UK EMPLOYMENT INSIGHT 14 MAY 2020
Under the Coronavirus Job Retention Scheme (CJRS), the government will make a grant to UK employers to cover up to 80 per cent of the wages of employees whom they continue to pay but who would otherwise have been laid off as a result of the coronavirus (COVID-19) crisis.
We set out below a series of Q&As to help you navigate the CJRS. These are based on:
- HMRC’s guidance note on checking if you can claim for your employees’ wages under the CJRS, as updated to 1 May 2020;
- HMRC’s guidance note on working out 80% of your employees’ wages under the CJRS, as updated to 30 April 2020; and
- a Treasury Direction published on 15 April 2020.
Q1 Which employers can seek support under the CJRS?
All organisations which have a PAYE payroll scheme registered on HMRC’s real time information (RTI) system on 19 March 2020 are eligible for support under the CJRS. The employer will also need to have a UK bank account for the grant to be paid into.
The scheme applies to any such organisation, including companies, partnerships, not-for-profit organisations, recruitment agencies (where agency workers are paid through PAYE) and public authorities. There are no restrictions on size or sector. However, organisations which are receiving public funding specifically to provide services necessary to respond to COVID-19 are not expected to furlough staff. Additionally, the government expects employers – whether in the public sector or not – who receive continuing public funding for staff costs to use that money to pay staff as normal and not to furlough them. In a small number of cases, such as where organisations are not primarily funded by the government and staff cannot be redeployed to assist with the coronavirus response, it may be appropriate to furlough some staff.
Where a company is in administration, the administrator will be able to access the CJRS. However, the government expects an administrator only to access the scheme if there is a reasonable likelihood of re-hiring the workers, for example if the business is sold.
Q2 Which employees are covered by the scheme?
The scheme applies to “furloughed employees”. This is not a legal term. It has been used to refer to staff whose employment is not terminated but who are on unpaid leave of absence from work.
Furloughed employees can be either UK or foreign nationals, including those on all categories of visa. They must have been employed on 19 March 2020 and on their employer’s PAYE payroll on or before 19 March 2020. This means that an RTI submission notifying HMRC of payment in respect of that employee must have been made on or before that date. Furloughed employees can be on any type of employment contract. This includes:
- full-time employees;
- part-time employees;
- employees on agency contracts ; and
- employees on flexible or zero-hour contracts.
Employees on fixed-term contracts can be furloughed provided an RTI submission for them was notified to HMRC on or before 19 March 2020. If the contract has not already expired, it can be extended or renewed. Employees that started and ended the same contract between 28 February 2020 and 19 March 2020 will not qualify for the CJRS. See also Q14.
Members of staff may be furloughed even if they are not strictly employees as a matter of law, provided they are paid through PAYE. This includes the following:
- office holders (including salaried company directors);
- salaried members of limited liability partnerships (LLPs);
- agency workers (including those employed by umbrella companies); and
- “limb (b) workers” i.e. individuals who do not have a contract of employment but are treated by law as workers with certain employment rights.
We refer to “employees” in this set of Q&As for convenience.
See also Q14.
Q3 How do employees become furloughed?
Employers need to designate employees as furloughed employees and notify them of this change. To be eligible for the grant, the employer must write to the employee confirming that they have been furloughed and keep a record of this communication for five years. The Treasury Direction refers to the need for an agreement in writing between the employer and employee (which could be by email), implying that a unilateral notification would not be sufficient. However, the guidance provides that any form of consent that is consistent with employment law is valid for the purposes of making a claim under the CJRS and that, although there needs to be a written record, the employee does not have to provide a written response. A collective agreement between the employer and a trade union is also valid for the purpose of making a claim. This inconsistency between the guidance and the Treasury Direction on such a fundamental point is very unsatisfactory, particularly as the Treasury Direction sets out the legal basis of the scheme. Relying on HMRC to adhere to its guidance rather than the Direction is not ideal.
Making a change to an employee’s status by furloughing them remains subject to existing employment law and may need to be negotiated, depending on the employment contract.
