Consideration of the updated Government guidance on the Coronavirus Job Retention Scheme and Treasury Direction published on 15 April 2020.
The government has continued to revise its guidance on the Coronavirus Job Retention Scheme (“the Scheme”) with the latest version published on 15 April 2020 along with a Treasury Direction (“the Direction”) the details of which we consider below.
ELIGIBILITY UNDER THE SCHEME
As previously thought, the Direction confirms that the Scheme is not limited to employees who would have been made redundant but rather any employee furloughed as a result of the coronavirus pandemic can be claimed for under the Scheme.
Previously any employee on the employer’s PAYE system on or before 28 February 2020 was eligible to be furloughed under the Scheme. This date has been extended to 19 March 2020 provided that the employer had made a Real Time Information (RTI) submission in respect of the employee on or before 19 March 2020.
Employees that were employed on 28 February and who were made redundant or stopped working for the employer after that date but prior to 19 March, can also qualify for the Scheme if the employer re-employs them (even if this is done after 19 March) and puts them on furlough. Again, the proviso is that the employee was on the employer’s payroll as at 28 February and an RTI submission made in respect of them on or before 28 February 2020.
Employees who transfer to a new employer after 19 March 2020 can be furloughed by their new employer under the Scheme, provided the Transfer of Undertakings (Protection of Employment) Regulations 2006 or PAYE business succession rules apply to the change in ownership.
- Consolidated PAYE schemes
Where a group of companies have consolidated multiplate PAYE schemes so that all employees have transferred onto a new scheme on or after 19 March 2020, this new PAYE scheme is eligible to furlough employees under the Scheme.
Employees who have undertaken a period of unpaid leave, including a sabbatical, after 28 February 2020 can be placed on furlough instead. However, where an employee commenced a period of unpaid leave, including a sabbatical on or before 28 February, they cannot be furloughed until the date on which they had agreed to return from unpaid leave. The Direction confirms that where this period was dependant on an event, purpose or circumstance, this period of unpaid leave will end when this event, purpose or circumstance occurs.
The guidance has been updated to clarify that employees who are off sick or who are being shielded in line with government guidance (there is no longer a requirement for employees shielding to have been otherwise made redundant) can be furloughed under the Scheme but employers cannot claim under the Scheme and claim the rebate for Statutory Sick Pay (SSP) for the same period of time, the suggestion being that sick leave and furlough are two separate things. Therefore, employers who want to furlough employees currently off sick can do so but the employee would no longer receive SSP but instead would be classified as a furloughed employee. The Direction also states that employees on sick leave can only be furloughed once the period of sick leave has ended (whether or not a claim for SSP is made). It is not clear whether, for those who are self-isolating and deemed sick for SSP purposes have to wait until the end of the 14-day self-isolation period before being furloughed. It would certainly seem from the way the Direction is worded that this is the case.
Where a furloughed employee becomes sick, it is up to the employer to decide whether to move the employee on to sick leave to receive SSP (and presumably any contractual sick pay to which they would be entitled) or to keep the employee on furlough, provided that during the employee’s period of sickness the employee receives at least the rate of SSP. If a furloughed employee becomes sick during the first three weeks of being designated as a furloughed employee, it is within an employer’s interest to keep the employee on furlough during the period of sickness, otherwise the employer will be unable to claim for the employee under the Scheme. The Direction makes it clear that the furlough needs to last for 21 calendar days or more for reimbursement under the Scheme to apply.
The updated guidance has indicated that contractors engaged by public sector organisations who are considered an off-payroll worker under IR35 are now eligible to be furloughed under the Scheme. Contractors eligible under the Scheme are entitled to 80% of the monthly contract value up to a maximum of £2,500 subject to the usual deductions for tax and National Insurance Contributions. In addition to being furloughed by the public sector client, the contractor can furlough themselves as an employee of their personal services company (“PSC”) provided the amount received from the Scheme or any other payments from the public sector client are not taken into account when calculating the contractor’s furlough pay through their PSC.
