to their terms and conditions (see ‘Does a worker have to consent to furlough?’ below).
Which employers can make use of the Scheme? The Scheme is available to any business, of any size and in any sector, with a UK payroll. This includes businesses, charities, recruitment agencies, and public authorities. The only caveat is that the employer must have created and started a PAYE payroll system on or before 19 March 2020, have enrolled for online PAYE, and have a UK bank account. Also, to be eligible for the grant, employers must confirm in writing that the individual has been furloughed, with the Treasury Direction saying that the employer and employee must have agreed in writing (including by email) that the employee will cease working. This communication must be kept for five years. Although it is available to all employers, some employers may want to consider any reputational or other PR issues associated with accessing the Scheme.
What about the public sector? Although available in the public sector, it is not anticipated that the Scheme will be used by many public sector organisations given their need to provide essential public services at this time. Where public funding is already being used to fund staff costs, this is expected to continue and for staff not to be furloughed. This also applies to non-public sector employers who receive public funding for staff costs. There is separate guidance on payments to suppliers of contingent workers where a party receiving the worker is a central government department, an executive agency, or a non-departmental public body.
What about companies in administration? If a company has gone into administration, the appointed administrator can access the Scheme. However, the expectation is that they would only do so if there is a reasonable expectation of retaining the workers. We are starting to see litigation from administrators seeking directions from the courts on how to proceed with furloughed workers.
Which parts of the workforce are covered by the Scheme? All staff who are paid through the PAYE system and were on the payroll on 19 March 2020 can be furloughed and covered under the Scheme. This includes full- and part-time employees, employees on agency contracts (provided they are not working), and employees on flexible or zero hours contracts. The guidance released on 4 April also confirmed that apprentices, employees of individuals (for example, nannies), foreign nationals, those on fixed-term contracts (while the fixed term continues and the contract can be renewed and extended during furlough), and non-employees – such as directors, office holders, salaried members of an LLP, agency workers, and limb (b) workers – could all be furloughed, subject to their meeting the eligibility criteria about being paid through PAYE and being in employment on 19 March 2020. The guidance on 9 April adds to the list employees on any type of visa (also confirming that accessing the Scheme is not “access to public funds” for visa purposes), and contractors in the public sector, if they are deemed employees under IR35.
Can employers furlough employees who are shielding or need to care for others? Yes. Individuals who are shielding in line with public health guidance, or need to stay at home with someone who is, can also be furloughed under the Scheme, as can employees with caring responsibilities
Can employers furlough employees on sick leave? This is an issue which keeps changing, and the current position is unclear. The guidance suggests that employers can furlough employees who are on sick leave or who are self-isolating, although the Scheme is not intended for short-term absences (because there is a minimum furlough period of three weeks). Furloughed employees cannot receive sick pay while furloughed – that is, where the individual receives statutory sick pay (SSP), then the employer cannot claim under the Scheme (but could claim two weeks of SSP back through the new SSP rebate system if they are an eligible employer). Alternatively, the employer can furlough and claim under the Scheme. An employer can claim a grant under the Scheme, and an SSP rebate, for the same employee but not for the same period of time. However, the Treasury Direction is arguably contradictory, reverting to the previous position in the guidance, suggesting that a sick employee cannot be furloughed under the Scheme until they have exhausted their entitlement to SSP. This leaves the position unclear, and urgent clarification is needed to resolve this issue.
Can employers reinstate workers who left before this Scheme was announced? Yes. An employee who was employed and on the payroll on 28 February 2020 but who was made redundant or stopped working for their employer between then and 19 March 2020, can be reinstated and placed on furlough instead, and the Scheme can then be accessed in relation to them.
What about people hired after 19 March 2020? New hires and anyone not on the payroll on 19 March are not eligible to be furloughed under the Scheme. This is part of the government’s anti-fraud measures. There is an exception where employees transferred, under TUPE, to a new employer after 19 March 2020.
Can employers use the Scheme in respect of employees who have agreed to reduce their hours? No. The Scheme is intended for those who do not work at all. It does not include those who are working but have agreed to reduced hours or pay.
Payments under the Scheme
How do employers claim under the Scheme? Employers will need to make a claim for wage costs through the Scheme via the HMRC portal.
