The Coronavirus Job Retention Scheme: HM Treasury issues a detailed Direction clarifying some issues for employers
Published on 16th Apr 2020
Further updates have now been made to the guidance on the Coronavirus Job Retention Scheme (Scheme). The Treasury has also issued a Treasury Direction (Direction) setting out the legal framework for the Scheme.
The Direction makes it clear that 'the purpose of [the Scheme] is to provide for payments to be made to employers on a claim made in respect of them incurring costs of employment in respect of furloughed employees arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease'.
Any payment made under the Scheme must only be used to reimburse an employee and no claim may be made under the Scheme if it is ‘abusive’ or ‘otherwise contrary to the exceptional purpose’ of the Scheme. The Direction makes clear that a payment must be 'returned to HMRC immediately' by a person claiming under the Scheme where they are 'unwilling or unable to use the payment for the purpose of [the Scheme]'.
Employees notified to HMRC as on payroll from 19 March 2020
The eligibility cut-off has changed from 28 February 2020 to 19 March 2020 (the day before Rishi Sunak, Chancellor of the Exchequer, announced the Scheme). An employer must have set up a PAYE scheme by 19 March 2020 and an individual must have been on the payroll and individually notified to HMRC on a Real Time Information (RTI) submission on or before 19 March 2020. Whilst this change will inevitably capture the new-joiners who otherwise fell outside the Scheme, it is key to remember that the requirement is for the employee to be on payroll on that date. Commentators have already raised that given many businesses do not run their payroll until the end of the month at which time they make their RTI notification of new joiners, some working on 19 March 2020 will not necessarily be included.
Likewise, the date in respect of employees transferring to a new employer under TUPE has been amended to the 19 March 2020 enabling employees who transfer under TUPE on or after 19 March 2020 to a new employer to be potentially eligible under the Scheme.
No furlough where at the time an employee is instructed to cease work SSP is payable
Whilst the guidance indicates an element of discretion for employers in deciding whether to furlough when an employee is on sick leave with its statements that 'short-term illness/self-isolation should not be a consideration in deciding whether to furlough' and an employer may furlough an employee for 'business reasons' if they are off sick, the Direction is clear that for employees who are currently on SSP an employee cannot be furloughed until SSP ends.
But where an employee falls sick during furlough it remains up to employers
The Direction confirms that any 'subsequent' entitlement to SSP by virtue of the 'employee becoming unfit for work again' must be disregarded. The language used in the Direction arguably could limit it to where there has already been earlier sickness delaying the start of furlough. However, the guidance provides 'it is up to employers to decide whether to move these employees onto statutory sick pay or keep them on furlough at their furloughed rate' and also makes clear that if a furloughed employee who becomes sick is moved onto SSP, employers can no longer claim for furloughed salary.
Claim for grant referenced with respect to the pay period before 19 March 2020
For fixed rate employees, the reference salary for calculating the grant under the Scheme is now also referenced with respect to the ‘latest salary period’ ending on or before 19 March 2020 rather than the previous requirement for it to be calculated ‘as of’ 28 February 2020. The Direction does build in provision for an employer to use a calculation based on 28 February 2020 for its first claim under the Scheme. This seems to suggest subsequent claims should be based on 19 March 2020 date and consideration will need to be given to knock-on consequences in respect of payments to employees. Employers will need to consider whether or not their furloughed employees are fixed rate employees for the purposes of identifying the costs covered under the Scheme and which payments are regular salary or wages which can be taken into account.
The Direction also sets out the mechanism for calculating the reference salary where an employee has been on a period of unpaid leave or ‘social benefit’ leave (during which, for example, they are in receipt of SSP, statutory maternity pay etc.) to seek to ensure that an employee does not lose out by a lower wage being taken into account in these circumstances.
Instruction not to work agreed in writing
The Direction provides that to qualify as a furloughed employee for the Scheme an employee must have 'been instructed by the employer to cease all work in relation to their employment only if the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment'. This does appear on the face of the wording to conflict with the HMRC employer guidance which, whilst making clear that furlough is subject to normal employment law principles (which may require agreement), provides that an employer only needs to ‘confirm in writing' to an employee that they are furloughed (the original guidance required an employer to designate an employee as furloughed).
Practically for accessing the Scheme, the employer guidance sets out a list of specific information required to make a claim; this does not include evidence of any agreement with an employee. It may well be that the thrust behind the requirement for a written agreement is to avoid abuse where businesses seek to claim the grant in circumstances where, for example, an employee is in fact still being asked to carry on their duties. However, employers should note that the Direction does leave open the door for HMRC to require 'such information' as 'it may require at any time (whether before or after payment of the claim) to establishment entitlement to payment under the Scheme' (reflecting the guidance that HMRC 'will retain the right to retrospectively audit all aspects of your claim'). With the Scheme coming under immense pressure as lock down continues, it is possible that the requirement for a written agreement could well come back to bite if careful consideration is not given to the circumstances.
The Direction expressly states that the Scheme has effect only in respect of earnings paid or payable to furloughed employees for the period beginning on 1 March 2020 and ending on 31 May 2020 (together with related employer national insurance contributions and pension payments permitted under the Scheme). An extension still remains possible but employers would be sensible to work on the basis of 31 May 2020 being the end date and start considering now how they will manage their furloughed workforce post that date: Will changes to terms and conditions around hours of work/salary need to be agreed? Will redundancies be unavoidable?
Employers will need to consider the latest guidance and Direction in any claims they are looking to make under the Scheme; the Direction has built in specific detail on how certain aspects of how the Scheme operates and the grant is calculated. In particular, for employees already on furlough, careful consideration will need to be given to any impact caused by the change of reference date and the related conditions for calculating an employee's salary and how any unpaid period prior to furlough is accounted for.
For employers with a large number of employees or where negotiations have been conducted through trade union or other representatives specific consideration should be given to the wording in the Direction requiring a written agreement between employer and employee – will some form of written communication to an employee suffice (albeit one sent collectively) and in practice can an employee be taken to have agreed to that written instruction through their actions, albeit that their response is not 'in writing'? Given the ambiguity a written agreement from each employee is preferable.
The updated guidance and the Direction remain silent on the question of holiday during furlough. Whilst not legally binding, ACAS has updated its guidance indicating that holidays can be taken during furlough.
In the meantime, the online HMRC portal under which claims may be submitted is expected to be made live on 20 April 2020.