On the 26 March 2020 the Government announced the details of its unprecedented Coronavirus Job Retention Scheme (the scheme/CJRS) in response to the disruption caused by COVID-19. Further information in the form of guidance was published by HMRC on 4 April in order to clarify how the scheme will operate. This has been updated numerous times and the latest update to the Check if you can claim for your employees’ ages through Coronavirus Job Retention Scheme guidance was made on 14 May. Further details are expected at the end of May.
On 15 April 2020, the Chancellor of the Exchequer issued a direction to HMRC containing authority and instructions for making the payments under CJRS. This is likely to be the final guidance on how the scheme will work.
The on-line portal for employers to start making claims for reimbursement for furlough payments made to PAYE employees and workers opened on 20 April.
Here is the link to claim:
You will need to have a Government Gateway User ID.
To use the scheme the following steps must be taken:
1. Check if you can claim
2. Calculate 80% of your employees wages – https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme
3. Claim for your employees’ wages on line – https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme
4. Report a payment in PAYE Real Time Information – https://www.gov.uk/guidance/reporting-payments-in-paye-real-time-information-from-the-coronavirus-job-retention-scheme
Employers with less than 100 employees will need to enter details of each employee (name, NI number, claims amount and claim amount). Employers more than 100 staff can upload a spreadsheet, containing the above information.
Originally intended by the Government to end 3 months from 1 March to 31 May, in the light of the need to maintain social distancing, the scheme has now been extended to 31 October 2020. The support available via the scheme will remain the same until July 2020. Employers can use the scheme anytime.
From August, to October 2020, the scheme will become more flexible, allowing some employees to return to part-time work and requesting increased percentage contributions to salaries from employers. More detail on this will be announced by the end of May.
The additional guidance called Claim for wages through the Coronavirus Job Retention Scheme says that when the Government ends the scheme, employers must make a decision, depending on their circumstances, as to whether employees can return to their duties. If not it may be necessary to consider termination of employment (redundancy).
Under the scheme Employers will be able to claim 80% of furloughed employees’ usual monthly wage costs, up to a limit of £2,500 per month, per employee. From the day that the employee finishes work and starts furlough, not when the decision is made or when they are written to confirm their furlough status; assuming that they have first given their agreement. Employers can, if they wish, top up the grant they receive from HMRC up to 100% of employees’ pay and pension contributions. This level of support from HMRC will remain available until July 2020.
From 31 July to 31 October 2020 there will be no reduction in the 80% salary that furloughed employees receive, but employers will be asked to provide a contribution to these salaries. Further details on the expected contribution will be provided at the end of May.
For employees who are on fixed salaries, their payroll data used for real time information (RTI) submission by 19 March will be used as the basis for the grant. For employees whose pay varies from week to week or month to month, the calculation will be based on the higher of the pay paid in the same period in the previous year or average monthly earnings from the 2019-20 tax year.
Reimbursement can include: wages, past overtime, fees and compulsory commission payments. Compulsory commission payments will cover commission and bonuses that employees are contractually entitled to. The Government has also clarified what will not be reimbursed under the scheme, which includes payments such as discretionary bonuses, tips, discretionary commission and non-monetary benefits.
Employers can also reclaim employers National Insurance Contributions and pension payments at the (minimum auto-enrolment employer contribution) 3% rate of the furlough salary, not normal salary. Employees will be taxed on the furlough payments and receive the payment net of employee NICs’ as well.
Employers must ensure that they include the details of all of the employees they want to claim for in each payroll period. They cannot later go back and amend or make another claim for the same period.
Salary sacrifice schemes
Employers cannot include salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay. The entirety of the grant received to cover the employees subsidised furlough pay must be paid to them. No part of the grant should be netted off to pay for the provision of benefits or a salary sacrifice scheme. Where the employer provides benefits to furloughed employees, including through a salary sacrifice scheme, these benefits should be in addition to the wages that must be paid under CJRS. Normally, an employee cannot switch out of a salary sacrifice scheme unless there is a life event. Covid-19 is regarded as a life event by HMRC that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.
Who can be furloughed?
The scheme does not have to be limited to those who would otherwise be made redundant or laid off. It applies to anyone furloughed by reason of the circumstances as a result of COVID-19.
Employees – fixed-term and permanent, apprentices, agency workers (including those employed by umbrella companies), personal service workers and salaried members of an LLP – are all eligible under the scheme.
For fixed-term workers their contracts can be renewed or extended before their expiry during the furlough period so long as an RTI payment was notified to HMRC prior to 20 March 2020.
