Coronavirus Job Retention Scheme

Coronavirus Job Retention Scheme – “Furlough Scheme”

Updated 12 May 2020

Introduction

This guidance note provides advice based on the legal requirements for the Furlough Scheme as announced by the Government as at 26 March 2020 and on subsequent numerous occasions thereafter. The latest guidance is available here.

The Treasury have now issued a ‘Direction’ to HMRC under the Coronavirus Act 2020. This contains detailed rules on eligibility and conditions of the Scheme as well as how claims should be submitted and how HMRC will process them. It’s not the most user friendly of documents - HMRC have stated that employers should follow the Guidance (and that they will treat applications for reimbursement under the Furlough Scheme in accordance with the Guidance).

Using this guide

In practice every business is different and has their own personal circumstances and challenges to deal with in responding to Covid-19. The key will be to assess your own company’s requirements balancing the needs of your individual business and those of your employees in a practical, fair and transparent way. If you need support with this, please do get in touch with me at joanne@extrahrsolutions.co.uk.

More than anything, Covid-19 is teaching us that employees are the very heart of businesses – treat them with respect and as you would wish to be treated. For essential workers, you need them now and for those furloughed, you will need them when the country and business start to recover.

What is the Job Retention Scheme

Under this scheme, UK employers will be able to access a cash grant to continue paying part of their employees’ salary. It is designed to help employers whose operations have been severely affected by Coronavirus (Covid-19), to help prevent redundancies as a result of Covid-19 and protect the UK economy.

It’s important to note that the term “Furlough workers” is not currently a concept recognised in UK law. It is a word that the government has decided to adopt for this purpose, which means ‘leave of absence’.

When did it start and how long will it last

The scheme has been backdated to 1 March. It was originally to operate until the end of June. On 12 May, the government announced that the scheme will be extended until the end of October 2020.

The Scheme will continue in its current form with no changes until the end of July.

From August changes will be made to support more flexibility and a transition back to work with employers being able to bring furloughed employees back to work on a part time basis. As of August ,employers will also be asked to share the cost of paying furloughed employees’ salaries until the end of the scheme (currently October 2020).

Full details of the changes to the Scheme from August will be announced at the end of May.

Who is eligible for the grant

All UK businesses with a PAYE scheme in place on 19 March 2020 are eligible. This includes charities, recruitment agencies and public authorities, although the government does not expect public sector employers to use it - as long as the government continues funding wage costs. If your company is receiving public funding specifically to provide services necessary to respond to COVID-19, you will not be able to furlough workers. Companies must have enrolled for PAYE online (this can take up to 10 days)

Who can you claim a grant for

All those employed through the PAYE system on or before 19 March 2020*, regardless of their employment contract, including fixed term workers, those on flexible and zero hour contracts. This is good news for employees who started after 28 February (the original eligibility date) who will now qualify for the Scheme.
Company Directors who are salaried can be furloughed. However, they must do no work – they can onlyundertake statutory duties or obligations arising from an Act of Parliament in connection with filing of company accounts or providing information relating to the administration of the director’s company.
Apprentices are covered by the scheme and can be furloughed and paid 80% of their salary. They can continue their training whilst on furlough but whilst they are training you need to pay them the Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage (as applicable) so you need to be able to pay any shortfall between the 80% claimed from HMRC and this amount. Guidance is available for changes in apprenticeship learning arrangements because of COVID-19.
Agency workers (including those employed by umbrella companies) but only if they are not working. It is the responsibility of the recruitment agency to claim the grant for their agency workers. If you have agency workers in your company and you have no work for them, you should advise the relevant Agency of this.
Individuals can furlough workers such as nannies, as long as they are paid through PAYE and on their payroll on or before 19 March 2020.
Foreign nationals on all categories of visa.
Any employee who was employed and, on your payroll, as at 28 February 2020, who you’ve made redundant or has left for any other reason than redundancy, on or after 28 February can be rehired and furloughed.
Any employee who was employed and, on your payroll, on or before 19 March 2020 who you’ve made redundant or who has left for any other reason than redundancy, on or after 19 March 2020 can be rehired and furloughed.
Although the Government allows you to re-hire in these circumstances, it does come with some risks and you should think carefully about the contractual implications of doing this. For example, could this potentially result in continuity of service for the employee. You would need to be clear in the furlough notice this is not the case. You also need to ensure that the rationale for furloughing still meets with the government’s policy position for furlough or you may not be able to claim under the scheme, ie. would the employee have been furloughed had they not already left.
Employees of a previous business who have transferred to you as part of a TUPE transfer after the 19 March 2020.
If your employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
The updated guidance clarifies that you can furlough employees not only if they otherwise would have been made redundant but also if they are furloughed “by reason of circumstances as a result of coronavirus or coronavirus disease”. It is still difficult to know exactly how will you evidence that you had to furlough? I would suggest the test to apply is that the Government’s aim for the Furlough Scheme is to help you protect your employees from wage loss and redundancy and to help the UK economy.

