How does the Coronavirus Job Retention Scheme work?

On 29 May, the Chancellor announced changes to the Coronavirus Job Retention Scheme that apply from 1 July 2020. This post relates to the original CJRS. For information about the flexible furlough changes which take effect from 1 July 2020, see our post here. For information on other implications of Coronavirus on the employment relationship, see our post here.

Background

The Chancellor announced on 20 March unprecedented measures in an aim to help employers and protect employment as part of its response to the spread of Coronavirus.

Rishi Sunak announced that “a new Coronavirus Job Retention Scheme will be set up to help pay people’s wages. Employers will be able to contact HMRC for a grant to cover most of the wages of their workforce who remain on payroll but are temporarily not working during the coronavirus outbreak.”

The online portal for employers to claim for wages through the Coronavirus Job Retention Scheme went live on 20 April 2020.

The Government’s guidance on the scheme (the guidance) is regularly being updated and amended. Links to the various guidance notes published by the Government are set out at the end of this post. In addition, the Government published a Treasury Direction (the Original Direction) on 15 April 2020 and an updated Second Treasury Direction (the Second Direction) on 22 May 2020, setting out the detail of the scheme. The Second Direction amends and effectively replaces the Original Direction in respect of claims under the scheme made on or after 22 May 2020. Although the guidance and Directions clarify some issues, there are in places inconsistencies between them and some questions remain unresolved.

Which employers are eligible?

All UK employers that had created and started a PAYE payroll scheme on or before 19 March 2020; enrolled for PAYE online; and have a UK bank account. The Government expects that the scheme will not be used by many public sector organisations.

Details are set out in “Check if you can claim for your employee’s wages through the Coronavirus Job Retention Scheme”

Which employees can be furloughed?

Employees who were employed and on the employer’s payroll on or before 19 March 2020 and which were notified to HMRC on an RTI submission on or before 19 March 2020. The employees can be on any type of contract, including employees on zero hours contracts and apprentices. The scheme does not apply to the self-employed.

Interestingly, employees who were made redundant or who stopped working for the employer after 28 February 2020 can also be furloughed, if they meet the eligibility requirements set out in the guidance and if they are re-employed by their employer. They will qualify from the date that they are put on furlough. A table summarising eligibility is set out in the guidance. It remains to be seen how this will work in practice. Employers considering this option should seek legal advice.

According to the guidance, employees on fixed term contracts can be furloughed if they meet the eligibility requirements set out in the guidance. Their contracts can be renewed or extended during the furlough period without breaking the terms of the scheme. However, the renewal or extension must be before the fixed term has ended. Fixed term contracts which started and ended between 28 February 202 and 19 March 2020 will not qualify for the grant.

Details are set out in “Check which employees you can put on furlough to use the Coronavirus Job Retention Scheme”

Does an employee have to be at risk of redundancy in order to be furloughed?

Probably not. The guidance states that the scheme is “designed to help employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy. However, all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus.” The guidance for employees states that an employer may be able to furlough “if they are unable to operate or have no work for you to do because of coronavirus”. The Directions state that an employee is a furloughed employee if they have been instructed by their employer not to work and “the instruction is given by reason of circumstances arising as a result of coronavirus”.

However, it is worth remembering that the Directions state that no claim may be made where it is “abusive or otherwise contrary to the exceptional purpose of the CJRS”.

Can employees on unpaid leave be furloughed?

The guidance states that employees on unpaid leave can be put on furlough instead, if they started unpaid leave after 28 February 2020. If they are put on furlough, they should be paid at least 80% of their pay, up to the monthly cap of £2,500.

Employees who went on unpaid leave on or before 28 February 2020 cannot be furloughed until the date on which it was agreed at the start of the leave that they would return from unpaid leave. The Second Direction clarifies that where unpaid leave started before 1 March 2020, the employer and employee could agree to vary the end date of a period of unpaid leave if that agreement was reached after the unpaid leave began and before 20 March 2020. In some very limited circumstances, therefore, it might be possible to furlough employees who started unpaid leave before 1 March 2020 earlier than the date on which the unpaid leave was originally intended to end.

