What you need to know about Coronavirus Job Retention Scheme…
2 April 2020 by Tony Fisher
As a result of the economic impact of the COVID-19 pandemic, the government has introduced the Coronavirus Job Retention Scheme. The scheme is intended to avoid redundancies by alleviating the pressure on employers to continue paying wages in full during the crisis period. Since it was first announced on 20th March the government has published further guidance.
The government has also created a new website www.businesssupport.gov.uk, which has a section on the Coronavirus Job Retention Scheme, which we expect will be expanded as more information becomes available.
The scheme applies in respect of employees who have been “furloughed”, meaning that they have been put on a period of leave during which they are not required to work. The scheme itself does not directly change the employment relationship between employer and employee. Rather, it allows the employer to agree with employees that they will be put on temporary leave of absence (furlough leave), and then allows the employer to recover a proportion of pay from HMRC in respect of employees on that leave. Given that the reimbursement that employers can seek per employee is limited (to the lower of 80% of wage costs or £2,500 per calendar month, plus employer national insurance contributions and employer auto-enrolment pension contributions) it is anticipated that many employers will seek to amend the contracts of those put on furlough leave to match the level of reimbursement that can be obtained.
The scheme is backdated to 1st March 2020, open for at least three months, and will be extended if necessary. HMRC are urgently working to set up the new system of reimbursement, and the government expects the scheme to be up and running by the end of April 2020.
Coronavirus Job Retention Scheme – FAQ’s
Who is covered? What employees are covered?
The scheme covers the following individuals, whether they are employees or workers provided that they were on the employer’s PAYE payroll on 28th February 2020:
- Full-time employees.
- Part-time employees.
- Employees on agency contracts.
- Employees on flexible or zero-hour contracts.
The guidance states employees must have been on their employer’s PAYE payroll on 28th February 2020. They can be on any type of contract, including a zero-hour contract or a temporary contract.
Employees who were made redundant since 28th February 2020 can qualify if they are re-engaged by their former employer.
Employees on unpaid leave cannot be furloughed, unless that unpaid leave started after 28th February 2020. We assume that this is intended to prevent employees who are on unpaid leave for reasons unrelated to the pandemic from being transferred onto furlough leave and receiving a windfall.
Where an employee has more than one job, their employments are treated separately for the purposes of furlough leave, and the reimbursement cap applies to each employer individually.
Are the self-employed covered?
No, but a scheme is being set up to provide the self-employed with similar rights.
Which employers are eligible for reimbursement?
The scheme is open to all UK employers who had created and shared a PAYE payroll scheme on 28 February 2020, and have a UK bank account. This includes businesses, charities, recruitment agencies with agency workers paid through PAYE, and public authorities.
What about employees who have already been given notice of redundancy or placed on unpaid leave before furlough leave was announced?
The scheme is backdated to 1st March 2020. It would, therefore, be possible, in theory, for an employer to propose to employees who are still employed, but have been given notice of redundancy or placed on unpaid leave after 28 February 2020, that they be put onto furlough leave instead.
Employees made redundant since 28th February 2020 can be re-engaged and put on furlough leave. This would, therefore, appear to include employees who were given notice of redundancy before 28th February 2020 for a reason unconnected with the pandemic.
In contrast, the scheme does not appear to cover employees who were placed on unpaid leave on or before 28th February 2020.
Can an employer move employees who are already on reduced hours onto furlough leave?
Some employers have already placed employees temporarily onto reduced hours and pay due to the downturn in work as a result of the pandemic. The employer will not be able to seek reimbursement in respect of wages costs for employees who are still working on reduced hours. The scheme only applies where employees are put on furlough leave.
The difficulty with this point is that the scheme may financially dis-incentivise employers from keeping their business open. Keeping a business running with staff on reduced hours allows an employer to keep a revenue stream and retain customer loyalty. However, this is likely to be more expensive for the employer than putting all staff on furlough leave and have HMRC pay 80% of their wages.
Can employees who elected to take unpaid leave to be able to look after their children home from school or nursery be put on furlough leave instead?
The guidance states that employees on unpaid leave can be furloughed so long as they were placed on unpaid leave after 28th February 2020. However, it is not yet clear whether individual employees must be at risk of redundancy or lay-off before they are eligible for furlough.
Can you put employees on long-term sick leave on furlough leave?
This suggests that employees who are on sick leave or self-isolating should receive statutory sick pay (SSP), but can be furloughed once they have recovered or are no longer self-isolating.
We assume that this is intended to also cover employees who are on long-term sick leave and have exhausted SSP, but the position is not clear. However, the purpose of the scheme is to reimburse pay that the employee would otherwise have received, and it would seem to be consistent with that purpose if employees who are on nil pay due to sick leave do not qualify until they are fit to work.
Where an employer is selecting which employees to designate as furloughed, they must be mindful of the risk of discrimination if selection is linked to a protected characteristic such as disability.