A simple designation by the employer, without agreement from the employee, is unlikely to be sufficient. This will only be possible if the employment contract gives the employer a unilateral right to withdraw work and this is unlikely. Some employment contracts or negotiated agreements provide specifically for lay-offs in which case those provisions could be invoked to designate the employees as furloughed employees. However, in most cases, it will be necessary to agree with employees that they will be furloughed. If the alternatives are redundancy or unpaid leave of absence, it is very likely that employees will agree to being furloughed in order to receive the financial protection on offer. A consultation exercise may, however, need to be carried out – see Q4.
Where a salaried company director or a salaried member of an LLP is furloughed, the furlough arrangements should be adopted formally as a decision of the company or LLP, a record kept and the individual notified. In the case of an LLP, the terms of the LLP agreement may need to be varied to reflect the fact that the member will be furloughed and the impact on their remuneration.
Q4 Do employers need to consult with staff before designating them as furloughed employees?
It is unlikely that the contract of employment will contain a clear right to furlough employees. In the absence of such a right, the furlough would either be a change to the employee’s terms and conditions or, more likely, an alternative proposal to redundancy. Implementing furlough arrangements may trigger collective consultation obligations depending on the organisation of the workforce and the number of employees affected. We would be happy to guide you through this if you would like to get in touch. If collective consultation obligations are triggered, the usual time frame for the consultation to take place is unlikely to be viable in the current situation. There is a “special circumstances” defence which would allow the process to be condensed and again we can talk you through this.
In addition to collective consultation, it is likely that individual consultation will also be required given that a change is being proposed to an employee’s current working arrangements (and potentially to their wages). The level of discussion required will vary depending on the number of employees the business has to talk to and how quickly changes need to be made.
Q5 For how long can employers furlough employees?
The minimum length of time that an employee may be furloughed is three consecutive weeks. Employees can be furloughed multiple times but each period of furlough must be at least three consecutive weeks. A period of furlough can be extended while the employee is on furlough.
Q6 Do employers have to prove that employees are being furloughed as a result of the coronavirus crisis?
To be eligible for furlough, an employee must have been instructed to cease working “by reason of circumstances arising as a result of coronavirus or coronavirus disease”. The Treasury Direction goes on to warn that no CJRS claim may be made in respect of an employee if it is abusive or is otherwise contrary to the exceptional purpose of CJRS.
No information has been given as to how the government will check that employees are being furloughed as a result of the coronavirus crisis rather than for other reasons. However, it seems sensible to document this as fully as possible.
Q7 How much of employees’ wages will the government pay?
The government will pay employers a grant to cover 80 per cent of a furloughed employee’s wage costs, up to a cap of £2,500 per month. However the government has announced that, from the start of August 2020, employers will be asked to pay a percentage towards the wages of furloughed employees. Through the combined contributions of both the employer and the government, furloughed employees will continue to receive the same level of support as currently, although the detail of how this will work has not yet been announced.
Employers can also claim for the associated employer’s national insurance contributions (NICs) and minimum mandatory auto-enrolment employer pension contributions on the furlough pay (but not additional pension contributions above the mandatory employer contribution). When calculating the amount of employer’s NICs to claim for under the scheme, any Employment Allowance used in the relevant pay period must be subtracted.
A claim may be made for any regular payments which employers are obliged to pay their employees. As well as wages, this could include past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments are not covered.
Where an employer provides benefits through a salary sacrifice scheme that reduce an employee’s taxable pay, those benefits should not be included in the pay for which a claim is made. Where employees are allowed to switch out of salary sacrifice arrangements on the occurrence of a life event, HMRC agrees that COVID-19 counts as a life event.
While on furlough, the employee’s wage will be subject to their usual income tax and other deductions.
Employers may choose to pay the wages of furloughed employees in full while only reclaiming 80 per cent of the cost (or less if the cap bites) but there is no obligation to do so. No claim can be made for additional employer’s NICs or pension contributions made because of topping-up.
Q8 What pay will be used to calculate the reimbursement?