Can employees on sick leave be furloughed?

Employees on sick leave or who are self-isolating can be furloughed. However, the guidance states that short term illness or self-isolation should not be a consideration in deciding whether to furlough an employee and that the scheme is not intended for short-term absences from work due to sickness.

The guidance states that if the employee is furloughed, they should no longer receive sick pay and would be classified as a furloughed employee. This suggests that employers have the choice whether to keep an employee on sick leave or place them on furlough where they are sick at the point that furlough is being considered.

The interplay between furlough and Statutory Sick Pay (SSP) has been unclear, however. The Original Direction provided that where SSP is payable when the furlough period commences, the period in respect of which a claim can be made for the grant does not start until the SSP entitlement has ended. This was consistent with previous versions of the guidance which stated that employees who are on sick leave or self-isolating could be furloughed once they were no longer receiving SSP.

The Second Direction, however, suggests that an employer can elect whether or not to furlough an employee entitled to SSP. It states that an employee who is paid, or due to be paid, SSP cannot be furloughed until after the end of their period of incapacity for work “provided that the end of that period of incapacity for work is determined by an agreement between the employer and the employee”. It appears that the meaning of this is that the employer and employee can agree to end payment of SSP to an employee in order to furlough them instead. This appears to be consistent with the guidance.

If an employee is on long term sick leave and has exhausted their entitlement to SSP and company sick pay, it is relevant that no claim under the scheme can be made if the employee is on unpaid leave between 1 March and 30 June 2020. Therefore, an employee cannot be furloughed while they are on unpaid leave during that period. However, where the unpaid leave began on or after 1 March 2020, it seems from the Second Direction that the employer could end the unpaid leave and allow the employee to be placed on furlough instead. This is subject to the eligibility conditions being met, and subject to this being consistent with the exceptional purpose of the scheme. If the employee’s unpaid leave began before 1 March 2020, the employee cannot be furloughed until the date it was agreed that the leave would end when it commenced (see above).

Can employees who are shielding be furloughed?

This position on shielding employees has also been unclear. The guidance states that employees who are “shielding” in line with Public Health England advice can be furloughed, and that it is up to employers to decide whether to furlough these employees.

Employees who are shielding and are able to work from home can continue to do so. They would not be entitled to SSP. They could in our view be furloughed.

However, employees who are shielding are now entitled to SSP if they cannot work from home , due to an amendment to regulations that came into force on 16 April 2020. The Original Direction suggested that an employer cannot furlough a shielding employee while they are entitled to SSP. Therefore, there is a risk that employers may not be able to recoup the furlough pay of a shielding employee eligible for SSP where a claim under the CJRS is made to which the Original Direction applies.

However, the Second Direction suggests that the employer and employee can agree that an employee who is entitled to SSP is taken off SSP and furloughed instead (see above).

The effect of this appears to be that:

employees who were shielding and who were already on furlough before 16 April can continue to be furloughed because they were not entitled to SSP before that date;
employees who are shielding but had not been put on furlough before 16 April are now entitled to SSP. There is a risk that an employer will not be able to claim from the CJRS in respect of claims to which the Original Direction applies. The Second Direction appears to provide that the employee can either be on SSP, or they can be furloughed if the employer and employee agree that their period of incapacity for work has ended.

The guidance states that employers can “claim back from both the scheme and the SSP rebate scheme for the same employee but not for the same period of time. When an employee is on furlough, you can only reclaim expenditure through the Coronavirus Job Retention Scheme, and not the SSP rebate scheme.”

