On 20 April 2020 the Government’s Coronavirus Job Retention Scheme (the Scheme) opened for applications, aimed at securing the jobs and pay of thousands of employees faced with an immediate loss of income and/or redundancy due to the impact of the coronavirus on jobs and businesses.
The legal framework for the Scheme was set out in a Treasury Direction on 15 April, a legally-binding order from the Treasury to HMRC. The purpose of the Scheme, as stated in the Direction, is to reimburse employers for the cost of furloughing employees “arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease.” HMRC guidance on the Scheme has been expanded and republished a number of times since it was first launched.
On 12 May it was announced that the Scheme would be extended to the end of October 2020, but with some adjustments to allow furloughed workers to carry out part time work and for employers to contribute a proportion of the pay. Further details were announced by the Chancellor on 29 May, confirming that ‘flexible furloughing’ would be available from 1 July. Revised (and new) government guidance was published on 12 June to reflect the changes to the Scheme. A new Treasury Direction, covering the period 1 July to 31 October 2020 was issued on 26 June.
The Scheme allows an employer to designate employees as “furloughed”, which means they are on leave of absence with no work to do but remain on the payroll receiving a reduced amount of pay. An employee has to agree to be furloughed and any period of furlough started prior to 1 July 2020 had to be for minimum period of three weeks for the employer to claim reimbursement for the furloughed wage and associated costs referred to below. The original Treasury Direction specified that employer and employee had to agree in writing (which may be in electronic form) that the employee would cease all work in relation to their employment. The HMRC guidance subsequently clarified that the employer must confirm to the employee in writing that they have been furloughed, and keep a record of this for a period of five years. In addition, a collective agreement between an employer and a trade union is acceptable for the purposes of making a claim under the scheme.
From 1 July 2020, employers can start to furlough employees on a part time basis (‘flexible furlough’), while still claiming under the Scheme for those hours not worked. Only those employees who have already completed a minimum of three weeks’ furlough leave between 1 March and 30 June 2020 can be furloughed from 1 July (whether flexibly or full time). This means that the final date by which an employer could furlough an employee for the first time was 10 June 2020, unless the employee is returning from a period of maternity or other form of statutory parental leave, is a returning military reservist or has transferred to the employer as a result of a TUPE transfer after 10 June 2020.
Employers can use the HMRC portal to claim reimbursement of up to 80% of furloughed employees’ 'regular' monthly wage costs, currently up to £2,500 a month, plus the associated employer National Insurance contributions and statutory minimum employer pension contributions on the furlough pay. Deductions for income tax, employee National Insurance contributions and other deductions such as Student Loan repayments must still be made. Reimbursement can be applied for employees furloughed from the start of March 2020 until the end of October 2020. However, with effect from 1 August, employers will be required to contribute to the cost of the Scheme (see further details below).
- The Government guidance on the Scheme for employers is available here.
- The Government guidance for employees can be found here.
