The Coronavirus Job Retention Scheme: Update (17 April 2020)
The Government’s Coronavirus Job Retention Scheme (CJRS) was announced on Friday, 20 March 2020 with a view to helping employers whose operations have been severely affected by COVID-19 to retain their employees and protect the UK economy.
The scheme allows employers who cannot maintain their current workforce because of disruption caused by COVID-19 to ‘furlough’ employees and apply for a grant that covers 80% of their usual monthly wage costs, up to a cap of £2,500.00 a month. The term ‘furlough’ is entirely new to UK employment law, as is the CJRS in its entirety.
Much was initially unknown about how the CJRS would operate and how it would interact with existing employment legislation. While we had an outline of the general purpose behind the CJRS, the practicalities of implementing it were not laid out in detail. Thankfully, the Government has now updated its guidance which is available here and the Treasury has issued a Direction to HMRC.
While questions remain, the guidance now available does provide a great deal more certainty for employers seeking to utilise the CJRS. The guidance set out in this note is current as of 17 April 2020.
What we know now
Duration: The CJRS is temporary. Initially, it was set to run between 1 March 2020 and 31 May 2020, with the option to extend if necessary. Employers can use the CJRS at any point during its currency, but must ensure that each furloughed employee is furloughed for a minimum of three consecutive weeks.
Update: It has today been announced that the scheme end-date has been extended from 31 May 2020 to the end of June 2020. Further, the updated guidance tells us that employees can be furloughed multiple times (so long as each separate instance is for a minimum of three consecutive weeks) meaning employers can rotate employees if they so wish.
Employer Eligibility: The original guidance advised that, to be eligible to claim under the CJRS, an employer must have created and started a PAYE payroll scheme on or before 28 February 2020, have enrolled for PAYE online and have a UK bank account. The guidance provided that all employers satisfying this eligibility criteria would be able to utilise the CJRS including businesses, charities and public authorities.
Update: The eligibility criteria now provides that, to be eligible to claim under the CJRS, an employer must have created and started a PAYE payroll scheme on or before 19 March 2020. Further, the updated guidance makes it clear that employers receiving public funding for staff costs, should not, so long as that funding is continuing, furlough any staff. This also applies to non-public sector employers who receive public funding for staff costs.
Employee Eligibility: The original guidance advised that employers could only claim for employees who were on their PAYE payroll on or before 28 February 2020. It stipulated that any type of employee could be furloughed, whether employed full or part time, on a permanent or fixed term contract and even those on zero hours contracts.
Update: The updated guidance now provides that employers can claim for employees who were on their PAYE payroll (and notified to HMRC on an RTI submission) on or before 19 March 2020. It also makes it clear that office holders, salaried members of LLPs, agency workers and casual ‘workers’ can also be claimed for under the CJRS, so long as they are paid via PAYE. This extends the definition of ‘employee’ for the purposes of the CJRS.
Directors: Salaried directors are eligible to be furloughed. If the decision is made to furlough a director, this should be formally adopted by the Board as a decision of the company, noted in the company records and communicated in writing to the director concerned.
Update: The updated guidance makes it clear that executive directors cannot perform work whilst furloughed. They may only carry out very limited duties needed to fulfil their statutory obligations, such as filing company accounts.
Apprentices: Apprentices can be furloughed and can continue to train whilst furloughed. They must however, receive at least their National Minimum Wage rate for all the time they spend training, even if this means the employer has to ‘top up’ their earnings.
Update: Updated guidance encourages remote training and assessment, provides for extensions to be granted in relation to assessment timetables, permits breaks in learning and makes it clear that HM Treasury will not pause apprenticeship levy payments for employers.
TUPE: Nothing was said in the original guidance about the position of employees who had transferred to a new employer via TUPE after 28 February 2020.
Update: The updated guidance confirms that a new employer is eligible to claim under the CJRS in respect of employees of a previous business who transferred after 19 March 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.
Work during Furlough: When on furlough, an employee cannot undertake work for, or on behalf of, their employer. ‘Work’ means providing services or generating revenue. This means an employer can’t claim under the CJRS for employees who are working reduced hours. Furloughed employees can however, take part in volunteer work and engage in training, but they must be paid at least their national minimum wage rate for any hours spent training, even if this means the employer has to ‘top up’ their earnings.
Update: The updated guidance makes it clear that employees cannot work for organisations that are linked to their employer, as well as not working for their employer, when on furlough leave. It also provides that employers can agree to find furloughed employees volunteering opportunities if compatible with public health guidance.
Re-hiring Staff: The original guidance advised that employees who were made redundant on or after 28 February 2020, could be re-employed, furloughed and then claimed for via the CJRS.
Update: The updated guidance makes it clear that the application of the scheme is wider than first thought and that employees who were on an employer’s payroll as of 28 February 2020 (i.e. notified to HMRC on an RTI submission on or before that date), but stopped working for the employer after that date and prior to 19 March 2020, can qualify for the scheme, so long as the employer re-hires them and puts them on furlough leave (even if they’re not re-hired until after 19 March 2020). This might apply to those employees who left by virtue of a voluntary resignation, so long as their ex-employer re-hires and then furloughs them. This is useful for exiting employees, who may have been advised by their new employer that their job offer is no longer valid or that any start date has been deferred. Caution should however, be exercised as this does not appear to be the primary intention of the scheme (meaning HMRC may later question the validity of claims of this nature), employers will be liable for wages due to such employees (including additional holiday accrued) and so doing might allow short service employees to gain two years’ employment (and associated rights).