Details are set out in “Check which employees you can put on furlough to use the Coronavirus Job Retention Scheme”

The Government has announced the easing of shielding provisions from 6 July. According to the announcement, from 1 August, clinically extremely vulnerable people will no longer be advised to shield; and those who need to work and cannot do so from home will be able to return to work as long as their workplace is COVID secure, adhering to the guidance available.

What happens if an employee becomes sick while furloughed?

The guidance states that they retain their right to SSP. This means that the employee must be paid at least SSP. It states that it is up to the employer to decide whether to move these employees onto SSP or keep them on furlough, at their furloughed rate. If the employee is moved onto SSP, the employer can no longer claim for the furloughed salary, although they may qualify for a rebate of up to 2 weeks of SSP. If employees remain on the furloughed rate, the employer remains eligible to claim for these costs through the scheme.

What about individuals who are not employees?

The guidance clarifies that office holders (including company directors) and salaried members of Limited Liability Partnerships can be furloughed if they are paid via PAYE. Agency workers can also be furloughed if they are paid via PAYE, but the guidance states that this should be agreed between the worker and the agency, as the deemed employer.

Does an employer have to furlough all workers?

No. However, when considering which employees to furlough, an employer must ensure that any decision is not discriminatory, in accordance with normal employment law principles.

What will the employer need to do?

The employer will need to:

designate affected employees as ‘furloughed workers,’ and notify the employees of this change. See below our comments on consent.
submit information to HMRC about the employees that have been furloughed and their earnings through the new online portal. Information that will be required is set out here.

What is a furloughed employee?

The principle is that a furloughed employee is an employee who is sent home by the employer because the employer cannot provide them with work as a result of the Coronavirus pandemic; but who is kept on the payroll rather than being dismissed.

Currently, the Directions state that an employee is a furloughed employee if they have been instructed to cease all work in relation to their employment; if they cease that work for at least 21 days; and if they have been instructed to cease work by reason of circumstances arising in consequence of Coronavirus.

The Second Direction clarifies that an employee has been instructed to cease all work only if the employer and employee have agreed this. The agreement must:

specify the main terms and conditions on which the employee will cease work;
be incorporated (expressly or impliedly) into the employee’s contract; and
be in writing or confirmed in writing by the employer (including by electronic means such as email).

The agreement must be kept by the employer until at least 30 June 2025.

The employee must not undertake work while they are furloughed that makes money or provides services for the employer or any organisation linked or associated with the employer. They will remain employed during that time. Therefore, an employee who is still working but has agreed to reduce their hours and/or pay could not currently be furloughed. However, the rules on this will change from 1 July when employees will be able to work part time during furlough – see below.

An employee must be placed on furlough for a minimum period of 3 consecutive weeks.

An employee can carry out work for another employer while they are furloughed, if this is contractually allowed.

Can a furloughed employee carry out volunteer work or training?

An employee can carry out volunteer work or engage in training while they are furloughed, as long as that does not provide services or generate revenue for the employer or any linked or associated organisation. An employer can agree to find furloughed employees volunteering opportunities whilst on furlough if this is in line with Public Health guidance. The guidance states that employees should be encouraged to undertake training.

Can furloughed employees continue to carry out duties as representatives?

Yes. The guidance clarifies that whilst on furlough, employees who are union or non-union representatives may undertake duties and activities for the purposes of individual or collective representation of employees or other workers. However, in doing this, they must not provide services to or generate revenue for, or on behalf of the employer or a linked or associated organisation.

What happens if an employee does not agree to be furloughed?

The furlough scheme aims to avoid employees losing their jobs, but with the reassurance that they will receive pay even though they are not being provided with work.

Employers should only furlough workers by consent. If the employer is seeking to reduce the employee’s pay to the amount that can be reimbursed by HMRC, this will also require consent. The guidance makes clear that employers should discuss this with their staff and make any changes to the employment contract by agreement.