For full-time and part-time salaried employees, the employee’s actual salary, before tax, as at 19 March 2020 will be used to calculate the 80 per cent figure.
For employees with variable pay who have been employed (or engaged by an employment business) for at least twelve months before the claim, the employer can claim for up to 80 per cent of the higher of either:
- the same month’s earnings from the previous year; or
- the average monthly earnings for the 2019-20 tax year.
For employees with variable pay who have been employed for less than a year, the employer can claim for up to 80 per cent of an average of their monthly earnings since they started work until the date they are furloughed.
For employees who have been employed for less than a month, employers should pro-rate their earnings so far in order to claim.
Where employees on fixed pay have returned to work following a period of statutory leave (such as maternity leave, sick leave etc.) and are then furloughed, the claim should be made in respect of their salary before tax, not the pay they received whilst on statutory leave. Where an employee returning from statutory leave is on variable pay, the calculation should be based on the highest of either the same month’s wages from the previous year or average monthly wages for the 2019-20 tax year.
Q9 How do employers claim their reimbursement?
A new online portal has been set up by HMRC to deal with the CJRS. To use the portal, employers will need:
- their employer PAYE scheme reference number
- the number of employees being furloughed
- the names, NI numbers and (optionally) the payroll/employee numbers for the furloughed employees
- their Self-Assessment Unique Taxpayer Reference, Corporation Tax Unique Taxpayer Reference, Company Registration Number or Employer Name (as appropriate)
- the start and end date of the claim period the amount claimed (the minimum length of furloughing is three consecutive weeks)
- their bank account number and sort code
- their contact name and telephone number.
Furloughed employees must be paid no less than 80 per cent of their pay (subject to the cap) and the employer may not reduce wages below this amount by imposing any administration charge, fees or other costs. Pension contributions claimed (see Q7) must be paid into a pension scheme for the employee as an employer contribution.
Employers will need to calculate the amount that they are claiming and retain all records and calculations, including the amount claimed for each furloughed employee and the period for which each employee is furloughed.
HMRC will retain the right retrospectively to audit all aspects of the claim. HMRC may withhold, or seek to recover, grants in full if the claim is based on dishonest or inaccurate information or found to be fraudulent. It is not clear whether the inclusion of some ineligible employees will impact the grant as a whole nor whether any penalties will be imposed. It is important for employers to keep good records, particularly where non-standard pay arrangements operate, such as where employees are on sick leave or some other form of statutory leave. It is also advisable to be open with HMRC if any calculation errors are discovered.
HMRC will pay the grant via BACS payment into an eligible employer’s UK bank account.
Q10 For how long will the scheme last?
Initially when the CJRS was introduced, it was in place for three months starting from 1 March 2020 with the flexibility that it could be extended if necessary. The Chancellor extended the scheme for a further month until the end of June and on 12 May 2020 he announced a further extension until 31 October 2020. Until the end of July there will be no changes to how the CJRS currently operates. However, from the start of August, furloughed employees will be able to return to work part-time and employers will be asked to pay a percentage towards the wage costs of furloughed employees.
Q11 What is the tax treatment of the CJRS grant?
Payments received under the scheme by a business must be included as income when calculating its taxable profits for income tax and corporation tax purposes. However, employment costs may be deducted as normal.
Q12 Can employers ask furloughed employees to carry out any work for them?
Furloughed employees remain in employment but, until the end of July 2020, cannot be asked to carry out any work for or on behalf of the employer, or any linked or associated organisation, while they are furloughed. This includes providing services or generating revenue. However, the government has announced that furloughed workers will be able to return to work part-time from the start of August 2020. We await the detail of how this will operate.
In the meantime, provided the rules on providing services or generating revenue are not breached, furloughed employees may carry out certain activities as follows.
Union and non-union employee representatives may continue to carry out their role for the purpose of individual or collective representation of employees or other workers.
A furloughed employee may participate in volunteer work or training, such as online training courses. Where an employee is requested to complete training whilst they are furloughed, they must be paid the national minimum wage appropriate to them for the time spent on the training even if this is more than the 80 per cent of their wage that will be subsidised.