What will be reimbursed? Employers can seek reimbursement of up to 80 per cent of a furloughed worker’s usual monthly wage costs, subject to a cap of £2,500 per month per furloughed employee, plus the associated employer national insurance contributions and minimum automatic enrolment employer pension contributions. Guidance issued on 17 April, along with a step-by-step guide, gives details of how to calculate the 80 per cent, along with worked examples.
Is that gross or net? The claim is based on 80 per cent of gross pay.
What tax or other deductions are the furloughed employees responsible for? The amount paid to the employee will be subject to the usual deductions for tax and national insurance. They will also have to pay automatic enrolment pension contributions on qualifying earnings unless they have opted out or stopped saving into a workplace pension scheme.
Do employers have to top up the remaining salary shortfall? Not ordinarily. Employers must pay the employee the lower of (1) 80 per cent of their regular wage or (2) £2,500 per month. An employer can choose to top this up, but there is no obligation to do so. This is the case even if the amount paid falls below the national living/minimum wage, because these minimums only apply where a worker is working. However, if workers are required to complete online training while furloughed, they must be paid at least the national living/minimum wage for the time spent training, even if this is more than the wage that is subsidised.
Are employer national insurance contributions and pension contributions included under the Scheme in respect of any top-up salary? No. Where an employer chooses to top up salary, any associated employer national insurance contributions or automatic enrolment pension contributions will not be recoverable through the Scheme.
How is someone’s pay calculated for the purposes of the claim? For part-time and full-time salaried employees, the employee’s actual salary, before tax, as at 19 March 2020, should be used as the basis for calculating the 80 per cent. Although early guidance excluded everything else, guidance since 4 April clarifies that employers can claim for ‘regular’ wage and salary payments. The Treasury Direction sets out specific details of what is and is not included, with discretionary payments, performance related bonuses, tips, conditional payments, and non-cash payments largely excluded. Guidance issued on 17 April, along with a step-by-step guide, gives details of how to calculate the 80 per cent, along with worked examples.
What about people on variable hours contracts? How is their normal pay calculated? Where they have been employed for 12 months, employers can claim for the higher of (1) the same month’s earnings from the previous year or (2) average monthly earnings from the 2019–2020 tax year. Where they have been employed for less than a year, the claim is based on their average monthly earnings since they started work, prorated if they have not worked a full month. Once this monthly pay has been calculated, this is used as the basis for the employer national insurance and automatic enrolment pension contributions elements of the claim.
Should an employer still pay their apprenticeship levy and student loans? Yes. These should be paid as normal and are not covered under the Scheme.
What happens if the employee has two jobs? Each job is treated separately, so the individual could be furloughed from one or both, although the guidance on 9 April makes clear that a furloughed employee cannot also be furloughed from a previous employer for whom they no longer work. Where they are furloughed from both, the cap applies to each employer separately. The guidance issued on 4 April also makes it clear that a furloughed worker can work elsewhere while furloughed from a different job, provided this is contractually allowed.
What about employees who qualify for maternity, paternity, adoption, or shared parental pay? Individuals who are taking or plan to take maternity leave must take at least two weeks off work (or four weeks if they work in a factory) immediately following the birth of their baby, for health and safety reasons. Where they are eligible for statutory maternity pay (SMP), or maternity allowance (MA), normal rules apply (that is, they can claim for up to 39 weeks of SMP or MA). Where contractual payments are made in addition, this is a wage cost which can be recovered through the Scheme. The same principle applies to other contractual family-related pay. Those returning from maternity, paternity, shared parental, adoption, sick, or parental bereavement leave who are then furloughed have their grant based on their gross salary and not on the pay they received while on leave.
Making a claim
What information needs to be provided to claim under the Scheme? Employers will need to provide (1) the ePAYE reference number; (2) the number of employees being furloughed; (3) national insurance numbers of those furloughed; (4) the name of employees furloughed; (5) the payroll or work number of furloughed employees (optional); (6) their company number or self-assessment/corporation tax unique taxpayer reference; (7) the start and end period of the claim; (8) the amount claimed; (9) their bank account number and sort code; (10) a contact name; and (11) a phone number.
How is this information provided? Information is provided through the HMRC portal. Employers with fewer than 100 furloughed employees will need to enter the individual details of each employee being claimed for directly into the system. Where an employer is claiming for 100 or more furloughed employees, the employer should upload a file containing this information into the system, rather than inputting details directly.
Who does the calculations? The employer will have the responsibility of carrying out the calculations for the basis of their claim, although HMRC retains the right to audit this. Employers should keep clear and detailed records to support the claims being made, including the basis of their calculations.