It is not clear whether an employee has to confirm in writing that they agree to the furlough. The guidance states “there needs to be a written record, but the employee does not have to provide a written response.” The Original Direction stated “An employee has been instructed by the employer to cease all work in relation to their employment only if the employer and employee have agreed in writing…that the employee will cease all work in relation to their employment.” However, the Second Direction does not expressly state that the employee has to confirm their agreement in writing.

In our view, however, employers should seek written confirmation from the employee that they agree to the furlough (and any reduction in pay during the furlough period). This would usually be evidence that there is a valid variation to the contract of employment.

If the employee does not agree to be furloughed, that may leave the employer having to face a decision of whether to make the employee redundant. Many employees faced with that alternative are likely to agree to be furloughed.

Employers should bear in mind that existing rules on varying terms and conditions of employment continue to apply. Depending on the number of employees involved, employers should also be alert to the current provisions on collective consultation which also continue to apply.

Can the employer rotate furloughed employees?

The guidance clarifies that employees can be furloughed multiple times. However, each separate period of furlough must be for a minimum of three weeks. Therefore, in theory an employer may be able to agree with employees that they rotate, for example, on a monthly basis, but not on a weekly basis. When they return to work, the employees must be taken off furlough.

Can a period of furlough be extended?

Yes. The guidance states that each period of furlough can be extended by any amount of time whilst the employee is on furlough. If the letter seeking agreement to the furlough sets out a process for extending the furlough period, that process should be followed by the employer. If the furlough period was agreed to be for a fixed period, however, the employer would need the employee’s consent to extend the furlough period.

How much will the Government reimburse?

The guidance states that an employer can claim “80% of [an employee’s] wages (even for employees on National Minimum Wage) – up to a maximum of £2,500 per month”, plus minimum automatic enrolment employer pension contributions on that subsidised wage. However, the scheme will change from 1 July – see below.

Key points to note from the guidance include:

An employer cannot claim for any additional pension contributions that the employer makes because they are choosing to top up the employee’s wages; or any pension contributions that the employer makes that are above the mandatory employer contribution.
The amount that should be used to calculate the 80% is “regular payments you are obliged to make”, including regular wages, non-discretionary overtime, non-discretionary fees, non-discretionary commission payments, and piece rate payments.
Discretionary payments, or payments that the employer is under no contractual obligation to pay, including tips, discretionary bonuses and discretionary commission payments should not be included when calculating the 80%.
Non-cash payments, and non-monetary benefits like benefits in kind and salary sacrifice schemes should not be included when calculating the 80%. Normally, an employee cannot switch feely out of a salary sacrifice scheme unless there is a life event. The guidance clarifies that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the employment contract is updated accordingly.

The guidance states that when working out if a payment is non-discretionary, the employer should only include payments which they have a contractual obligation to pay and to which the employee had an enforceable right. In relation to overtime, the guidance states that payments for overtime worked are non-discretionary when the employer is contractually obliged to pay the employee at a set and defined rate for the overtime that they have worked.

The way that the 80% is calculated is different depending on the way that the employee is paid. The guidance states that the employer should choose the calculation they think best fits the way the employee is paid. “HMRC will not decline or seek repayment of any grant based solely on the particular choice of pay calculation, as long as a reasonable choice of approach is made.”

Where an employee is on a salary, the employer can claim for 80% (up to a maximum of £2,500 per month) of their wages from their last pay period before 19 March 2020.

Where employees have variable pay, the employer can claim 80% (up to a maximum of £2,500 per month) of the higher of either:

the same month’s earning from the previous year; or
average monthly earnings from the 2019-20 tax year

If the employee has less than a year’s service, the employer can claim an average of their monthly earnings since they started work.

The employer cannot make more than one claim during a claim period. Claim periods should follow one after another, with no gaps in between, where employees have been continuously furloughed. The employer must claim for all employees in each period at one time – they cannot make changes to the claim. The employer can make a claim in anticipation of an imminent payroll run, at the point they run the payroll or after they have run the payroll. Claims can be backdated from 1 March 2020 where employees have already been furloughed from that date. A claim cannot start any earlier than the date the employee was first furloughed.