* and which were notified to HMRC on an RTI submission on or before 19 March 2020. If you had employees who were on your payroll as at 28 February 2020 but not on 19 March 2020, see note below on employees who have been made redundant or stopped working for you

Who is not eligible for the grant

Workers hired after 19 March 2020 will not be eligible for the Furlough scheme. You may wish to talk to their previous employee to see if they will re-hire them (see section above)
Workers who are classed as ‘essential’ and work is available for them.
If you have asked an employee to work on reduced hours, or for reduced pay, they will not be eligible, while they are working on reduced hours/pay and you will have to continue their salary, subject to the terms of the employment contract you agreed. For employees who’s hours or pay you have reduced, you could consider reverting them back to their original hours and/or days and furlough them. However, if you do, they will not be able to do any work for the Company.
As an employee you will need to be mindful about the way employees may feel. The above scenarios could cause some contention and resentment if you need to treat different parts of your business in different ways. Essential workers may be resentful that they have to continue working while others receive money for not working for a period of time. For those furloughed, they may be upset by this and want to work. It’s a tricky matter to gauge and will require honest, open and clear communication with employees.

What happens to fixed terms contracts during furlough?

Fixed term contracts can be extended or renewed during furlough. This means that you can extend the fixed term contract, furlough the employee and claim the grant if:-

the fixed term contract expired after 28 February 2020 and the employee was on your PAYE as at 28 February or
the fixed term contract expired after 19 March 2020 and the employee was on your PAYE as at 19 March

However, employees that started and ended the same contract between 28 February 2020 and 19 March 2020 will not qualify for the Scheme.

What about employees who are already on some form of leave

Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February. If they are furloughed you must pay them at least 80% of their regular wages, up to the monthly cap of £2,500. If the employee was on unpaid leave on or before 28 February, you cannot furlough them until the date you have agreed for them to return from unpaid leave.
Employees on sick leave or self-isolating in line with the guidelines issued by Public Health England and NSH Scotland, should get Statutory Sick Pay (SSP). Sickness should not be a reason for deciding to furlough an employee, however, if you need to furlough employees for business reasons and they are off sick, you can. In this case, the employee would no longer receive sick pay, they would be classed as a furloughed employee instead. (ie. you cannot claim furlough and SSP rebate at the same time).
If an employee who is furloughed becomes sick, you must pay them at least the rate of SSP (they have a statutory right to this). It is up to you as to whether you move them onto sick pay, or keep them on furlough. If you move them onto sick pay, you cannot continue to claim the grant. If you pay enhanced company sick pay which is more than the rate of the furloughed pay, you may wish to seek agreement in your notice of furlough to only pay up to the furloughed rate of pay during Covid-19.
Employees who are shielding in line with public health guidance, or an employee who needs to stay at home with someone in the household who is shielding can be placed on furlough if they are unable to work from home and you would otherwise have to make them redundant. It seems that in addition to the fact that you can furlough these employees like any other employee because of Covid-19, the intention of this additional clarification is to provide the option of furlough based on ‘status’ in order to protect these employees from dismissal where they cannot attend work and they cannot do their work from home.
Employees who are on long term sick leave can be placed on furlough. In this case, the employee would no longer receive sick pay, they would be classed as a furloughed employee instead. (ie. you cannot claim furlough and SSP rebate at the same time).
Employees who are unable to work because they have caring responsibilities resulting from Covid-19. The example HMRC provides is ‘employees who need to look after children (most likely because of school/nursey closures). As in the case of shielding, this looks as if the government is introducing a further option to furlough because the employee cannot come into work and they cannot do their work at home (ie. to protect them from dismissal as a result of not being able to attend work).
Employees on maternity, adoption, paternity, shared parental leave or parental bereavement leave, who qualify for statutory pay, will still be eligible to receive statutory payments as normal.
If you offer enhanced contractual pay for maternity, adoption, paternity, shared parental leave or parental bereavement leave, this is deemed as wage costs that you can claim through the scheme. This suggests that you can furlough employees on this type of leave.
There is nothing in the guidance to say that an employee on maternity, adoption or paternity leave could not agree to return to work early and then be furloughed.

