The government has set out the details on its coronavirus job retention scheme. We outline the all-important questions employers have been asking and what still needs clarifying.
By way of reminder, the coronavirus job retention scheme (scheme) is a temporary scheme to help businesses in distress as a result of the coronavirus pandemic. It is available in respect of those employees that would otherwise have been unemployed during the outbreak (see below), who for the purposes of the scheme are described as furloughed employees, in order to try and protect their jobs. In order to access the scheme, employers need to decide which of their employees are furloughed employees, notify and agree with those employees that they are furloughed employees and submit information to HMRC about the employees which have been furloughed and their earnings through a new online portal. Employers will then be able to apply to HMRC for a grant to cover 80% of the furloughed employees usual monthly wage costs up to a total of £2,500 a month. The furloughed employee remains employed by the employer during the furlough period and cannot carry out work for the employer during this period.
The questions that have now been answered
- Which employers can take advantage of the scheme?
All UK employers whose operations have been severely affected by the coronavirus pandemic will be able to access the scheme for at least three months which will be backdated to 1 March 2020 provided they had created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account. This therefore includes businesses (including those under the management of an administrator), charities, recruitment agencies and public authorities although the government clearly anticipates that public authorities will not need to use the scheme as much given most of their essential public services continue to function at this time. Employers can use the scheme at any time during the period it is available.
- Who can be designated as a furloughed employee?
The scheme is available in respect of those employees that would otherwise have been laid off during the outbreak. This means both those employees who would have been made redundant as well as those temporarily laid off without pay. The scheme is available for those on the PAYE payroll on 28 February 2020 so this could include employees in the more traditional sense as well as some workers. It will also be available in respect of employees who were made redundant after 28 February if they are re-hired by their employer. What is clear, however, is that it will not apply to any new starters after this date. It is likely that many who were due to start new roles over the coming weeks will find that those offers are now withdrawn, or their contracts terminated on notice.
Employers can apply for reimbursement for their full-time and part-time employees as well as those on flexible or zero-hour contracts and agency contracts.
It is clear that a furloughed employee cannot carry out any work for their employer during the furlough period. As a result, an employee who is on short-time working would not be eligible to be furloughed. In addition, any employees on unpaid leave cannot be furloughed unless they were placed on leave after 28 February. An employer does not have to furlough all employees, it can decide to furlough some but keep some working.
- Can an employer take employees on and off furlough or is it a one-off decision?
An employee must be furloughed for a minimum of three weeks for the employer to be able to make a claim under the scheme. This suggests that, after three weeks, employees can be brought back to work either permanently or for a short period before being furloughed again.
- Is there a set process to be followed in order to gain an employee’s agreement to be designated a furlough employee?
As previously thought, employers need to discuss with their employees their intention to treat them as furloughed employees and agree this with them in order to change their contracts of employment. Employers need to write to employees to confirm that they have been furloughed and keep a record of letters sent. Equality and discrimination laws will apply in the usual way and so employers need to ensure they have a clear and objective basis for selecting individuals to be placed on furlough leave. Where agreement is not reached voluntarily, and the employer still wants to change the contracts of 20 or more employees at one establishment this will trigger the collective consultation process to obtain agreement to the changes to terms of employment. This could cause difficulties for employers who are likely to want to implement these changes quickly. Employers may want to consider using the special circumstances defence in this case, although legal advice on the suitability of this option should be sought.
- Can a furloughed employee carry out work for another employer during the furlough period?
Each job is separate, and the cap applies to each employer individually and so it is possible for an employee to be furloughed from one employer but remain working for another employer. This also suggests it is possible for furloughed employees to take on a temporary job elsewhere provided this is not in breach of their contract with their original employer. The key is that they carry out no work for the employer who has placed them on furlough leave. An employee on furlough leave can take part in volunteer work or training as long as it does not generate any income for their employer.
- Can an employee be furloughed at any point from 1 March?
The government stated that the scheme would cover the cost of wages from 1 March 2020 and that initially it will remain open for three months, although it may be extended. In respect of employees who were made redundant after 28 February but before the scheme was announced, employers would need to re-engage these individuals if they want to then take advantage of the scheme in respect of them.
- What exactly are the costs covered under the scheme and how does the cap work?