Details are set out in “Work out 80% of your employee’s wages to claim through the Coronavirus Job Retention Scheme”. This provides a link to an online calculator that employers can use to work out what they can claim for most employees. Worked examples are set out in “Examples of how to work out 80% of your employees’ wages, National Insurance contributions and pension contributions”

The scheme will change from 1 July.

Is the 80% or £2,500 net or gross?

Gross. The HMRC guidance states that employee’s actual salary before tax should be used to calculate the 80%.

Might the employee be paid less than the National Minimum Wage?

Yes. The guidance states that individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working. As furloughed workers are not working, they can be paid the lower of 80% of their salary or £2,500 even if that would be lower than the NMW or NLW.

However, time spent training is treated as working time and must be paid at the appropriate minimum wage. Where this is in excess of the furlough payment, employers will need to pay the additional wages.

Does the employer have to “top up” the employee’s pay?

No. An employer could choose to fund the differences between the payment that they receive under the scheme and their salary, but does not have to.

However, employers should remember that the normal principles on varying terms and conditions of employment continue to apply. Where an employer is seeking to reduce the employee’s pay to 80% of their wages, they will need the employee’s consent to this reduction. An employee may be prepared to agree to this, however, if the alternative is potential redundancy.

See below our comments on holiday during the furlough period.

How is statutory pay calculated for employees taking family related leave during furlough?

The Government announced that pay for furloughed employees taking family related leave is to be calculated based on usual earnings, rather than furlough pay. This will apply to statutory maternity pay, paternity pay, shared parental pay, parental bereavement pay and adoption pay. The aim is to ensure that employees taking family related leave are not penalised by being furloughed. New regulations are now in force which give effect to this announcement. The new provisions relate to employees who started their family related leave on or after 25 April 2020.

How quickly will the employer be reimbursed?

The guidance states that HMRC will verify the claim and the employer will receive the funds in six working days.

What is the guidance on holiday during furlough?

Please see our separate post for further detail on the interplay between holiday, holiday pay and furlough.

What happens when furlough ends?

The employer will need to make a decision, depending on the circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider redundancy. However, normal employment law principles continue to apply. Any employer considering dismissal should seek legal advice.

How will the scheme change from 1 July?

The Government announced on 12 May 2020 that the scheme has been extended until the end of October 2020 (although the Second Direction only covers the period until 30 June 2020).

The Government announced changes that apply to the scheme from 1 July and issued a factsheet summarising those changes. The Government’s online guidance is being updated to include details of the flexible furlough provisions that apply from 1 July. For details, see our separate post here.

Comment

It is important to note that the guidance clarifies that HMRC retains the right to retrospectively audit all aspects of the employer’s claim. It is therefore important that employers are aware of the Government guidance and keep up to date with any amendments. There is also a warning in the guidance that “HMRC will check claims made through the scheme. Payments may be withheld or need to be repaid in full to HMRC if the claim is based on dishonest or inaccurate information or found to be fraudulent.” An online portal has been put in place for employees and the public to report suspected fraud in the scheme.

Details on the flexible furlough provisions that apply from 1 July can be found here. Further guidance on Coronavirus for employers can be found here.

Useful sources of information:

Coronavirus Job Retention Scheme collection

Check if you can claim for your employees’ wages through the Coronavirus Job Retention Scheme

Check which employees you can put on furlough to use the Coronavirus Job Retention Scheme

Work out 80% of your employees’ wages to claim through the Coronavirus Job Retention Scheme

Examples of how to work out 80% of your employees’ wages, National Insurance contributions and pension contributions

Claim for wages through the Coronavirus Job Retention Scheme

Coronavirus Job Retention Scheme: step by step guide for employers

Check if your employer can use the Coronavirus Job Retention Scheme

Holiday entitlement and pay during coronavirus

The Original Direction

The Second Direction