HMRC has published further guidance (26 March 2020) on the Coronavirus Job Retention Scheme (Scheme), which is intended to support employers and allow them to continue to provide some pay to employees who would otherwise be laid off due to the current emergency.
This came on the same day that the Chancellor of the Exchequer Rishi Sunak announced the financial support package available for the self-employed and who he stressed were "not forgotten".
Since the Chancellor's announcement on 20 March 2020, employers have understandably moved quickly to take advantage of the Scheme in an effort to keep their businesses afloat. This new guidance provides welcome clarification on some of the important aspects.
We outline five actions employers must actively consider.
1. Make sure the Scheme applies to your business
The Scheme applies to all UK employers who had started a PAYE payroll scheme on 28 February 2020. All UK organisations can apply (business, charities, recruitment agencies, public authorities). Administrators will also be able to access the Scheme.
The HMRC guidance does not allude to any detail on any requirements around an employer's financial situation, simply stating that the scheme is "designed to support employers whose operations have been severely affected by coronavirus". It does make clear that HMRC will retain the right to retrospectively audit all aspects of a claim and, although it is not stated in the guidance itself, HMRC's business support website indicates that it will have scope to claw back fraudulent or erroneous claims.
Non-public sector employers who receive public funding should note that they are expected to use that money, rather than furlough employees, while that funding continues.
2. Identify which employees come within the scheme
The HMRC guidance simply refers to "furloughed employees". These still appear to be staff, as identified in the earlier guidance, who "would otherwise have been laid off during this crisis" and where an "employer cannot cover staff costs due to COVID-19".
What we do know from the guidance is that a furloughed employee:
- must have been on the PAYE payroll on 28 February 2020. They can be on any type of contract, whether full-time, part-time, employees on agency contracts, or flexible/zero hours contracts;
- cannot currently be on Statutory Sick Pay (SSP), which must be exhausted first. However, this raises questions over employees currently on enhanced sick pay, which includes SSP. Presumably, the government is seeking to limit its costs where it has agreed to repay SSP due to COVID-19 to employers (with less than 250 employees) and further guidance may clarify this. There is also specific guidance for those on statutory family leave. Essentially those on statutory pay should remain on those arrangements but those on enhanced arrangements may be furloughed; and
- must not have been placed on unpaid leave before 28 February 2020.
Recognising that many employees have already lost their jobs as employers take steps to mitigate the impact of the crisis on their operations, employees who were made redundant since 28 February 2020 and who are rehired by their employer are covered. This may raise some difficult questions around statutory redundancy payments and continuity of employment.
Funding under the scheme is back-dated to 1 March 2020.
3. Understand what financial support will be available under the Scheme
It will be critical for employers to ensure they understand what financial support will in fact be available to them under the Scheme and, as appropriate, reflect this in the terms on which they agree with an employee that they can be furloughed (see below).
The HMRC guidance confirms that employers can claim for "80% of furloughed employees' usual monthly wage costs up to £2,500 a month plus the associated employer national insurance contributions and minimum automatic employer pension contributions on that wage". Fees, commission and bonuses should not be included.
Calculating monthly wage cost
What is an employee's usual monthly wage cost? The guidance states that for most employees this will be based on actual salary before tax as at 28 February 2020 but guidance is given on how this can be calculated for employees on irregular hours. Questions arise as to the impact of any sick pay or other reduced pay being an employee's actual salary as at 28 February 2020 where this is lower than that the employee would otherwise receive. It may be regulations will build in flexibility in this regard.
For some low paid employees, this 80% will bring them below the national living and minimum wage rates. The guidance confirms that there is no need to top this up to avoid a breach of National Minimum Wage rules as the employee is not working. However, there is an exception where the employee is required to do training (and which is permitted during furlough).