Can a third party make the claim on an employer’s behalf? If an employer uses an agent who is authorised to act for PAYE purposes, then they can make the claim. Otherwise, the employer must make the claim themselves.
Can employers claim more than they have paid the furloughed worker? No. The money received from HMRC for a furloughed worker’s gross pay must be what has been paid to that individual. No fees can be charged. The claim should be based on actual payroll amounts at the point payroll is run or, in advance, of imminent payroll amounts.
How often can claims be made? A claim can be made once every three weeks, to coincide with the minimum period of furlough.
How far back can a claim be made? Claims can be backdated to 1 March 2020, if applicable. Claims start from the date the employee finishes work and starts furlough – not when the decision is made or when written confirmation of furlough is sent.
How is payment made? Once HMRC has received the claim and confirmed eligibility, reimbursement will be via BACS payment to a UK bank account.
What happens to unpaid claims after the Scheme has closed? These will continue to be processed.
Will HMRC audit claims? The government has reserved the right to audit claims, and guidance issued on 17 April says that claims based on dishonest or inaccurate information or found to be fraudulent will be withheld or recovered. We suspect HMRC will not have the capacity to audit every employer and the detail of every claim, but they are likely to have red flags and mechanisms in place to alert them to potential breaches of the scheme and/or fraud, for example, seeing income received from a new source, significant pay rises, etc. HMRC is also inviting employees to report potential fraud of their employers.
What is furlough? Furlough is essentially an agreed leave of absence. The individual will not be required to (and must not) work, but remains on payroll with their terms and conditions of employment varied as agreed with the individual.
Does a worker have to consent to furlough? Businesses will need to identify who they want to furlough and then notify them. Where there is a change to terms and conditions of employment as a result of the furlough, for instance, a reduction in pay, the individual will need to agree to this change. The guidance is silent on the issue of consent where the only change is the requirement not to work; where employers are making up the remaining wages such that the worker is not out of pocket, there is an argument that consent is not needed, although there is nevertheless a requirement that the employer and employee record, in writing, that the employee has been placed on furlough and is not required to work and that this is agreed. However, there is some ambiguity between the latest guidance and the Treasury Direction as to whether this agreement needs to be express, or whether implied consent is sufficient. We recognise that some employees, particularly higher earners, may be less inclined to agree to furlough. A negotiation may be required with these individuals to mutually agree upon the terms to which they do consent.
How long can the furlough be? The minimum period of furlough is three weeks (21 calendar days); the maximum period of furlough will be the length of the Scheme.
Does the whole workforce have to be furloughed? No. The Scheme also applies where only part of the workforce is furloughed.
How do employers choose whom to furlough? Employers could consider asking for volunteers for furlough, which may avoid the need for selection. If an employer has to choose between individuals to furlough, some form of selection process is recommended for transparency; this does not necessarily need to be as rigorous as a redundancy selection exercise, but an employer should be able to demonstrate the basis for their decisions. Existing equality and discrimination laws continue to apply, so selections should not be based on discriminatory criteria. That said, given the current circumstances, furloughing certain older or vulnerable individuals may be justified in light of public health guidance.
Do employers have to collectively consult? The duty to collectively consult arises where an employer proposes to dismiss 20 or more employees in a 90-day period. The guidance simply says that where furlough involves a change in terms of employment and there are 20 or more people affected, it may be necessary to engage in collective consultation to procure agreement to those changes. It is our view that seeking consent to furlough, or imposing furlough where the employee will not be financially out of pocket, does not trigger these obligations. However, if someone does not agree to be furloughed, and the alternative is to make them redundant or impose changes to terms and conditions by dismissing them and reengaging on new terms, the obligation would arise if the numbers threshold is met.
What if a worker becomes sick while furloughed? In this scenario guidance suggests there is a choice – the employer could move the individual onto sick pay, but by doing so forfeits the ability to claim under the Scheme (although the employer could claim an SSP rebate for 14 days’ worth of SSP, if they are eligible), or continue the furlough. The choice is the employer’s and not the worker’s.
Can someone who is on unpaid leave be furloughed? They can, but only if they were placed on unpaid leave after 28 February 2020. If their period of unpaid leave pre-dated this, they cannot be furloughed under the Scheme until after the previously agreed return date.