Furloughed directors may carry out duties necessary to fulfil the statutory obligations that they owe to their company, provided they do no more than would reasonably be judged necessary for that purpose. This applies equally to salaried directors of personal service companies.
Furloughed employees are allowed to work for another employer. However, this may be prohibited under the employment contract, either completely or during their contracted hours. If so, furloughed employees will only be able to work for another employer if these contractual restrictions are waived.
See also Q13.
Q13 Can employees be furloughed on a part-time basis?
Not prior to the end of July 2020. Where an employee is working reduced hours or for reduced pay, they will not be covered by the CJRS and employers will need to continue paying them through payroll in accordance with their employment contract.
However, on 12 May 2020, the Chancellor announced that staff may be furloughed on a part-time basis from the start of August 2020. We await the detail of how this will operate.
Q14 Can an employer reinstate employees who have recently left and make them furloughed employees instead?
Yes. Employees who have stopped working for an employer on or after 28 February 2020, whether through redundancy or otherwise, are covered by the CJRS if they are re-hired by their employer, even if they are not re-employed until after 19 March 2020. Any such employee must have been on the PAYE payroll as at 28 February 2020 and been notified to HMRC on an RTI submission on or before that date. A claim may be made for their wages from the date on which they were furloughed under the scheme.
Similarly, employees who have stopped working for an employer on or after 19 March 2020, whether through redundancy or otherwise, are also covered by the CJRS if they are re-hired by their employer. Any such employee must have been employed on 19 March 2020 and on the PAYE payroll as at 19 March 2020 i.e. had been notified to HMRC on an RTI submission on or before that date. A claim may be made for their wages from the date on which they were furloughed under the scheme.
An employee on a fixed-term contract can be re-employed and furloughed if either:
- their contract expired after 28 February 2020 and an RTI payment submission for the employee was notified to HMRC on or before 28 February 2020; or
- their contract expired after 19 March 2020 and an RTI payment submission for the employee was notified to HMRC on or before 19 March 2020.
Q15 Can a redundancy exercise take place while employees are furloughed?
Employers may already have had a redundancy exercise in place before the CJRS was announced or may be contemplating redundancies as the effects of the virus escalate. The purpose of the CJRS is to enable employees to return to their jobs once the crisis is over. Employers may, therefore, consider it inappropriate to conduct a redundancy process affecting furloughed employees during their period of furlough, although the CJRS does not impose any such condition. See also Q24.
Q16 How do you treat employees on unpaid leave?
No claim can be made in respect of an employee on unpaid leave for obvious reasons. Employees who started unpaid leave after 28 February 2020 can end their unpaid leave and be furloughed instead. Employees who went on unpaid leave on or before 28 February 2020 cannot be furloughed until the date it was originally agreed they would return from unpaid leave.
Q17 Can annual leave be taken during furlough?
Employees are entitled to a minimum of 5.6 weeks of statutory paid annual leave each year. Any variation to holiday entitlement as part of the furlough agreement cannot go below this figure.
Under the Working Time Regulations, holiday pay must be paid at the employee’s normal rate of pay (with averaging rules applying for those on variable pay). The guidance provides that, if a furloughed employee takes holiday, the employer must pay them their usual holiday pay i.e. based on their full non-furlough pay. Employers not already paying full wages to furloughed employees would therefore have to make a top-up payment during annual leave over and above the amount recoverable under the CJRS.
Employers may wish to require furloughed employees to take holiday during the furloughed period to avoid them having large amounts of accumulated leave once they are back at work. There is nothing in the guidance to suggest that employers cannot do this, although they would need to balance against this the need to pay full pre-furlough pay during a period of leave. Employers would also need to comply with the very specific notice provisions which apply when requiring employees to take leave at particular times.
Conversely, on the basis that they will then be entitled to full pre-furlough pay, furloughed employees may request holiday during the furlough period. Employers have the right to restrict when leave can be taken and may wish to exercise this power if they lack the funds to meet the holiday pay entitlement. Again, specific notice provisions apply.
