On 20 March 2020 the Government announced its Coronavirus Job Retention Scheme (the Scheme), 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. HMRC published further guidance on the Scheme on 26 March 2020 for employers and employees and subsequently also announced changes to the Working Time Regulations 1998 affecting carry over of annual leave.
The Scheme anticipates that an employer will be able to choose to designate an employer as “furloughed” which will mean they are on leave of absence with no work to do but remain on the payroll receiving a reduced amount of pay. An employee will have to agree to be furloughed and any period of furlough must be for minimum period of three weeks for the employer to claim reimbursement for the furloughed wage and associated costs referred to below.
Employers will be able to use a new HMRC portal to claim reimbursement up 80% of furloughed employees’ monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and statutory minimum employer pension contributions on that wage. We expect the Scheme portal to be up and running by the end of April but reimbursement can be applied for employees furloughed from the start of March 2020 until end of May 2020 (it is of course possible that the Government may extend this period).
So far as we know the key points about the Job Retention Scheme are as follows (subject to any changes in Government guidance):
- The scheme will be available to any UK employing organisation who started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account, including businesses, charities, agencies (who pay through PAYE) and public authorities. It will also possible for administrators to access the Scheme.
- Furloughed employees must have been on PAYE payroll on 28 February 2020, 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. Employees that were made redundant after 28 February 2020 can also be eligible for the Scheme if they are re-hired.
- Employees who are furloughed under the Scheme will not be able perform any work for the employer, but will remain on the payroll. For employees who are working on reduced hours for reduced pay, they will not be eligible for the Scheme. Furloughed employees may it seems be able to volunteer (for example under the Government’s emergency volunteer scheme) or provide work for other employers or organisations during any furlough period;
- Employers remain bound by all contractual and statutory responsibilities that they have towards their employees and accordingly will have to seek and obtain agreement from any potentially furloughed employee to designate them as such and to consent to the contractual changes to the reduced pay and any benefits that apply to furloughed employees.
- An employer wishing to designate 20 or more employees as furloughed in any single establishment within a period of 90 days will have to consider and comply with the additional collective consultation obligations, which may be circumscribed in some cases by the “special circumstances defence”. A form HR1 should also be submitted to the Government. In general all existing employment law principles continue to apply and legal advice should be sought.
- HMRC has also provided guidance to specifically address the following scenarios:
- Employees on unpaid leave cannot be furloughed unless they were placed on unpaid leave after 28 February 2020.
- Employees on sick leave or self-isolating should get Statutory Sick Pay during any sick pay period or period of required self isolation but can be furloughed after this.
- Employees who have more than one employer can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
- Employees can take part in volunteer work or training while being furloughed, as long as it does not provide services to or generate revenue for, or on behalf of his/her employer.
- Employees who are eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal statutory pay or allowance rules apply. Employers can claim through the scheme, only if they offer enhanced (earnings related) contractual pay to women on Maternity Leave, and this is included as wage costs. The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.
Importantly, the current guidance is silent as to whether employees’ holiday pay can be claimed if they are on furlough - we do not yet know whether their holiday pay will be reimbursed to the employer under the Scheme, i.e. whether employers can only claim reimbursement of wages from the Scheme if their employees are on furlough. It is hoped that the up-coming bank holidays will not break the furlough period (a minimum of three weeks furlough being needed to claim for any furlough payment in respect of an employee). We urgently require more Government guidance on the effect of holiday on the reclamation of furlough grants.
What is clear is that the Working Time Regulations 1998 have just been amended to allow for carry over of annual leave for two years in respect of holiday lost due to the COVID 19 crisis and an employer will in future have to have a reasonable reason to refuse any future holiday requests. So it seems that the Government anticipates furloughed employees accruing holiday during periods of furlough which they will want to take later on. Employers will not however wish employees to take lots of accrued holiday once the world starts to return to normal and things get busy again – hence the new carry over provisions.
New HMRC portal
There will be a new HMRC portal through which the employer can submit information about its furloughed employees.
To claim, employers will need to provide HMRC with a number of details relating to each furloughed employee and calculate the amount to be claimed. HMRC will retain the right to retrospectively audit all aspects of the claim.
Employers can only claim for an employee who has been furloughed for a minimum of three weeks. Employers can backdate a claim from 1 March 2020 if applicable.
Where an employer pays enhanced pension contributions it will need to consider taking pensions advice on any options around reducing contributions to the statutory minimum during any period of furlough leave.
Calculation of the 80%
We understand that wages are to be calculated as follows:
- For salaried employees, the employee’s actual salary before tax, as of 28 February 2020 should be used to calculate the 80%.
- 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 average of their monthly earnings since they started work. For those who only started in February 2020, use a pro-rata for their earnings so far to claim.
- For furloughed workers who are only entitled to the NLW/NMW, the Scheme will pay the lower of 80% of their salary which will be below NLW/NMW.
The employer can choose to top up pay to 100%, but the Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded and reimbursed through this Scheme.
It is clear that the Scheme is only a temporary measure from the Government to try and safeguard jobs. In many cases the Scheme will not be cost neutral and therefore employers should consider their cash flow and the long-term impact when making the decision to whether to put employees on furlough, whether and to what level and for what period to top up and if or when to make employees redundant (with associated redundancy and accrued holiday pay and notice costs). It remains a discussion point as to whether a Tribunal would make an unfair dismissal finding if an employer didn’t properly consider furloughing employees before making them redundant.
Employees of PSCs
In theory employees of a personal service company (PSC) can be furloughed by their company subject to the usual Scheme rules but furlough pay will be based on wages and not dividends paid (unless the rules change in this regard).
Self-employed individuals are not covered by this Scheme but the Government has made announcements 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 Government has indicated that such lump sums as are payable will not be forthcoming until June 2020 and HMRC has said it will contact those self-employed who will be entitled under this scheme.
Employees with visas
The Home Office has not provided any guidance on how the Scheme applies to employees with visas to work in the UK. However, our view is that they may be furloughed, just like other employees.
In most cases, their visa will be subject to a condition that they must not have any recourse to public funds and so this may cause concern. But as they will continue to be paid by their employer and it is the employer, not the employee, who will be supported by the Scheme, we do not see this as a problem. Furthermore there is a list of what amounts to public funds. That list does not currently include furlough payments.
Employers do need to be careful though about furloughing anyone who they have sponsored for a Tier 2 visa. There are very strict rules for sponsorship and reporting requirements that apply. In the absence of specific government guidance we recommend taking specialist immigration law advice before you furlough any Tier 2 worker.
Please contact your usual Birketts employment lawyer for advice on the law and the procedures you will need to follow. We will monitor the furlough 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 March 2020.