Can an employee who resigned before the furlough scheme was introduced and is working their notice be furloughed?
The government guidance does not specifically deal with this issue. However, it may be possible to argue that an employee who has resigned and is working out their notice should be capable of being furloughed subject to the following:
- The employee’s consent. Unlike employees who are expecting to have a continuing relationship with their employer (and agreeing to a reduction in their pay in order to save jobs), an employee’s consent may not be forthcoming where they have already issued notice of their resignation and are due to be leaving their employment.
- The conditions for accessing the reimbursement. The 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.”. If it is the government’s intention that only those employees who would otherwise be made redundant or “laid off” because of the COVID-19 outbreak are covered by the Scheme, an employee whose employment is terminating by reason of their resignation unrelated to the outbreak may not be covered. However, part of the intention behind the scheme is to avoid employers becoming insolvent as well as guaranteeing pay, so it is possible that HMRC would accept that an employer can claim for a reimbursement under the scheme in respect of any employee they are liable to pay, including one working their notice. Unfortunately, there is no clear guidance on this point at the moment. However, it is worth noting that the guidance advises that HMRC will retain the right to retrospectively audit all aspects of the scheme with scope to claw back fraudulent or erroneous claims.
If employees transferred under TUPE after 28th February 2020, can the new employer put them on furlough leave?
The scheme covers employees who were on the employer’s PAYE payroll on 28th February 2020, so it would seem at first sight that employees who transferred under TUPE to a new employer after that date cannot be placed on furlough leave. However, in clarifying what employees an employer can claim for, the government guidance states that employees “hired” after 28th February 2020 cannot be furloughed. An employee who transfers under TUPE is not hired by the new employer, but transfers with all their terms and conditions from the previous employer intact. Given that TUPE operates to preserve the rights of employees and their contracts on transfer to the new employer, it could be argued, possibly fairly successfully, that these employees should be treated as if they were on the new employer’s payroll on 28th February 2020. Certainly, from an employee’s perspective, they are working in the same job as they had before the transfer. It is possible that refusing them access to furlough leave may look like an overly technical approach to the scheme and not acting in the spirit of the scheme or TUPE. However, without further clarification from the government, it is difficult to say with any certainty that this is the case.
- How is furlough leave implemented?
What steps must employers take to put employees on furlough leave? How does an employer decide who to put onto furlough leave: do they need to go through an equivalent redundancy scoring exercise? Can an employee request their employer puts them onto furlough leave? How does an employer make a claim to HMRC for reimbursement?
During furlough leave. Will employees continue to accrue holiday during furlough leave? Where a worker does not take annual leave in the relevant leave year because they were on furlough leave, can they carry it forward to the next leave year? Can an employee work for another employer? Can employees on furlough leave do volunteer work? Can employees on furlough leave undertake training?
What can the employer claim back? What does the reimbursement cover?
Employers can claim up to the lower of 80% of usual monthly wage costs or £2,500 per employee, plus the associated employer national insurance contributions and minimum auto-enrolment employer pension contributions. Fees, commission, and bonuses should not be included in the calculation. The 80% calculation is based on the employee’s gross salary at 28th February 2020.
Does the reimbursement limit include auto-enrolment pension contributions and employer’s NICs?
No. The guidance makes clear that these payments can be reclaimed in addition to the cap.
Is £2,500 the net amount the employee receives or is it subject to tax and NI?
The sum paid to the employee during furlough leave is subject to the income tax and national insurance in the usual way. The reimbursement is made to offset those deductible revenue costs and should be treated as income in the business’s calculation of its taxable profits for income tax and corporation tax purposes, in accordance with normal principles.
How does the cap work where the employee has more than one job?
The cap on reimbursement applies to each employer individually
How is the 80% of salary calculated? How is the 80% calculated for those with irregular earnings?
The guidance has clarified this point. If the employee has been employed (or engaged by an employment business) for a full 12 months prior to the claim, the employer can claim for the higher of either:
- The same month’s earning from the previous year.
- Average monthly earnings from the 2019-20 tax year.
If the employee has been employed for less than a year, the employer can claim for an average of their monthly earnings since they started work. If the employee started employment in February 2020, their earnings so far should be pro-rated. The employer will need to do this calculation before it agrees furlough leave with the employee because they are agreeing to a contractual variation in terms of payment and will want to ensure that they do not commit to payment in excess of that which may be recovered from HMRC. Some employers may take the view that those casual or zero-hours workers and employees who are not guaranteed work from the employer do not need to be put on furlough leave at all because the employer can instead simply refrain from offering them work. However, this approach is not in the spirit of the scheme which intends to ensure that employees and PAYE workers retain a basic income during the crisis stages of the pandemic.
Do you know you can calculate your earnings with Coronavirus Job Retention Scheme calculator.
For more on Employment Law during the Coronavirus pandemic, visit our Coronavirus Legal Advice hub.