This post was updated on 20 April 2020 and contains important new information about key date changes and Real Time Information submissions, and some news on annual leave.
On Friday 20 March 2020 the Chancellor announced the Coronavirus Job Retention Scheme (CJRS) and the term furlough leave entered everyday language for the first time. That same afternoon the Prime Minister ordered all bars, restaurants, cinemas and other leisure venues to permanently their close doors until further notice. That order instantly threw millions of people out of work. Since then the ‘lock down’ has seen employers from all sectors of the UK economy turning to furlough leave as a way of trying to survive the Covid 19 pandemic.
HMRC has been publishing separate Guidance for both employers and employers on how the Job Retention Scheme should work. The Guidance for employers has now had 5 updates in 4 weeks and seems to be getting increasingly complex. It also still leaves many questions unanswered, particularly in relation to annual leave.
Click here to read the HMRC Guidance updated on 20 April 2020 and first published on 26 March
In addition, on 15 April 2020 the Chancellor issued a Treasury Direction which, the government’s words, ‘sets out the legal framework for the Scheme’. It isn’t an easy read.
Q: What is furlough leave and how long will it last?
It’s a temporary government scheme which enables an employer can keep an employee on the payroll even though there is no work for them with their salary being subsidised by the Government. The scheme will be backdated to 1 March 2020 and the government has just announced that it will last until at least the end of June 2020. We don’t know yet if the government will extend the Scheme beyond the end of June 2020.
Q: How much can employers reclaim to cover employee’s wages?
Employers can reclaim up to 80% of an employee’s wages (including contractual overtime and commission payments) up to a cap of £2,500 per month, plus (not including) employer’s national insurance contributions and the minimum auto enrolment pension contributions on that wage.
Payments for benefits in kind (e.g. private health insurance or car allowances), discretionary commission, discretionary bonuses and tips are not included and cannot be reclaimed.
Q: Which employers can claim the grant?
Any UK employer is eligible to register with the Coronavirus Job Retention Scheme, providing they:
created and started a PAYE payroll scheme on or before 19 March 2020;
- enrolled for PAYE online
- have a UK bank account.
The Scheme therefore applies to businesses of all shapes and sizes including limited companies, charities, limited liability partnerships, sole traders and even the public sector in certain circumstances.
Q: Who can be furloughed?
All employees can be furloughed provided they were on their employer’s PAYE payroll on or before 19 March 2020 and were notified to HMRC on a Real Time Information submission on or before 19 March 2020. That means if an employee had a start date before 19 March but would not be paid until the end of the month an RTI submission is unlikely to have been done until after 19 March and so that employee would not be eligible to be furloughed.
Employees who can be furloughed include full-time, part-time, agency, flexible or zero-hour contract workers and individuals who are not employees but who are still eligible (including office holders, salaried members of Limited Liability Partnerships and limb (b) workers).
Foreign nationals are also eligible to be furloughed. Grants under the scheme are not counted as ‘access to public funds, and employers can furlough employees on all categories of visa.
Q: How does an employer reclaim salary for employees whose pay varies?
If the employee has been employed for 12 months or more, employers can claim the highest of either the:
- same month’s earning from the previous year
- average monthly earnings for the 2019-2020 tax year
If the employee has been employed for less than 12 months, employers can claim for 80% of their average monthly earnings since they started work.
Q: Does the employer need the worker’s agreement to be ‘furloughed’?
Yes – changing the employment status and main terms and conditions of an individual’s contract remains subject to normal employment law and will need their agreement. During these very abnormal times however many workers will be relieved to be furloughed rather than made redundant and will take a pragmatic approach. The stark reality for many is to be furloughed or lose their job all together.
The updated guidance from HMRC confirms that agreement must be recorded in writing and a copy of that document should be kept for 5 years.
If an individual employee argues against being furloughed then the employer will need to assess whether that individual can continue working. If there simply isn’t enough work to do then the usual employment law rules on selection for redundancy will apply.
Q: Does an employer need to ‘collectively consult’ if it intends to furlough more than 20 employees?
No – but if an employer is proposing to make 20 or more employees at one establishment redundant it will need to consult with either appointed trade unions or consider appointing employee representatives in accordance with Trade Union and Labour Relations (Consolidation) Act 1992.
Q: How long can an employer place their workers on furlough leave for?
Furlough leave must be taken in a minimum of 3 week blocks. Employers can furlough employees multiple times but each separate instance must be for a period of 3 consecutive weeks. Unless the employer has written agreement from the employee at the outset to rotate them on and off furlough leave the employer will need fresh written agreement each time.