Absence from Work: The original guidance advised that employees who are on sick leave or self-isolating in line with Public Health England advice are entitled to Statutory Sick Pay (SSP), rather than furlough leave. It also advised that employers can furlough employees who are shielding in line with Public Health England guidance (or need to stay home with someone who is shielding) if they are unable to work from home, along with employees who are unable to work because they have caring responsibilities resulting from coronavirus.
Update: In contrast to the above, the updated guidance advises that employers can furlough staff who are currently off sick on a long term basis if there is a business reason to do so, in which case they would no longer receive sick pay and would be classified as a furloughed employee. The scheme is not intended for short-term absences from work through sickness, highlighted by the fact that the minimum period of furlough is three consecutive weeks. Additionally, a furloughed employee who becomes ill can remain furloughed (rather than having to be transferred to sick leave and sick pay).
Family Leave: The normal rules for family leave and pay apply. Employers can however, claim through the CJRS for enhanced contractual pay for employees who qualify for maternity, adoption, paternity or shared parental pay.
Update: The updated guidance confirms that claims for employees furloughed on return from statutory family leave should be calculated against their salary before tax, not the pay they received whilst on statutory family leave.
Multiple Employers: Employees with more than one job can be furloughed from both jobs (or only one of them) as each job is treated separately and the £2,500.00 cap applies separately to each employer.
Update: The updated guidance makes it clear that a furloughed employee can, subject to the provisions of their existing Contract of Employment, take on a new job with a different employer while furloughed by their original employer. They would then receive both furlough pay from their existing employer and full wages from their new employer. It had been anticipated that this would be prohibited however, given the need certain industries have for additional staff at present (such as fruit pickers or NHS workers), the Government would seem to have prioritised making people available for those industries.
Designation: The original guidance provides that in order to furlough an employee, an employer must discuss their proposal with the affected staff member and obtain their agreement to designate them as furloughed, given the consequential change in status and pay will amount to a variation of contract. Little guidance is available in relation to the process of selecting who will be furloughed, but it would be sensible to utilise a rough and ready selection matrix, focusing on business need and ensuring discriminatory decisions are not made.
Update: The updated guidance makes it clear that, in order to be eligible for a grant under the CJRS, the employer and employee must have agreed in writing in advance that the employee will cease all work whilst furloughed. Originally, only notification was required. Now advanced written agreement is needed. The written record can be an email, but must be retained for five years. Note that HMRC explicitly reserves the right to audit claims made via the CJRS in future. As such, it is recommended that copies of written agreements collected be retained and that legal advice be taken in connection with designating staff as furloughed and preparing associated communications.
Wage Grants: Employers can claim for 80% of their employees’ wages, up to a maximum of £2,500.00, from the date on which they finished work and commenced a period of furlough leave (as opposed to when the decision to furlough is made or when the employee is written to regarding their furloughed status). Employers can choose to top up staff salaries, but are not obliged or required to do so.
Update: The updated guidance makes it clear that associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions will be paid in addition to the basic wages grant. The reclaimable National Insurance and pension elements are on the furlough salary, not normal salary.
Employee Earnings: The original guidance provided that, in calculating 80% of earnings, employers could either claim for 80% of the employee’s gross salary, as of 28 February 2020 (for salaried employees) or for the highest of either the employee’s earnings from the same month in the previous year or their average monthly earnings for the 2019-2020 tax year or the duration of their employment if they’ve not been employed for a full year (for employees with variable working patterns and earnings).
Update: The updated guidance changes the relevant salary reference date to 19 March 2020. It also makes it clear that furloughed employees will still pay the taxes they normally pay out of their wages including pension contributions (unless the employee has opted out or stopped saving into their pension) and that student loan repayments will still have to be made and are not covered by the CJRS.
‘Wage Costs’: The original guidance stipulated that fees, commissions and bonuses should not be included in any claim for payment under the CJRS. It also made it clear that benefits should continue during any period of furlough and are outside of the CJRS.
Update: The updated guidance provides further detail. It states that employers can claim for any regular payments they are obliged to pay their employees including wages, past overtime, fees and compulsory commission payments. In turn, the guidance makes it clear that employers cannot claim for additional National Insurance or pension contributions arising as a result of ‘topping up’ an employee’s salary, any pension contributions made over and above the mandatory employer contribution, discretionary bonuses (including tips), discretionary commission payments and non-cash payments (including non-monetary benefits in kind or benefits provided through salary sacrifice schemes).
Claim Process: Claims are to be made online. Once an employer has submitted their claim via the HMRC Portal, HMRC will check the claim and, if the employer is eligible, pay the relevant grant monies to the employer by BACS. The original guidance advised that the HMRC Portal through which employers will submit claims is due to open by the end of April 2020.
Update: The updated guidance makes it crystal clear that an employer must pay all the grant they receive to the relevant employee. Employers cannot charge any form of fee in respect of the money that is granted. We also now know that the scheme is due to open on 20 April 2020, with the first payments being made to employers on 30 April 2020 (and, in general, an anticipated 4 – 6 day period between submitting applications via the portal and receiving the monies from HMRC).
Scheme End: When the CJRS ends, employers will have to make difficult decisions about whether their employees can return to their duties or whether the termination of their employment on the grounds of redundancy should be considered.
Update: The updated guidance confirms that grants cannot be used to substitute redundancy payments. Legal advice should be taken in relation to redundancy procedures and other terminations, with thought being given to such decisions at an early stage.
What we still don’t know
Annual Leave: Neither the original guidance nor the update guidance make any mention of the interplay between furlough leave and annual leave.
Update: The prevailing view is that holiday will continue to accrue during furlough leave, that it can be taken (or be directed to be taken) during furlough leave and that it must be paid at full pay. This is supported by informal comments made by HMRC on Twitter.