AMOUNTS THAT CAN BE CLAIMED UNDER THE SCHEME
Employers can claim for any regular salary or wages they are obliged to pay employees including past overtime, fees and compulsory commission payments.
Regular salary excludes any elements which vary, which are conditional on business or personal performance, which are benefits in kind and which are discretionary. This would include such things as performance related bonus, discretionary payments (including tips) and non-financial benefits. Any amount claimed by employers under the Scheme, in respect of any employee’s gross pay, must be paid in full to employees in the form of money (that is, not as benefits or a salary sacrifice scheme).
The updated guidance is clear that, where employees have a fixed annual salary, any claim under the scheme should be based on the employee’s salary in their last pay period prior to 19 March 2020. However, where an employer has relied on previous guidance and has calculated their claim under the Scheme based on salaries as at 28 February, the employer can still use this calculation for their first claim.
Where employees return from statutory leave (maternity, paternity, shared parental, adoption, sick and parental bereavement leave) and are furloughed, their pay for the purposes of claiming under the Scheme should be calculated for full and part time employees using their salary before tax prior to undertaking that period of leave, and not the pay the employee received whilst on statutory leave. Where an employee’s pay varies and they are returning from statutory leave, their salary should be calculated as the higher of:
- The same month’s earnings in the previous year; or
- their average monthly earnings for the 2019 – 2020 tax year.
Employers can also claim National Insurance Contributions under the Scheme, provided this does not exceed the amount of the contributions calculated on the employee’s furlough pay and does not exceed the amount actually paid by employers in respect of such contributions.
Employers can claim for pension contributions under the Scheme, the lower of:
- the amount actually contributed by the employer; or
- the minimum automatic enrolment employer pension contributions, subject to the cap of 3% on qualifying earnings, based on the employee’s furlough pay under the Scheme.
Any amounts claimed in respect of pension contributions must be paid in full into a pension scheme for the employee as an employer contribution.
PROCESS FOR AGREEING FURLOUGH
The Direction requires that there is agreement in writing between the employee and the employer that the employee will stop all work for the employer whilst furloughed. It is not clear what is intended by this statement and whether it requires written agreement to be in place before furlough commences, a step which most employers will not have taken.
However, the guidance itself has not changed and still states that employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way. To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. A record of this communication must be kept for five years. Our view is still that, provided written confirmation of furlough and what it means has been sent to the employee and they have not objected to this, the employer should be able to claim under the Scheme.
WORK WHILST FURLOUGHED
The amended guidance states that when on furlough, an employee cannot undertake work for or on behalf of the organisation which has furloughed them or any linked or associated organisation. This is an important point of clarification and employers need to check that no work is being carried out for associated companies by furloughed employees.
The Direction confirms that directors whilst furloughed can fulfil a duty or obligation under statute which relates to the filing of company accounts or the provision of other information relating to the administration of the Company. This allows directors to carry out narrower activities whilst furloughed than previously suggested.
PROCEDURE FOR CLAIMING UNDER THE SCHEME
The online portal for making claims under the Scheme is due to open on 20 April 2020, with 24/7 access operated by a queueing system. HMRC expect to be able to make the first payments under the Scheme by 30 April 2020, with payments being made within 4 – 6 working days following the submission of the claim. It has been suggested that claims will be dealt with in the order that they are received and as such early submission of a claim via the portal is highly recommended.
Employers with fewer than 100 furloughed employees, will have to enter details for each employee they are claiming for individually onto the portal. For employers with 100 or more employees, the details for all furloughed employees can be provided in one excel document which can be uploaded onto the system.
Agents who process PAYE can claim on behalf of employers under the Scheme, provided the agent does more than file the employer’s RTI returns.
Where there is more than one PAYE scheme which is eligible to claim under the Scheme, a separate claim will need to be submitted in relation to each Scheme.
DURATION OF THE SCHEME
The guidance continues to mention the possibility of the Scheme being extended beyond 31 May 2020. However, the Direction does not mention the possibility of extending the Scheme beyond this date. To the extent that employers will need to make redundancies or dismissal at the end of the Scheme, employers should start collective consultation with employees by 17 April 2020, where they have more than 100 employees.