Employers can choose to "top up" the funding received under the Scheme (allowing an employee to continue to receive, for example, their full salary as normal). HMRC stress though that any additional top-up will not be funded through the scheme, together with any related employer National Insurance contributions and automatic enrolment contributions. Any voluntary automatic enrolment contributions above the minimum mandatory employer contributions of 3% of income above the lower limit of qualifying earnings will also not be covered.
4. Communicate with your employees and agree any change to terms of employment
Employers must communicate with their staff. These are worrying and uncertain times with many under financial pressure. In the midst of everything it is easy to forget the employer's fundamental duty to an employee of trust and confidence. Expectations may also need to be managed given the huge publicity surrounding the scheme. Concerns may also be raised by employees regarding what being furloughed means for their long-term employment; others may consider it unjust that they are working while their colleagues are being paid (albeit potentially at a lower rate) for not doing so.
Thought will need to be given to the key messages being delivered:
- Reassurance that the employment contract continues during the furlough period and that an employee's continuous employment will not be impacted. The HMRC guidance also confirms that employees that have been furloughed have same rights as they did previously: including SSP entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.
- Clarify the impact on pay and potentially any benefits; in most cases where an employee is to be furloughed, a variation to the employment contract will need to be agreed. Employers will need to consider carefully whether pay should be reduced to 80% to reflect the funding available; or whether in fact they are prepared to top up from their own resources so that current pay levels are maintained. Employers should also consider what benefits they can afford to maintain and whether it is appropriate to continue enhanced holiday pay and sick pay during this period. The HMRC guidance makes clear that any changes to the employment contract will need to be "by agreement" (unless the employment contract already provides terms enabling the changes without consent).
- How will employees be selected for furlough? While in some cases it may be self-evident who should be on furlough leave; other situations may be less clear. Employers should ensure that they have clear business reasons for designating a particular individual for furlough and ensure that any decision is untainted by discrimination.
- Careful thought should also be given to any strategy of rotating employees between work and furlough in an attempt to address any concerns around selection. A rotation may seem fairer where there is a reduced need for employees and when some would otherwise be at home while others at work. However, employee guidance provides that the minimum period for which an employee can be furloughed is three weeks so any rotation would need to be on that basis. The employee guidance also confirms that an employee can be furloughed more than once.
- Any agreement to furlough an employee must make clear that the employee cannot undertake work for or on behalf of the organisation during furlough; there is a risk that otherwise funding under the Scheme could be jeopardised. This includes providing services that generate revenue. Employees on agency contracts must not be working. However, furloughed employees can take part in volunteer or work training. The inference is that this must not be mandatory. For example, an employee who is required to complete an online training course would be considered "working", and so would have to be paid at least the national living wage or NMW as appropriate.
- Be clear when employees will be paid. Access to the Scheme through the HMRC portal is still being set up and it is not clear when the first claims can be made. The previous guidance stressed that employers would need to seek reimbursement under the Scheme, relying on other emergency support the government has put in place to access funds in the interim. The latest HMRC guidance provides that a claim should be made "in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll". Employers may be able to make a claim through the HMRC portal sooner rather than later. Employers should be careful before giving any commitments in this regard where funding is short.
5. Plan your strategy for when the Scheme ends
Employers must give careful consideration now and throughout the coming weeks to their staffing requirements. The Scheme is back-dated to 1 March 2020 and is set to run for three months. It may be extended. However, at the end of this period, paying furloughed employees will become once again an employer's full responsibility. Employers should consider whether it may be prudent to understand where longer term changes to working arrangements or redundancies in the business may be required and start any discussions in tandem with the furlough period. These discussions should obviously take into consideration the wider workforce and not just those on furlough.
For many employers the Scheme is a lifeline for their business, but for everyone there will be a price to pay and scrutiny of employers compliance is inevitable. Employers should take advantage of the Scheme to support both their business and their employees through this crisis, but be careful to keep necessary records and stay within the parameters of the Scheme as the reputational impact of crossing the wrong side of the tracks could be substantial.
More detail on the arrangements announced for self-employed individuals can be found here.