What paperwork is needed to evidence furlough? To be eligible to be reimbursed under the Scheme, employers should write to the affected individual to confirm they have been furloughed, and to agree that the furloughed worker will not work, and should keep a record of this communication for five years. A copy of the individual’s agreement to furlough should also be retained to protect against subsequent arguments that there has been an unlawful deduction of wages. It is unclear what, if any, declaration or other evidence may be needed to support a claim.
How flexible is the Scheme; that is, can employers rotate their workforce between furlough and working? The Scheme helpfully has some flexibility – whilst the minimum period of furlough is three weeks, the guidance since 4 April has confirmed that employees can be furloughed multiple times, subject to each instance being a minimum of three weeks.
Can a furloughed worker still work? It depends. For an employer to be reimbursed under the Scheme, the furloughed employee cannot undertake work for or on behalf of the organisation or any linked or associated company (in contrast to this terminology in the guidance, the Treasury Direction uses “connected employer”). This includes providing any form of service or generating revenue. If someone has two jobs, these are treated separately. So if they are only furloughed from one job, they can continue to work as usual in the other. In the guidance issued on 4 April, it was confirmed that a furloughed worker can work for another employer, provided this is contractually permitted.
What about company directors meeting their duties during furlough? Where furloughed directors (including individuals who are directors of their own personal service company) need to carry out duties to fulfil their statutory obligations, the guidance says that they may do so provided “they do no more than would reasonably be judged necessary for that purpose, for instance they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services”. The Treasury Direction limits their activity to work which they are required to do to fulfil a duty or obligation under an Act of Parliament relating to the filing of company accounts or providing information relating to the administration of the company.
Can a furloughed worker volunteer or carry out training? Yes, so long as they are not providing services to, or generating income for or on behalf of, the organisation. Where workers are required to complete online training courses during furlough, they must be paid at least the national living/minimum wage for the time spent training, even if this is more than the wage being subsidised. The guidance issued on 4 April says that training should be encouraged, and that the employer can help to find volunteering opportunities.
Does a furloughed worker still accrue service? The employment relationship will continue during the period workers are furloughed, meaning service continues to accrue.
Do employment rights and benefits continue throughout furlough? The employment relationship will continue during the period workers are furloughed, meaning statutory rights and benefits continue to accrue, and entitlements such as sick pay and family leave continue, and protection against unfair dismissal and the right to a redundancy payment remain, subject to normal eligibility principles. The guidance on 9 April explicitly says that benefits should continue to be provided in addition to wages.
Can furloughed workers take their annual leave while furloughed, and, if so, at what rate should this be paid? Surprisingly there was no government guidance on this until 17 April 2020, only guidance from ACAS. Taken together: annual leave continues to accrue during furlough; the parties can agree to vary entitlement, provided this does not fall below the statutory minimum; employees can take annual leave during furlough; working time holiday must be paid at normal pre-furlough rates, and any excess must be covered by the employer (i.e., it is not recoverable under the Scheme); and employers can restrict when leave is taken if there is a business need to do so. Under normal employment law principles, an employer can require a worker to take annual leave by giving them twice as much notice as the period of leave to be taken, that is, two weeks’ notice for a week’s leave. However, we suggest that any annual leave which an employer requires a worker to take is proportionate to the time spent on furlough. The government has also announced that workers who have been unable to take their four weeks of statutory annual leave entitlement due to COVID-19 will now be able to carry it over into the next two leave years. Furlough should not, in itself, prevent the leave from being taken so employers should consider the extent to which they still require leave to be taken this year. The requirement to pay annual leave at normal rates means that this will not all be recoverable under the Scheme.
End of furlough
What happens at the end of furlough? Do we have to guarantee employees a return to work and not make them redundant? Guaranteeing a return to work does not appear to be a condition of the Scheme. Instead, the guidance says that furloughed employees can be made redundant while furloughed, and that when the Scheme closes, employers will need to make a decision, based on their circumstances at the time, as to whether the furloughed individual can return to work. If not, it may be necessary to terminate their employment by reason of redundancy. A fair and reasonable redundancy process will need carrying out at that time, with collective consultation if the threshold numbers are met, and a redundancy payment due to eligible employees. It is unclear whether termination and redundancy payments will be calculated on pre-furlough salary or on the reduced furlough rates; as furlough is temporary, a termination after that temporary period would infer a return to their previous terms, but this may need to be clarified.
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