(please note, however, that once maternity/adoption/paternity leave ends, it cannot be reinstated. Therefore, a women on maternity leave or a primary carer on adoption leave could instead apply for shared parental leave, curtail leave and be furloughed)

For employees who are furloughed on return from any statutory leave entitlement (ie. Sick leave, maternity, adoption, paternity, shared parental leave or parental bereavement leave), their furloughed salary should be calculated on their normal salary, before tax and not the pay they received whilst on statutory leave. For those on variable pay returning from statutory leave, you can calculate this using the same month’s earnings from the previous year or average monthly earnings from the 2019-2020 tax year.

What happens during furlough leave

Employees must be furloughed for a minimum of 3 consecutive weeks in order for you to be able to claim under the scheme. There is nothing in the guidance that would prevent you from rotating furlough leave within departments and teams but each person would need to be furloughed for the minimum 3 weeks. HMRC have now clarified that employees can have multiple periods of furlough (as long as they each last a minimum of 3 weeks).
During Furlough Leave, employees must do no work for or on behalf of the company (even at home). Workers can volunteer or train as long as they do not provide services or generate any revenue for the company. You can ask workers to undertake training from home (as long as it doesn’t generate income for the company).
During Furlough Leave, an employee cannot work for, or on behalf, of any linked or associated companies such as a group company.
HRMC have clarified that an employee can be furloughed and have a second job. I would recommend that you ask employees to advise you if they wish to take a second job whilst furloughed as you may have a clause in your contract restricting them from working for a competitor. You should also make it clear to them that their first job takes priority and if you need to bring them back off furlough, they need to be available for work.
Fixed term workers who are furloughed, can have their contracts extended/renewed during furlough. However, you need to ensure that they still meet the eligibility requirements for you to claim under the scheme, ie. that they are not working due to Covid-19. See section below on Fixed Term Contracts.
A period of furlough starts from the date the employee physically stops working and starts furlough (not from when you advise them that they are furloughed, or confirm it in writing).

What happens to holidays during furlough leave

Holidays continue to accrue during furlough leave
HMRC has updated its guidance to say that employees can take annual leave without breaking furlough.
Any holidays must be paid at full pay, ie. you must top up the grant to 100% of pay.
The Government have stated that employers can compel employees to take holiday and/or cancel an employee’s holiday whilst on furlough as long as the normal notice period for doing so is applied (ie. providing notice of double the length of the holiday). If you can’t give the required notice, you need to get the employee’s written agreement.
In addition, the UK Government announced on Friday 27 March that employees will be allowed to carry over 4 weeks’ of their 28 days statutory holiday into the next two annual leave years, where it is not reasonably practicable for them to take some, or all of their holiday entitlement due to Covid-19. The remaining 1.6 weeks statutory leave will not be covered – although it can be carried over up to 1 year with agreement under existing law. The change is aimed at allowing businesses under particular pressure from the impacts of COVID-19 the flexibility to better manage their workforce, while protecting workers’ right to paid holiday. It means that employees who are working do not lose out on their right to holidays and you are not penalised for not allowing statutory holiday to be taken
As holidays continue to accrue, and in light of the above, it is important that you consider the impact of employees not taking holidays and how you will manage this further down the line, once this situation passes and business start to trade again.

How do I calculate and pay employees under the Furlough Scheme

To qualify for the scheme you must pay employees at least 80% of their regular wage, or £2,500 per month (whichever is the lower). It is optional to top up an employee’s salary beyond this (only 80% up to the cap will be reimbursed by the Government).
For employee’s who have a salary of more than £2,500 per month, you may (with the employee’s agreement) top up to less than 100% of their regular wage.
You can claim up to 80% of regular wage costs, up to a cap of £2,500 per month, plus the cost of employer NI and minimum automatic enrolment employer pension contributions.
For full time and part time salaried employees, their basic salary before tax (gross tax), in their last pay period prior to 19 March 2020, should be used to calculate the 80%. However, if you have already calculated your claim based on the employee’s salary as at 28 February 2020 (and this is different to their last pay period), you can choose to use this calculation for their first claim if you wish.
For workers on flexible/zero hour contracts, or employees whose pay varies, the 80% grant will be based on the higher of earnings in the same pay period in the previous year, or the average earnings in the 2019/2020 tax year (i.e. April 2019 – March 2020).
If the worker has been employed less than 12 months you can average based on the number of months worked, including a part month calculation for February).
The 80% is calculated based on an employee’s regular, contractual pay, such as wages, compulsory commission and past overtime. If you are reducing employees’ salaries to 80% you must do this within your own payroll before they are paid, this will not be done by HMRC.
The calculation will not include discretionary commission (including tips) payments or bonuses, non-cash payments or benefits in kind, eg the value of a car or health insurance.
Benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included. HMRC have confirmed that COVID-19 counts as a life event which means employees can switch out of salary sacrifice arrangements, if the relevant employment contract is updated.
You must pay the employee all the grant you receive to cover their subsidised furlough pay. You cannot use any part of the grant to pay for the provision of benefits or a salary sacrifice scheme. In addition, no fees can be charged from the money that is granted.
Once you’ve worked out how much of an employee’s salary you can claim for, you must then calculate the amount of employer national insurance contributions and minimum automatic enrolment employer pension contributions (three percent) you are entitled to claim. These are based on the furlough pay.
Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary you pay to the employee will not be funded through the scheme.
Employer pension contributions above the mandatory auto-enrolment contributions cannot also not be claimed for.
If you provide benefits to furloughed employees, including through a salary sacrifice scheme, these will continue in addition to the wages paid to them under the Scheme, ie. in addition to the 80% grant.
Workers will pay normal tax and NI on pay received during Furlough Leave plus any other deductions such as pension contributions.
Between August and October, the overall level of support that employees receive will not change. The Government have said that employees will continue to receive 80% of their salary, up to £2,500 from the combined efforts of the government and employers.