It appears that an employee can be both on furlough and on leave at the same time so that a period of annual leave would not break the minimum three-week period of furlough. On 13 May 2020 the government published a guide to holiday entitlement and pay during coronavirus, available here. This sets out the position for both furloughed and non-furloughed staff. The guide reiterates the CJRS guidance on holiday pay for furloughed employees, as set out above.
Nevertheless, HMRC has specifically said that it is keeping the policy on holiday pay during furlough under review so a change to the position cannot be ruled out.
Q18 How do you treat employees on sick leave?
Employees who are on sick leave or who are self-isolating as a result of coronavirus should receive statutory sick pay (SSP). On the question of whether employees on sick leave may be moved on to furlough instead, unfortunately the guidance and the Treasury Direction are inconsistent. According to the guidance, although the CJRS is not intended to cover short-term sickness absences and a period of furlough must be at least three weeks long, nevertheless those on short-term sick leave as well as those on long-term sick leave or shielding (i.e. employees in the very vulnerable category who have been told to stay at home for 12 weeks – or who need to stay home with such a person) may be furloughed. Employers may make claims for the same employee both through the CJRS or the SSP rebate scheme but not for the same period of time. The Treasury Direction, on the other hand, provides that an employee on sick leave cannot be furloughed until the period of sick leave ends, even if they are not claiming SSP. This is an area where clarification from HMRC is required.
Where employees become sick while on furlough, the guidance provides that employers must decide whether to keep them on furlough or move them on to SSP. In cases where furloughed wages are lower than SSP, there is still some uncertainty as to whether an employee must be paid an amount equal to SSP while sick but retained on furlough and, if so, whether the excess is recoverable under the scheme.
Employers should also consider the impact on furloughed employees of any contractual or discretionary sick pay policies which they operate.
Q19 How do you treat employees with caring responsibilities?
Employees who are unable to work because of caring responsibilities resulting from COVID-19, such as those looking after children, can be furloughed.
Q20 How do you treat employees who have more than one job?
Each job is separate. Where employees are in this situation, they can be furloughed for each job and the £2,500 cap will apply to each employer individually (other than where the separate jobs are actually within a common employer group, when a cap does apply).
Q21 How do you treat employees on maternity leave, adoption leave, paternity leave, shared parental leave or parental bereavement leave?
The normal rules for the various forms of parental leave and pay will continue. Where an employer offers enhanced earnings-related contractual pay for the various types of parental leave, this is a wage cost that can be claimed through the CJRS (less any statutory maternity pay etc., whether or not actually claimed).
Q22 Can you pay furloughed employees less than the national minimum wage?
Individuals are only entitled to the National Living Wage (NLW), National Minimum Wage (NMW) or the Apprentices Minimum Wage (AMW) for the hours they are working or treated as working under the minimum wage rules. Therefore, furloughed workers may be paid the lower of 80 per cent of their salary or £2,500 per month even if, based on their usual working hours, this would be below their appropriate minimum wage.
See also Q12 on payment for training.
Q23 How do you treat apprentices?
Apprentices can be furloughed and at the same time continue their training. However, they must be paid at least the AMW, the NLW or the NMW as appropriate for the time they spend training.
Employers must, therefore meet the difference between the amount claimed for their wages through the CJRS and the minimum wage which applies to them.
Q24 What happens when the CJRS ends?
The government guidance says that it is for employers to decide whether employees can return to their duties once the scheme ends and that it may be necessary to consider redundancies. There is no obligation to retain the services of furloughed employees for a period.
Q25 What are the consequences for non-furloughed employees?
It is possible that employees remaining in work may feel resentment towards furloughed colleagues who are receiving up to 80 per cent of their pay (or possibly all of it) while not working, particularly if those at work are also having to accept a greater risk of being infected by the virus through remaining in the workplace. This is something which will need to be managed by employers.
Further information
For more information on the CJRS or if you have any other questions, please speak to your usual Ashurst contact or either of the partners named below.