On Friday 20 March 2020 the Chancellor announced further financial support measures to protect employees during the COVID-19 outbreak. While these provide some relief for employers, the lack of detail at present leaves many questions unanswered.
What we know
The government will set up a new coronavirus job retention scheme. Any employer in the UK will be eligible for the scheme.
The scheme will be available in respect of those employees that would otherwise have been laid off during the outbreak, who for the purposes of the scheme are described as furlough workers. We presume that this means both those employees who would have been made redundant as well as those temporarily laid off where the employer has the contractual right to do so.
In order to access the scheme, employers will need to:
- Decide which of their employees are furloughed workers;
- Notify those employees that they are furloughed workers – it may be necessary to agree this with them as it will be a change to their employment status. We presume that this will be the case where there is no contractual right to remove work, reduce pay or change their status in the contract;
- 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 workers salary up to a total of £2,500 a month. Employers can choose whether to top up the remaining 20% of salaries, although it is difficult to see many employers who will, in these times, be able to do so.
The employee remains employed by the employer during the furlough period (presumably accruing statutory annual leave, contractual annual leave unless the employer confirms otherwise and continuity of service etc) and cannot carry out work for the employer during this period. Therefore, employees who have agreed to a temporary reduction in their hours but are carrying on working would not be eligible to be furlough employees. Presumably full-time furlough employees will also be prevented from working for another employer during this period (particularly where they are prevented from working elsewhere under the terms of their contract of employment) or holiday.
However, whether this can be effectively policed during the crisis remains to be seen, although HMRC should have access to the necessary information to make this possible.
The scheme is to be backdated so that it can cover the costs of wages from 1 March 2020. It will initially be open for three months. Employers will then need to see whether or not the scheme is extended.
What we don’t know
- HMRC are currently taking steps to set up the necessary infrastructure to allow online applications to the coronavirus job retention scheme with the intention that the first grants will be paid within weeks. When this will actually be completed and whether this can be achieved is as yet unknown. So what should employers be doing in the meantime? We have set out our thoughts below.
- Given the scheme is to be backdated to 1 March, this suggests it is designed to cover the cost of any employees already made redundant from that date. However, in order to take the benefit of the scheme, does this mean employers will need to re-engage those staff? Presumably this will be the case since the intention behind the scheme is to ensure jobs are retained while this crisis lasts (or at least while the government is prepared to operate the scheme).
- The scheme is only a reimbursement, so presumably this means employers are required to make the initial payment to employees and then claim it back through the online portal. This won’t help to ease cash flow struggles for businesses during this time, particularly if it takes several weeks for the online portal to be set up. However, the business interruption loan scheme also announced by the government may ease this burden for some businesses.
- What exactly is reimbursed? The guidance makes reference to 80% of workers’ salaries. Is this based on net monthly income or the gross amount? Will employers have to continue pension contributions and employer NICs? If employees are not working again presumably there would be no entitlement to overtime or commission payments?
- There also appears to be a divergence between those employees who are being made to self-isolate and who will therefore only receive statutory sick pay (SSP) (unless the contract also provides for contractual sick pay in these circumstances) and those who are furloughed and therefore will receive 80% of their wages. Could this de-incentivise employees who should self-isolate but who anticipate that they will be furloughed following the self-isolation guidance?
- Is it possible for an employee to be designated as a furlough employee but, at some later point, to be returned to work where business needs change for a short time but then put back onto furlough leave? Again, there is no detail on this to date but we would like to think this would be possible given that any periods of work when the employee is not furloughed would reduce the bill for the government.
So what should employers do now?
The sensible approach would seem to be to start identifying who are your potential furlough employees and discuss this with them to seek their agreement, documenting this where agreement is reached. There is no detail yet on what agreement means but if the alternative is redundancy our view is that employees are likely to accept being designated as furlough employees and that a signed letter confirming their agreement to this and their understanding of what this means for them would be a good starting place.
The option then seems to be to send those employees home paying 80% of their normal basic gross salary less deductions for tax and NI with the intention of recovering this once the online portal is open.
What else is the government doing?
The government has also promised to bring in legislation to allow small and medium sized UK businesses and employers to reclaim SSP paid for sickness absence due to COVID-19.
The refund will cover up to two weeks’ SSP per eligible employee who has been off work because of COVID-19 (not for any other reason). A rebate scheme is currently being developed.
This will be available only to employers with fewer than 250 employees (based on the number of people employed as of 28 February 2020). Employers will have to reclaim any SSP paid to employees as a result of absence due to COVID-19. The eligible period for the scheme will commence the day after the regulations on the extension of SSP to those staying at home comes into force.
Employers need to maintain records of staff absence and payments of SSP but employees do not need to provide a GP fit note. Instead, anyone who has been advised to self-isolate either because they have symptoms or they live with someone who has symptoms is now able to access an isolation note from NHS 111 online once they are absent for seven days or more (the first seven days being ones for which they can self-certify).
For the self-employed, the government has agreed to defer income tax payments due in July 2020 under the self-assessment system to January 2021 and is increasing access to universal credit for those self-employed who are off-sick or required to self-isolate.
This article is up to date as of Monday 23 March 2020.
We are hoping that further details regarding the coronavirus job retention scheme will be published shortly and we will provide further updates on the scheme once these become available.