Workers on fixed term contracts which expired after 28 February or 19 March can also be re-employed and then put on furlough if either:
• their contract expired after 28 February 2020 and an RTI payment submission for the employee was notified to HMRC on or before 28 February 2020; or
• their contract expired after 19 March 2020 and an RTI payment submission for the employee was notified to HMRC on or before 19 March 2020.
But workers whose contacts started and ended between 28 February 2020 and 19 March 2020 will not be eligible.
Cut off date
Provided an employee was on the PAYE payroll on 19 March 2020 the scheme can be used to cover their wages.
Minimum periods and rolling furlough
An employee can be furloughed multiple times, so long as each furlough period is at least three weeks. Each period of furlough can be extended by any amount of time whilst an employee is on furlough.
The scheme also applies to those who were placed on unpaid leave after 28 February or before then, if it was agreed that they would return at a certain point three weeks before 30 June when the scheme (as now extended) ends.
Employees you can claim for
Essentially if your employee was employed on 19 March and was on your payroll on or before 19 March 2020, which means that an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 19 March then you can claim for them.
If you had employees who were employed on 28 February, but not 19 March, then the following table has been provided by the latest guidance:
|Was the employee employed as of this date?
||Date RTI submission notifying PAYE payment made to HMRC
|28 February 2020
||On or before 28 February 2020
|28 February 2020
||On or before 19 March 2020
|28 February 2020
||On or after 19 March 2020
|19 March 2020
||On or before 19 March 2020
|19 March 2020
||On or after 19 March 2020
|On or after 19 March 2020
||On or after 19 March 2020
So, it can be used for employees who have been made redundant or who resigned on or after 28 February 2020 provided they are re-employed, before or even after 19 March 2020. However employers should be mindful of cash flow issues this could create if the scheme payments do not come through until June, (as estimated). There is also a small risk that HMRC may later determine that reinstating employees who had resigned in order to take advantage of the scheme is fraudulent and refuse to reimburse wages paid under these circumstances.
Working during furlough
In order to be eligible for this scheme, the employee must not undertake any work whatsoever for their employer in terms of delivering services or generating revenue for their business or a linked organisation to the business. By employee and union representatives can carry out duties and activities for individual or collective employee representation purposes, provided they do not deliver services or generate revenue for their employer.
But they can undertake voluntary work for another organisation or engage in training programs. The only exception to this rule banning work is in the case of company directors or office holders, who are still permitted to carry out their statutory duties, such as passing board resolutions, approving accounts or submitting annual returns.
HMRC have set up a hot-line for employees to report abuses of the scheme, such as where they are required to work for their employers whilst on furlough. However, those employees who have other jobs or wish to secure other employment having been permitted to do so by their furloughing employer stand to gain from the system, to the tune of their new pay from other employment and their furlough payments up to £2,500 or 80% of their pay, whichever the lower.
Short time working
If the employee has agreed to be working reduced hours (short time working), usually for reduced pay because of this crisis, rather than existing part-time employees, they will not be eligible for the scheme.
Self-isolating or shielding
If an employee is self-isolating in accordance with Government guidance because they are showing symptoms or live with someone who has symptoms of COVID-19 then the individual should receive Statutory Sick Pay (‘SSP’) from day one as opposed to day four under new amendments to the statutory sick pay regulations. Although an employer can seek to bring them off sick leave and offer to furlough them instead to take advantage of the grant.
People who are extremely vulnerable such as those with heart conditions, respiratory problems or organ transplant beneficiaries and must therefore shield at home and under amendments to the Statutory Suck Pay Regulations 1982 as amended they are entitled to Statutory Sick Pay as they are deemed to be incapable of work, even though they may be capable of working from home. Whilst the SSP regulations say they are entitled to statutory sick pay, the guidance says that they can be furloughed too.
The scheme is open to all UK employers that had an active PAYE payroll scheme on 19 March 2020 and have a UK bank account. This includes businesses, charities, recruitment agencies and public authorities (other than those who continue to receive public funding for staff costs).
Public sector employers
Whilst open to public sector organisations, it is expected that not many will use the scheme. This is due to most public sector employees providing essential public services during the pandemic. The Government has confirmed that any public sector organisations who receive public funding to pay wages are expected to continue paying their staff in the usual way so long as their funding continues. However, it is recognised that a small number of organisations not entirely funded by the government will not be able to redeploy staff to assist with the pandemic response and may therefore furlough staff if appropriate.
Agreement to be furloughed
Furlough must be agreed between employer and employee. This arrangement will be an agreed variation of their contract of employment.
Employers wishing to benefit from the scheme must confirm in writing to the employee that they have been furloughed and keep a record of the written communication for at least 5 years. The latest guidance states that a collective agreement reached between an employer and a trade union is acceptable as notification of furlough.