The key points about the Job Retention Scheme are as follows (subject to any future changes in Government guidance):
- the Scheme was made available to any UK employing organisation who started a PAYE payroll scheme on or before 19 March 2020 and has a UK bank account, including businesses, charities, agencies (who pay through PAYE) and public authorities. However, the Government did not intend the Scheme to be used by many public sector organisations, as most are continuing to provide essential public services. Those who receive public funding for staff costs are still expected to pay staff using that funding. It is also possible for administrators to access the Scheme, but only if there is a reasonable likelihood of the workers being rehired (for example following a sale of the business)
- furloughed employees must have been on PAYE payroll on 19 March 2020 (note this date was originally 28 February), and can be on any type of contract, including employees at all levels (full time and part time), those on agency contracts and zero-hour contracts. The Scheme can also be used for apprentices, workers, office holders, company directors and salaried members of LLPs, as well as salaried individuals who are directors of their own personal service company (PSC), provided they are paid via PAYE. Foreign nationals could be furloughed if they were on a PAYE payroll as at 19 March 2020. For further information on which employees are eligible see the Government guidance on which employees you can put on furlough
- the guidance was clarified to make it clear that an employer can claim under the Scheme in respect of employees transferred to the organisation under the TUPE or PAYE business succession rules after 19 March 2020. Employees of group companies with different PAYE schemes who were transferred into a consolidated PAYE scheme after 19 March were also covered
- employees that were made redundant or who left employment for other reasons on or after 28 February 2020 were also eligible for the Scheme if they were re-hired, even after 19 March 2020, but this was at the former employer’s discretion
- employees unable to work due to caring responsibilities as a result of the coronavirus could be furloughed, for example those who have to provide childcare. Those shielding in line with public health guidance, or who needed to stay at home with someone who is shielding, were also eligible
- employees who were furloughed under the Scheme prior to 1 July 2020 could not perform any work (including voluntary work) for the employer or a linked or associated organisation, but remained on the payroll
- furloughed employees can undertake training at the request of an employer, and must be paid at least the national minimum wage for the period of training (which would in most cases be covered by the furlough payment). Apprentices can continue to train whilst furloughed.
- furloughed employees are permitted to carry out volunteer work (for example under the Government’s emergency volunteer scheme) and are permitted to undertake paid work for other employers or organisations during any furlough period, subject to any restrictions in their contract of employment
- employers remain bound by all contractual and statutory responsibilities that they have towards their employees and accordingly had to seek and obtain agreement from any furloughed employee to designate them as such and to consent to the reduced pay and any benefits that apply to furloughed employees
- if employees are eligible for a period of statutory leave (maternity, adoption, paternity or shared parental leave), the normal statutory pay or allowance rules apply. As a result of amendment regulations in force from 25 April 2020, statutory pay entitlements for any period of parental leave should be calculated on the basis of their usual pay, not their furlough pay. According to the Government guidance, employers can claim through the Scheme only if they offer enhanced (earnings related) contractual pay to those taking such leave, and this is included as wage costs. Employees who return from a period of statutory leave should have their furlough pay calculated on the basis of their usual salary, not the pay they received while on statutory leave.
- The Scheme closes to new entrants from 30 June 2020. This means that only those who have already completed a full three-week period of furlough prior to 30 June are still eligible under the Scheme.
- This requirement does not apply to parents returning from a period of maternity or other form of statutory parental leave or to returning military reservists after 10 June 2020, who have not previously been furloughed. Employers will still be able to furlough such employees, provided that they have furloughed other employees prior to 30 June. Similarly, if a TUPE transfer takes place after 10 June and the transferring employees were previously furloughed by the transferor, they will be eligible to be furloughed by the new employer.
- From 1 July, furloughed employees can be brought back to work for any amount of time and on any work pattern, with the employer paying the individual for hours worked and claiming under the Scheme in respect of any hours not worked. Individuals can be rotated on and off furlough, or can continue to be furloughed full time as necessary.
- The maximum number of employees that employers can claim for at any one time after 1 July cannot exceed the maximum number they have already claimed for at any one time under the original Scheme. So if the employer has previously submitted claims for 30, 20 and 50 employees between March and June, the maximum number of employees the employer can claim for in a single claim after 1 July would be 50.
- Employers must agree any new flexible furloughing arrangement from 1 July with their employees and confirm it in writing, keeping a record of the agreement for at least five years.
- With effect from 1 August 2020, employers will be responsible for paying employers’ National Insurance Contributions and pension contributions for their furloughed employees, provided the amount claimed is above the threshold for these payments. They can still claim 80% of normal pay up to the cap of £2,500 under the Scheme, but the monthly cap will be proportionate to the hours not worked, so if an employee is working part time and is furloughed for the remainder of the week, the cap will reduce accordingly.
- From 1 September, the grant available under the scheme will reduce to 70% of wages, up to a cap of £2,187.50, for those hours the employee does not work. Employers will be required to pay NICs and pension contributions, plus 10% of wages, so that furloughed employees will still receive 80% of normal pay capped at £2,500.