Employers will be able to make a claim for 80% of furloughed employees’ usual monthly wage costs up to a maximum of £2,500 a month plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage and the government expects this to be the minimum that employers pay during furlough leave. Employers should use the actual gross salary as of 28 February to calculate the 80%. The employee’s wage will be subject to the usual tax and other deductions while on furlough leave. Fees, commission and bonuses are not included and so employers will need to agree with employees as part of the process that such payments will not continue during the period of furlough leave, unless employers are happy to continue to make these payments.
- What about pension contributions?
The amount employers can claim will include minimum automatic enrolment contributions based on the furloughed employee’s wage. Employers are likely to face questions from furloughed employees as to whether they can temporarily reduce or suspend employee pension contributions during the period of furlough, or even opt out of the scheme altogether and opt back in at a later date. Employers should check the pension scheme rules as well as employment terms and conditions for any restrictions on the way in which employee pension contributions are calculated, as well as checking rules on suspension of active membership under the pension scheme.
- How do employers calculate 80% of irregular earnings?
Where the employee has been employed or engaged for 12 months then the employer can claim for the higher of the same month’s earning from the previous year or the average monthly earnings from the 2019-2020 tax year. Otherwise, employers can claim for the average monthly earnings since they started work.
- What happens where furlough leads to employees falling below the national living wage/national minimum wage level?
While the employee is on furlough leave, they will not be working and therefore the NLW/NMW rules do not apply. This means that where the employer is paying them 80% of their wages under the furlough arrangement, the amount paid can be less than the NLW/NMW. However, if the employee is required to complete any online training courses whilst furloughed, they must be paid at least the NLW/NMW for the time spent training. If this means they should be paid more than 80% of their normal monthly wage for the training undertaken, then the employer will need to top up their earnings to ensure the NLW/NMW minimum is met.
- Can a furloughed employee keep their company vehicle for the duration of furlough leave?
This will depend on what the employment contract states about cars and personal use given the furloughed employee will be on temporary leave and not required to work. If cars are provided for business use only then an employer could ask for them to be returned. However, if cars are provided for business and personal use then the furloughed employee would be entitled to keep the car. The position with car allowances is less clear and is likely to depend on whether it is paid as a separate benefit or part of normal basic pay.
- What should an employer do where an employee on sick leave or family leave wants to return to work early so that they can be furloughed?
The interaction between sick and family leave and furlough is still unclear. The guidance indicates that employees who are on sick leave or who are self-isolating should get statutory sick pay providing they meet the eligibility criteria (and, where applicable any contractual sick pay to which they are entitled under their contract of employment). However, at the end of the period of sick leave they can be placed on furlough leave (providing they were on the payroll on 28 February). Vulnerable employees who are shielding in line with public health guidance can be placed on furlough leave. An employee who is planning to take maternity leave must take the compulsory period of maternity leave, which in most cases is two weeks following the birth of the child. Employees who are eligible for statutory maternity pay or maternity allowance will be entitled to claim it as usual. Any enhanced maternity pay is included as a wage cost and can be claimed through the scheme. It is not clear whether the employee would need to then end maternity leave in order to be furloughed although this would seem to make sense. The same principle will apply to contractual adoption pay or shared parental pay. Hopefully further guidance will follow.
- When will the new online portal be available? What should employers be doing in the meantime in respect of paying their employees?
The scheme is designed to be a reimbursement to the employer, and therefore the employer will be required to make the initial payment to furloughed employees and claim it back from HMRC through the online portal once this is set up. The government intends the scheme to be up and running by the end of April so employers will need to fund March and April payrolls before being able to access the grant.
The questions which remain
Although the additional guidance from the government has done much to answer employer’s questions about the scheme, there are still some areas which remain unclear. For example, the guidance is not clear on whether a furloughed employee can take holiday during the furlough period or whether an employer can require holiday to be taken. However, we understand that the intention is that, while holiday entitlement will continue to accrue during furlough leave, an employer will not be able to recover holiday pay under the scheme. In addition, it is not clear whether apprentices can be furloughed. The guidance suggests that employers can choose whether to furlough so that if instead they chose to go through a redundancy exercise, this will not be seen as unreasonable. However, there is no definitive guidance on this point, so employers are well advised to consider furlough and document the reasons why this was not appropriate to protect their position in this regard.
What about the self-employed?
The government has also announced a new self-employed income support scheme. This provides freelancer and self-employed people (with trading profits up to £50,000 who submitted a tax return for 2019) with a taxable grant of 80% of their average monthly income over the last three years, capped at £2,500 per month. Self-employed people will be able to claim the grant and continue working unlike with furlough leave for employees.
This article is up to date as at 27 March 2020.