There is currently some confusion about whether an employee’s consent needs to be in writing. Until this is cleared up, our advice is to seek agreement in writing from the employee prior to furlough starting.
When deciding which workers to offer furlough leave to, laws around contracts of employment, equality and discrimination will apply as they ordinarily do.
If more than 20 staff could face redundancy if they do not agree to go on furlough, the employer will have to consult with elected employee representatives or a union where one is recognised.
Tax treatment of the CJR Grant and record keeping
Payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income and Corporation Tax purposes.
Records of claims made must be kept for 6 years.
Whilst the employer guidance on CJRS does not at all deal with the issue of holiday leave and pay, the guidance for employees does. It says that employees who are furloughed can continue to accrue holiday leave as per their contracts of employment. All employees are entitled to 5.6 weeks (28 days including public holidays) leave under the Working Time Regulations (WTR), although for part-time employees this is pro-rated. Because the WTR prescribe that leave must be paid at normal pay rates.
This means that during furlough periods lasting at least 3 weeks, employees who take holiday must receive their normal pay for holiday days, not furlough pay. This includes those who have taken Good Friday, Easter Monday and VE day (8 May) as leave, if they normally take those as leave days.
The WTR allow employees who are unable to take their leave for any reasons relating to COVID--19 to roll over that entitlement for up to two years, if it was not reasonably practicable for them to take leave.
The CJRS guidance says that employers can restrict when holiday can be taken and the WTR say that employers can designate periods of leave by giving employees twice the amount of holiday days to be taken as prior notice.
The Government has now produced Holiday Entitlements guidance on 13 May 2020. It deals with some of the topics that the CJRS employee guidance covers (above) but in addition:
- Confirms that furloughed employees can take holiday without bringing the furlough period to an end;
- Suggests that employers can require employees to take holiday while on furlough, but notes that “the employer should consider whether any restrictions the worker is under, such as the need to socially distance or self isolate, would prevent the employee from resting, relaxing and enjoying leisure time, which is fundamental purpose of holiday.” The holiday guidance does not give a clear indication on whether holiday taken during furlough meets the definition of annual leave set out in EU case law. The European Court of Justice has always followed the mantra that such leave must enable the worker to rest and to enjoy a period of relaxation and leisure.
- On holiday pay, it states that in addition to normal pay being paid to the holidaying furloughed employee (not at the furloughed rate), employers can claim back up to 80% or £2,500 if lower from HMRC under the CJRS.
- Indicates that, when considering whether it was not reasonably practicable for a worker to take leave, for the purposes of whether a worker can carry forward or roll over unused holiday for up to 2 years, an employer should consider factors such:
- a) as whether the business has faced a significant increase in demand due to coronavirus that would reasonably require the worker to continue to be at work and cannot be met through alternative practical measures;
- b) the extent to which the business’s workforce is disrupted by the coronavirus and the practical options available to the business to provide temporary cover of essential activities;
- c) the health of the worker and how soon he or she needs to take a period of rest and relaxation;
- d) the length of time remaining in the worker’s leave year, to enable the worker to take holiday at a later date within the leave year;
- e) the extent to which the worker taking leave would impact on wider society’s response to, and recovery from, the coronavirus situation; and
- f) the ability of the remainder of the available workforce to provide cover for the worker going on leave.
It notes that employers should do everything reasonably practicable to ensure that the worker is able to take as much of his or her leave as possible in the year to which it relates and that, where leave is carried forward, it is best practice to give workers the opportunity to take holiday at the earliest practicable opportunity.
6. As for furloughed workers, the holiday guidance notes that they will be unlikely to need to carry forward statutory annual leave as they will be able to take it during the furlough period, so long as the employer pays the correct rate of holiday pay. However, if, due to the impact of coronavirus on operations, the employer is unable to fund the difference between furlough pay and holiday pay, this would be likely to make it not reasonably practicable for the worker to take the leave, enabling the worker to carry it forward under the Regulations. Whilst many furloughed staff will argue that they have not been able to enjoy the full benefits of holiday during lock down, over the past 6 weeks, it has still been possible for them to exercise out doors and engage in other leisure activities, albeit in a restricted way. As lock down is eased when more freedoms to get out and about are added, so the argument that furloughed workers cannot take holiday during all or some of the potential 8 months maximum on furlough until 31 October will hold less water.
The guidance does deal with national living/minimum wage obligations by making it clear that whilst those on the NMW/NLW can receive less than the prescribed hourly rates during furlough, if they engage in training then this is treated as working time and must be paid at the NLW/NMW relevant rates.
For staff that have been TUPE transferred to a new employer after 19 March 2020, their new employer can claim under the scheme and furlough those staff.
© Thomson Snell & Passmore LLP