Q: How does an employer chose which employees to furlough and which to keep at work?
In many cases it will be straight forward. Some businesses will close down – hopefully on a temporary basis – meaning there will be no work at all for staff to do. All of those workers are eligible to be furloughed.
The situation will be far more complex when an employer retains enough work for some but not all employees. The employer is advised to consult with all potentially affected employees to ensure their decisions about who to designate as furloughed are fair and non discriminatory. Whilst the Equality Act 2010 still applies the updated guidance confirms that employees can be furloughed if they are shielding in line with Public Health guidance or because they have caring responsibilities arising from coronavirus – for example parents with children at home.
Q: Can an employee do any work for their employer whilst furloughed?
No, absolutely not but as long as they are not providing services or generating revenue for their employer, an employee can undertake volunteer work or training. Where an employer requires the employee to undertake training whilst on furlough leave they must pay at least the national minimum wage for the period spent training.
Q: Can a worker employee declare themselves as ‘furloughed’?
No, the employer must designate which workers are to be furloughed and notify HMRC via the on line portal.
Q: Can or must the employer top up any shortfall in wages caused by the government’s 80% of £2,500 cap?
An employer can do so if it chooses but does not have to. However where the employee does not agree to be furloughed on a capped salary they will have an unauthorised deduction of wages claim and /or a breach of contract claim and a potential constructive unfair dismissal claim too.
Employers should also be aware of the position in relation to staff taking annual leave whilst on furlough. See below for more details.
Q: Does an employer still have to pay the national minimum wage for staff that are furloughed at 80% of normal wage.
No – the national minimum wage or national living wage only applies when somebody is working. They will not be working when furloughed so the NMW does not have to be paid. However where an employer requires the employee to undertake training whilst on furlough leave they must pay the employee at least the national minimum or national living wage for the time taken whilst training.
Q: What if a furloughed worker then goes off sick?
They will be entitled to either statutory sick pay (SSP) or contractual sick pay depending on their individual terms and conditions. In a rather surprising move the guidance dated 15 April confirms that an employer has a choice to move a furloughed employee who becomes sick due to coronavirus either onto SSP or keep them on furlough pay. Employers are required to pay SSP themselves, although those with up to 250 employees will qualify for a rebate for up to 2 weeks of SSP.
On the other hand an employer could keep a sick furloughed employee on the furloughed rate and remain eligible to reclaim for these costs through the furloughed scheme. Perhaps this strange anomaly was introduced to assist employers who are struggling to pay furlough pay until they can reclaim the grant from HMRC. Whatever the reason is seems it unlikely a furloughed worker who becomes sick whilst on furlough leave will tell their employer just in case they get dropped to SSP (currently £95.85 per week).
Q: Can an employer reinstate a worker who has already been dismissed and then furlough them?
Yes. Any employee on the PAYE payroll and notified to HMRC through their employer’s RTI submission on or before 19 March 2020 who has since been made redundant or has since stopped working for the employer can be rehired and placed on furlough leave.
Q: When will the new HMRC portal be ready?
The HMRC portal went live at 5:30am on Monday 20 April 2020. Guidance for employers (which includes the direct link to the portal) can be found here.
Q. What is known about measures HMRC will take to prevent abuse of the Coronavirus Job Retention Scheme?
Not a great deal is known yet except that HMRC promises that stringent anti fraud measure will be deployed and all claims made by employers can be audited. HMRC is setting up a hotline for employees to report employers that try to make employees work whilst on furlough leave. Details of this can be found here.
Remember also that the guidance makes clear that employers must retain a copy of the employees’ written agreement to be furlough for a minimum of 5 years. This suggests that HMRC will be undertaking rigorous checks into claims for some time after the scheme closes.
Q. What do we know so far about furlough leave and annual leave?
HMRC have now confirmed that furloughed employees can still take annual leave and that this must be paid at an employee’s “normal rate”. This means that where annual leave is taken the employer must top up the furloughed salary so that it matches the usual holiday pay.
For bank holidays, if employees normally work a bank holiday then the employer can agree for this to be included in the furlough grant payment. If bank holidays are usually taken as leave then employers will need to decide whether to top up pay to an employee’s usual holiday pay or give them a day’s holiday in lieu.
The guidance makes clear that employers have the flexibility to restrict when leave can be taken if there is a business need and this applies for both the furlough period and the recovery period when things are (hopefully) back to normal. That will, of course, be subject to standard employment law.
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