How do I submit a claim

Claims should be submitted to HMRC, via their new on-line portal, which opened on Monday 20 April 2020.
You must be enrolled for PAYE on-line to be eligible – note this can take up to 10 days to complete.
You can submit a claim to HMRC once every 3 weeks, which is the minimum length an employee can be furloughed for.
Once HMRC have received your claim (and you are eligible for the grant), they will pay it via BACS payment to your stipulated UK bank account
HMRC will check claims made through the scheme. Payment made be withheld or need to be repaid in full to HMRC if the claim is based on dishonest or inaccurate information. Therefore, please only claim the grant for those employees who have ceased work due to Covid-19 and whom you have furloughed as per HMRC guidelines. Please also check the information carefully before you submit a claim and ask for help with any particular cases you are unsure about. (joanne@extrahrsolutions.co.uk)
For more detailed information about how to make a claim, please visit the Gov.UK website - https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme#who-can-claim

How do I furlough employees

To furlough an employee and make a claim under the scheme, you need to discuss and agree this with them. You must confirm this in writing to the employee, confirming they have been furloughed. and you must keep records of this for five years.

This is not a decision that you can just make as an employer - it is subject to employment law and negotiation. As there will be nothing in the contract of employment referring to a ‘furlough’ you need to agree with the affected employees that they are going to become furloughed workers.
Employees will likely agree because the other options are:

Be made redundant because there is no work for them (possibly without redundancy pay if you can’t afford it)
Go home and take unpaid leave

Therefore, option 3 – ‘become a furlough worker and get 80% of your wages paid’ is very attractive to the employee

At the same time, employees cannot demand to be furloughed. To be eligible, there must be no work for them to do and their job otherwise would have been made redundant.

You will need to issue a letter or agreement in writing to the affected employees to temporarily change the terms of the contract. You must confirm in this that they will cease work due to Covid-19 as well as the arrangement regarding pay during furlough, ie. if they will receive 80% of regular wages or a top up. Include a paragraph to confirm that their furlough status is subject to change and will be reviewed again in response to business needs. Although HMRC require the notice to be in writing in order for you to claim under the scheme, they have confirmed that the employee does not need to provide a written response.
You don’t need to close the whole business to operate a furlough. It is appropriate only for those who would otherwise be made redundant and may only impact on certain teams/areas in your company.
If you have to choose who is placed on furlough out of a team of people (eg. maybe 3 people are currently doing the job, but as a result of the downturn, only 1 person is required), you can use your normal redundancy criteria (it must continue to be fair and reasonable and not be discriminatory in any way)

What happens if I need to make employees redundant

You can still make an employee redundant while on furlough or immediately after. If you don’t have funds to pay contractual or statutory redundancy pay, employees would need to make a claim to the government.
There should not be any requirement to bring the employee back to work after the furlough period. However, you will need to go through a normal redundancy consultation process. Note that if you are making more than 20 people redundant in one establishment within a period of 90 days, you will need to collectively consult. Minimum consultation timescales are 30 days for 20 – 99 redundancy dismissals and 45 days for 100+ redundancy dismissals. You, therefore, need ensure this is built into your timescales.
If the employee is made redundant during the furlough period, you will no longer be able to claim the grant for them at the point their employment is terminated.

What happens if the business goes into administration?

In the unfortunate event that your business is taken under the management of an administrator, the administrator can access the Scheme, however, only if there is a reasonable chance of rehiring employees, ie. If the administrators are actively pursuing a sale of the business to another company.

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