- From 1 October, the employer’s contribution raises to 20%, with the grant reducing to 60% subject to a cap of £1,875 per month. The Scheme is due to close on 31 October 2020.
A summary of the changes to the employer contribution is set out below, based on an employee furloughed full time:
|Employer NICs and pensions contributions paid by?
|CJRS contribution to wages
||80% up to £2,500
||80% up to £2,500
||70% up to £2,187.50
||60% up to £1,875
|Employer contribution to wages
||10% up to £312.50
||20% up to £625
||80% up to £2,500
||80% up to £2,500
||80% up to £2,500
||80% up to £2,500
Holiday continues to accrue while an individual is furloughed, and employees can take holiday during a period of furlough without the holiday bringing the furlough period to an end. Note that it is open to the employer and employee to agree to vary holiday entitlement as part of the furlough agreement, subject to the minimum statutory entitlement of 5.6 weeks. BEIS issued new guidance on holiday entitlement during coronavirus, including in respect of those workers who have been furloughed, on 13 May 2020.
The guidance clarifies that under the Working Time Regulations 1998 (WTR) holiday must be paid at the individual’s normal rate of pay (or calculated on the basis of the average pay received by the individual over 52 weeks, if the rate of pay varies). This means that employers must ‘top up’ the 80% furlough grant so that the individual receives 100% of their usual pay during any period of holiday.
The BEIS guidance also suggests that employers can require workers to take holiday during a period of furlough by giving notice, but qualifies this by stating 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 worker from resting, relaxing and enjoying leisure time, which is the fundamental purpose of holiday”. This is potentially unhelpful, since it provides no clear guidance on whether holiday taken during furlough will qualify as annual leave within the meaning of European working time rules. The guidance itself has no legal effect, so an employment tribunal will reach its own conclusion if this point is challenged at a later date.
The Working Time Regulations 1998 have recently been amended to allow for the carry over of annual leave for two years in respect of holiday that workers are unable to take due to the COVID-19 crisis and an employer will have to have a reasonable reason to refuse any future holiday requests. Employers of certain key workers or in businesses that are facing a significant increase in demand may want to defer holiday for those workers during the current period, and can consider giving notice to employees to cancel any pre-booked periods of holiday. The guidance sets out the factors employers should take into account in deciding whether it is not reasonably practicable for a worker to take some or all of the statutory basic four weeks’ annual leave. Employers may also consider deferring holiday if they are unable to fund the 20% difference between furlough pay and holiday pay (but note, the worker is entitled to be paid in full for any accrued but untaken holiday on termination). If holiday is carried forward, employers should give workers the opportunity to take holiday at the earliest practicable opportunity. The Acas guidance on holiday and leave during coronavirus is clear that employers should still be encouraging workers to take paid holiday throughout the year if possible.
Making a claim
The Government has published a step-by-step guide for employers on making a claim through the HMRC portal, together with guidance on the details needed to make a claim.
Employers must provide HMRC with a number of details relating to each furloughed employee and calculate the amount to be claimed. To submit a claim employers need:
- to be registered for PAYE online
- their UK bank account and sort code
- their PAYE reference number
- the number of employees being furloughed
- National Insurance numbers for those being furloughed
- names and payroll numbers of the employees
- the claim period (start and end date)
- the full amount claimed for, including employer National Insurance contributions and minimum pension contributions
- contact name and telephone number
- either the employer’s name, their Self Assessment unique taxpayer reference, Corporation Tax unique taxpayer reference or company registration number.
From 1 July 2020, claim periods under the Scheme must start and end within the same calendar month, due to the fact that the Scheme rules (and the employer’s contribution) will change each month. Each claim must cover a period of at least seven calendar days, unless the claim includes a shorter ‘orphan period’ of days falling at the beginning or end of a month. Claims for periods ending on or before 30 June must be submitted by 31 July 2020.
