The government's Coronavirus Job Retention Scheme is a potential lifeline for businesses affected by the coronavirus crisis. But the scheme is being drawn up at speed to meet the urgency among employers to protect their business and look after their staff. This has left some employers grappling with a number of uncertainties when seeking to furlough staff.
The scheme was announced by the Chancellor of the Exchequer Rishi Sunak on 20 March, and initial guidance was published by HMRC on 26 March. Updated guidance published on 4 April 2020 helpfully clarifies many of these previous issues and uncertainties.
The updated guidance reflects the enormous pressure the Chancellor has faced in the last week to protect as many staff as possible. While the original announcement and guidance focused on protecting staff who would otherwise be "laid off" and had "no work"; the updated guidance focuses on employers who "cannot maintain their current workforce because operations have been severely affected by coronavirus".
The scheme is designed to help these businesses "retain their employees and protect the UK economy", with the government recognising that "different businesses will face different impacts from coronavirus".
For many businesses, making use of the scheme to protect their business and staff from the consequences of Covid-19 is a logical business decision. When furloughing staff, employers must keep in mind the continuing costs they have as an employer.
The scheme will pay an eligible employer a grant covering 80% of an individual's wage costs (up to a maximum of £2,500 a month) plus employer's National Insurance contributions (NICs) and employer's minimum automatic pension contributions. However, any enhanced pension contributions and the cost of any benefits in kind (which an employer agrees to continue to provide) will not be covered.
Employers must also remember other wider liabilities relating to furloughed staff which may be easily forgotten. The updated guidance expressly states that "both the Apprenticeship Levy and Student Loans should continue to be paid as usual. Grants from the Job Retention Scheme do not cover these".
There are a significant number of changes in the updated guidance that build on the previous position and will now need to be considered and factored in.
Accessing the scheme
Any entity with a UK payroll can apply
To be eligible to claim under the scheme, an employer must have:
- created and started a PAYE payroll scheme on or before 28 February 2020
- enrolled for PAYE online
- a UK bank account
The updated guidance clarifies that "any entity" with a UK payroll can apply, including businesses, charities, recruitment agencies and public authorities. The previous reference to "UK organisations" has been removed. Some overseas businesses, such as those using UK payroll providers, will need to consider which is the entity that may be able to claim for these purposes.
In many cases the "employer", for the scheme's purposes, will be the UK payroll provider not the overseas business. This will need to be approached carefully by overseas businesses, which will need to ensure not to disregard contractual supply arrangements and not to inadvertently assume employer responsibilities for workers who are technically employed/engaged and paid by the UK payroll provider.
Employers should also remember that where they receive public funding for staff costs, they are expected to "use that money to continue to pay staff in the usual fashion – and correspondingly, not furlough them".
Expanding who the grant covers but only for those on payroll on or before 28 February
The guidance also provides greater clarity on the employees in respect of which an eligible employer can make a claim, reflecting the wider intention of enabling employers to maintain their current workforce rather than just capturing those individuals left with no work due to Covid-19.
Building on our existing understanding, guidance is additionally provided on:
- Carers. Employees who are "unable to work because they have caring responsibilities resulting from coronavirus (Covid-19) can be furloughed. For example, employees that need to look after children can be furloughed". This would also potentially capture those caring for the elderly or vulnerable. Employees do not have a right to be furloughed – it must be agreed with their employer – and some businesses will not want to lose the support of talented workers at such a critical time. However, employers must consider any such requests carefully given the difficult personal circumstances many employees are now managing alongside their work, together with their obligations under the Equality Act 2010 and their duty of trust and confidence to an employee.
- Shielding households. Employers can claim for furloughed employees shielding in line with public health guidance, but also now those who need to stay home with someone who is shielding, where they are "unable to work from home" and the employer "would otherwise have to make them redundant".
- Stopped work after 28 February 2020. Employees who have been made redundant or stopped working for their employer after 28 February 2020 appear to now be covered if they are rehired by that employer, placed on furlough and a claim made through the Scheme. There are a number of factors employers will need to consider in any decision to rehire, including the financial terms on which the individual left and managing any longer term employment once the scheme ends. Employers must also take care that any decision not to rehire an employee does not amount to victimisation for Equality Act purposes.
- Apprentices and fixed term contracts. The guidance expressly confirms that apprentices and employees on fixed-term contracts can be furloughed (such contracts can be renewed or extend during the furlough period without breaking the terms of the Scheme). Specific guidance has been drawn up on apprenticeship learning arrangements because of Covid-19.
- Eligible individuals who are not employees. The guidance now provides that office holders, salaried members of LLPs, agency workers (including those employed by "umbrella" companies) and "limb-B" workers (under the Employment Rights Act 1996) may all now potentially be covered. The guidance sets out further detail in this respect. Care will need to be taken to understand the impact on any statutory obligations when furloughing these individuals, for example, their statutory and common law duties as a company director.
However, following some confusion over wording in the original guidance, it is now clearly stated that employees must be on the payroll "on or before 28 February 2020".
This leaves outside the scheme those who were only put on payroll on or after 1 March 2020 – despite having been hired perhaps many weeks earlier – and potentially employees who have transferred under TUPE to a new employer since that date. However, as explained previously, this does not apply to employees who are re-hired and then furloughed. The Chancellor sought to offer an explanation for this via twitter commenting that it "is really difficult and I wish I had an easy answer", but, to avoid fraud "we need a check and a cut off" with only payroll data available to provide that verification, pointing to the changes to Universal Credit to support those who cannot be furloughed.
