UPDATE: Following announcements on Friday 29 May 2020, we produced an updated article.
We have prepared these FAQs to help employers who are considering taking advantage of the Coronavirus Job Retention Scheme.
When will the Scheme start?
The Scheme is expected to be up and running “by the end of April” and is stated to be “designed to support employers whose operations have been severely affected by coronavirus.” Administrators may also access the Scheme, as long as the various rules that apply in an insolvency context apply, but the Guidance is silent as to whether the Scheme will apply in all insolvency situations.
What amounts are covered?
Employers need to make a claim for wage costs through this scheme.
Employers will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included.
At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.
For full time and part-time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.
If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, employers can claim for the higher of either:
If the employee has been employed for less than a year, employers can claim for an average of their monthly earnings since they started work.
If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
Once the employer has worked out how much of an employee’s salary they can claim for, they must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.
Employer National Insurance and Pension Contributions
All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.
You can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying those wages.
You can choose to provide top-up salary in addition to the grant. Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded through this scheme. Nor will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards).
National Living Wage/National Minimum Wage
Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working.
Therefore, furloughed workers, who are not working, must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.
However, if workers are required to, for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
What evidence of cash flow problems is required to access the Scheme, and do employers have to demonstrate that their financial distress is related to COVID-19?
The HMRC guidance states that the Scheme “is designed to support employers whose operations have been severely affected by coronavirus.” There is no reference in the Guidance to employers certifying that they are unable to pay staff costs because of the COVID-19 crisis or provide any form of evidence of their financial distress, or potential redundancies.
The Department for Business, Energy and Industrial Strategy Guidance states “Under the Coronavirus Job Retention Scheme, all UK employers with a PAYE scheme will be able to access support to continue paying part of their employees’ salary for those that would otherwise have been laid off during this crisis.” (our emphasis). Employers should also consider the potential regulatory implications of accessing the scheme, for example, where there are capital requirements, and the reputational issues where they would not otherwise publicise the fact of the necessity of impending lay-offs.
Which employers can access the Scheme?
The Guidance states that “Any UK organisation with employees can apply, including businesses, charities, recruitment agencies (agency workers paid through PAYE), and public authorities.”
It is likely that the Scheme will not be used by many public sector organisations. The section headed “Public Sector Organisations” explains: “Where employers receive public funding for staff costs, and that funding is continuing, we expect employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them. This also applies to non-public sector employers who receive public funding for staff costs.”
What are the timing restrictions for employees and businesses?
The Scheme is open to all UK employers operating PAYE on 28 February 2020 (the “Key Date“) and furloughed employees must have been on the PAYE payroll on the Key Date to qualify. Employees “hired” after the Key Date cannot be furloughed/claimed for under the Scheme.
Employees already on unpaid leave cannot be furloughed unless they were put on unpaid leave after the Key Date.
The Scheme also covers employees who were made redundant since the Key Date if they are re-hired. There is no obligation on an employer to re-hire employees that have been made redundant. Similarly, there is no obligation on an employee to agree to the withdrawal of a redundancy notice.
Are casual employees included?
The Scheme covers not just full and part-time employees but also employees on agency contracts and flexible/zero-hours contracts. Apprentices will also be covered as long as they have been on the PAYE payroll on the Key Date.
Can a furloughed employee carry out any work?
Employees cannot carry out any work for their employer while furloughed, although they can take part in volunteer work or training (as long as it doesn’t generate revenue for the employer). However, if employees are required by their employer to undertake training, they must be paid at least the National Minimum Wage/National Living Wage for the time spent.
Does the Scheme cover short-time working?
The Scheme does not cover short-time working.
Are employees on sick pay or other leave covered?
Employees on sick leave or self-isolating should receive statutory sick pay as a minimum but can be furloughed after this.
If employees then need to self-isolate or become unwell once they are on furlough, they are entitled to receive statutory sick pay as a minimum.
For employees on family-friendly leave/pay whilst the Guidance is not entirely clear it appears that where an application for furlough is made in respect of an individual on family leave, the normal rules apply to statutory pay, and any enhanced pay provided is included in the “wage costs” employers can recover.
Do employees need to agree to being placed on furlough?
Yes, employees need to agree. Employers will need to make any changes to employees’ employment contracts (which is understood to mean to change their status to furloughed and any related changes, for example, to benefits) by agreement unless they have a contractual right to lay off.
To be eligible, employers must write to their employees to confirm they have been furloughed and keep a record of this.
Are collective consultation obligations triggered?
The Guidance says that if sufficient numbers of staff are involved “it may be necessary to engage collective consultation processes to procure agreement”. The law in this area is complex and advice should be taken. There may be ways of avoiding triggering the collective consultation obligations if employers seek volunteers or obtain the agreement of sufficient numbers of staff to be placed on furlough.
Is a selection process required?
It may be necessary to use a selection process when deciding who should be designated as a furlough worker. When selecting employees to “offer furlough to”, the Guidance states that equality and discrimination laws apply in the usual way. This could include the justification defences where offers are made to older employees or vulnerable employees who the employer would like to protect from exposure to others.
How long can employees be furloughed?
The minimum length of time an employee can be furloughed for is three weeks. The Scheme is currently operational for at least three months(until end of May 2020), however, may be extended. Claims can be backdated to 1 March 2020.
Swapping employees
There is nothing in the Guidance to suggest that employers cannot swap employees in and out of furlough (subject to the minimum three-week furlough period).
Can employees be made redundant at the end of the Scheme?
Yes. When the Government ends the Scheme, employers will have to decide whether furloughed employees can return to their duties or will have to be made redundant.
Rights during furlough
Employees who are furloughed “have the same rights as they did previously” including unfair dismissal and redundancy protection. No specific reference in the Guidance is made to holiday entitlement.
How should furlough payments be treated by the business?
Payments received by businesses under the Scheme must be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes.
Can the Government clawback payments?
The Guidance is silent on this save that it states “HMRC will retain the right to retrospectively audit all aspects of your claim”.
Are tips part of an employee’s regular wage?
This will depend on how often they receive tips, but we are awaiting further guidance on this.
Can furloughed employees work elsewhere?
This will also depend on whether an employer has an exclusivity clause in the contract of employment. If an employee has two jobs, they can continue to work in one role while being furloughed by their other employer from their other role, or they can be placed on furlough by both employers. If they want to take a second job, then it may be advisable to obtain prior consent from the employer.
If the relevant employees’ contracts include a traditional lay off clause can the employer rely on that to enforce furlough without agreement?
The Guidance is silent as to whether an employer may rely on a contractual lay off clause.
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