HMRC will retain the right to retrospectively audit all aspects of the claim, and may withhold payments or require them to be repaid in full if the claim is based on dishonest or inaccurate information or found to be fraudulent. Employers should therefore retain all records and calculations used in respect of any claim for at least six years.
If an employer makes an error in a claim that has resulted in an over-claimed amount, this must be paid back to HMRC. The amount over-claimed can be declared as part of a future claim, which will then be reduced to reflect the overpayment. Otherwise, employers are required to contact HMRC to arrange repayment.
The Pensions Regulator published new guidance for employers on automatic enrolment and pension contributions in light of COVID-19. This confirmed that the automatic enrolment duties continue to apply to those staff who are furloughed. From 1 August , employers are required to pay auto-enrolment pension contributions (as well as employer NICs) as these will no longer be funded under the Scheme. Any contributions exceeding the statutory minimum (3%) are not funded by the Scheme.
Calculation of the claim
HMRC issued separate detailed guidance on calculating how much you can claim together with example calculations and an online calculator, to assist in calculating claims, including in respect of those on flexible furlough In summary this is as follows:
- for salaried employees, the employee’s actual salary before tax, as at 19 March 2020 should be used to calculate the 80%. Note that if the claim has already been calculated on the basis of pay as at the original date of 28 February 2020, this calculation can still be used
- for employees whose pay varies, if they have been employed for a full twelve months prior to the claim, you can claim for the higher of either the same month’s earnings from the previous year or average monthly earnings from the 2019-20 tax year. If they have been employed for less than a year, you can claim for an 80% average of their monthly earnings since they started work. For those who only started in February 2020, pro-rata their earnings so far to claim
- for furloughed workers who are only entitled to be paid the NLW/NMW, the Scheme will pay 80% of their salary, which will be below NLW/NMW levels
- the calculation can include regular payments such as non-discretionary overtime and commission payments, but not payments made at the discretion of the employer or client such as discretionary bonuses, tips or discretionary commission payments. The reference salary should not include the cost of any non-monetary benefits, such as taxable benefits in kind, or benefits provided through salary sacrifice schemes. The entire grant received by the employer must be used to pay the employee’s furlough pay and not used towards the provision of benefits or a salary sacrifice scheme. HMRC has agreed that COVID-19 counts as a ‘life event’ that can warrant changes to salary sacrifice arrangements, meaning that the employee could choose to opt out of the salary sacrifice arrangement to maximise the amount received through the furlough scheme
- the latest Treasury Direction sets out detailed formula for calculating claims under flexible furlough arrangements. To work out the amount to be claimed, employers will first need to deduct the number of hours worked during the claim period from the individual’s usual hours. The number of hours remaining are then used to calculate the amount claimed. The calculations are extremely complex, and will change over forthcoming months as the level of the employers’ contribution increases.
Self-employed individuals are not covered by this Scheme but the Government introduced a separate scheme to assist a significant number of the self-employed by paying a lump sum of up to 80% of their earnings (calculated by reference to their earnings set out in their tax returns for the 2018/19 tax year and capped at £2,500 per month). Those self-employed who have earned in excess of £50k for the 2018/19 tax year will not qualify. The self-employed scheme is now open for online applications for those who are eligible; claims must be made by 13 July 2020. Those who are eligible and who have claimed by 13 July in respect of the first grant, will be able to make a further claim in August 2020. The Government has indicated that grants will be paid within six working days of the application.
Further details of the Self-employment Income Support scheme are available here.
Employers who have elected to furlough any part of their workforce should ensure they are complying with all the necessary requirements and, crucially, plan ahead for what might happen when the Scheme comes to an end.
The Government is now actively encouraging workers to return to work if their workplace is open. See our previous article on returning to work.
Please contact your usual Birketts employment lawyer for advice on the law and the procedures you will need to follow. We will continue to monitor the Job Retention Scheme closely going forward and provide further details when they are available.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at June 2020.