No work when furloughed including critical business tasks
Furloughed employees must not do any work that makes money or provide any services to their employer – even when their salary during furlough is being topped up. The guidance emphasises the importance of this and indicates that there will be no exceptions to an employee performing essential or critical tasks. It alludes to the difficulties some employers may face in this respect but states that "employers are free to consider allocating any critical business tasks to staff that are not furloughed".
'Rights as an employee' unaffected
The employee guidance confirms that an employee's "rights as an employee" are not affected by being on furlough. The employer guidance confirms that, while on furlough, employees will still have the same rights at work, including: statutory sick pay (SSP), maternity and other parental rights, rights against unfair dismissal and redundancy payments. The guidance expressly confirms that an employee can be made redundant while on furlough.
Uncertainties remain given that the guidance requires SSP to be exhausted before furloughing an employee. This raises the question: can an employee be on sick leave while furloughed? The guidance is notably silent on holidays, despite recent updated guidance from ACAS setting out its position on this matter.
Given the requirement that an employee must be furloughed for a minimum of three weeks, employers will need to take care in furlough letters to ensure that the agreed terms enable them to practically manage these uncertainties without jeopardising any grant.
Training encouraged but check furloughed pay meets minimum wage rates
The guidance expands on the original sentiment that those furloughed could still undertake training without jeopardising their eligibility for the grant, stating that "furloughed employees should be encouraged to undertake training". The guidance also confirms that apprentices can continue to train while furloughed. However, employers must remember that when the furlough is 80% of pay but this brings an individual below the relevant national minimum wage rates then this must be topped up by an employer to comply with the minimum wage legislation.
The guidance confirms that employers can agree to find a furloughed employee volunteering opportunities while on furlough (but bearing in mind the need to comply with any current public health guidance).
On a practical level, employers must ensure that any managers who are also furloughed are not responsible for directing what training or volunteering is undertaken and which would bring an end to their own furloughed status.
Work for another employer is permitted if contractually allowed
It has always been clear that the scheme will treat different employments separately, but it remained unclear whether a furloughed employee could take on new employment without jeopardising the grant.
The updated guidance makes clear that provided it is contractually allowed, employees are permitted to work for 'another employer' whilst they are placed on furlough (but not a linked or associated company). Employers will need to manage this carefully bearing in mind their own short term and long term business needs in retaining key staff; whilst some sectors are calling out for new staff to meet critical demand during the Covid-19 emergency, it would be prudent to ensure that any new employment permitted does still enable an employee to return to their existing job on short notice to meet business demands.
Grant covers 'regular payments' employers are 'obliged to pay'
Eligible employers can claim for 80% of their furloughed employees’ wages up to a maximum of £2,500 a month, plus employer's NICs and employer's minimum automatic pension contributions.
The original guidance referred to claiming for "usual monthly wage costs" and stated that fees, commission and bonuses were expressly excluded. Given the different elements which may make up an individual's pay (contractual and discretionary), employers have been calling for clarification.
The updated guidance now states "You can claim any regular payment you are obliged to pay employees"; this includes wages, past overtime, fees and compulsory commission payments. However, discretionary bonuses (including tips) and commission payments and non-cash payments should be excluded. Employers will need to take care in identifying the parts of an employee's wage costs for which a claim can be made in each individual case.
The updated guidance confirms that the reference salary should not include the cost of non-monetary benefits (such as taxable benefits-in-kind) provided to employees. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should not be included in the reference salary. Recognising that an employee cannot usually switch freely out of a salary sacrifice scheme unless there is a life event, the guidance states: "HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly".
Making a claim
The online service that eligible employers will need to use to submit their claims is not available yet. HMRC is aiming to have the scheme up and running by the end of April 2020, and has been working "night and day" to develop it.
Many employers have been understandably concerned as to the mechanics of the operation of the scheme: how long it will run for, what should they pay their employees and when should they do so? And what happens if they do not have the funds to pay before the grant is received?
Employers can use the scheme 'anytime' while it is running
The guidance confirms that the government's current plan is that the scheme will be in place for three months starting from 1 March 2020, but "may be extended if necessary". Confirmation that "employers can use this scheme anytime during this period" provides much needed flexibility, particularly in a volatile market with fluctuating staffing requirements. A lack of certainty over business needs coupled with potential staff absences for sickness and holiday means employers may need to take staff on and off furlough at different times. However, any period of furlough must be a minimum of three consecutive weeks.
Reflect reduced wages in payroll before they are paid
The updated guidance confirms that where an employer and furloughed employee have agreed reduced pay (that is, the employer is not topping up the 80% grant), workers' wages should be reduced to 80% of their salary "within your payroll before they are paid. This adjustment will not be made by HMRC". It is also makes clear that "claims should be started from the date that the employee finishes work and starts furlough, not when the decision is made, or when they [have been] written to confirming their furlough status".
It now seems clear that employers will be reimbursed against payroll costs. Previous guidance suggested that employers who are struggling with sufficient funds to pay should access the other financial support the government has put in place to address the coronavirus emergency to enable them to pay salary costs (and then seek reimbursement under the scheme).
The guidance confirms that HMRC will process all claims before the scheme ends (currently expected to be end of May but it has been indicated that the scheme may be extended).
What should employers do now?
Please contact your usual Osborne Clarke contact for a copy of our updated client guide covering frequently asked questions and suggested actions for employers considering claiming under the scheme and to discuss the implications for your business in furloughing staff and managing the legal and practical risks of doing so.