On 20th March 2020, HMRC announced that it would set up the Coronavirus Job Retention Scheme. The purpose of the scheme is to prevent mass redundancies and unemployment in the wake of the global coronavirus pandemic. On 26th March 2020, HMRC published further guidance on the scheme. The guidance was then updated on 4th April, on 9th April and then again on 15th April 2020.
No further legislation is expected as The Coronavirus Act 2020 gives HMRC the power to administer the scheme under the direction of the treasury.
The scheme is subject to and does not alter pre-existing employment rights and obligations. The updated scheme allows employers to claim for a range of individuals (all referred to as ‘employees’ in this article for ease).
What does the scheme provide?
The scheme allows UK employers to recover 80% of the gross monthly wage of employees (capped at £2500 per month per employee), plus the associated Employer National Insurance contributions and automatic enrolment employer pension contributions on that wage. This is on the condition that the employee is kept on the employer’s payroll but stops working. The scheme describes employees in this position as “furloughed workers” – a label previously not used by employment law.
The scheme will be in place until the end of June 2020. On 17th April, the Chancellor announced that the scheme was being extended by a month from its original end date of 31st May 2020.
Employees can only be furloughed by the employer if they were employed on or before 19th March 2020 (previously 28th February 2020). The qualifying date was changed from 28th February 2020 to 19th March 2020 after concerns that large numbers of individuals who changed employers prior to the announcement of lockdown had been left unprotected. Employees hired after 19th March 2020 cannot be furloughed.
The guidance published on 26th March stated that fees, commissions and bonuses should not be included when calculating wages. This position was altered by the guidance published on 4th April which states that when calculating wages, employers can include “any regular payments” the employer is obliged to pay including “past overtime, fees and compulsory commission payments". The 4th April guidance goes on to say that this will not include "discretionary bonuses (including tips) and commission payments and non-cash payments".
Employers can choose to top up the remaining 20% of a furloughed employee’s pay to bring it up to 100% though this is not required under the scheme. Employer NICs and automatic enrolment employed pension contributions are not recoverable for the topped-up wages.
For employees who are salaried (whether full time or part time), the 80% is calculated by reference to gross monthly salary as of 19th March 2020. For an employee whose pay varies i.e. those on zero hours contracts, the approach varies depending on duration of employment. If the employee has been employed for 12 months or more, then the employer can claim the highest of either the same months earning from the previous year or the average monthly earnings for the 2019 – 2020 tax year. If the employee has been employed for less than 12 months, then the employer should claim for 80% of their average monthly earnings since they started work.
If an employee is on National Minimum Wage (NMW) and paying 80% of their salary would amount to less than NMW (when calculated based on normal working hours) the employer would not be in breach of minimum wage legislation. This is because the minimum wage legislation will not be applicable to employees who are furloughed and so not working. If, however, an employee on NMW is training whilst on furlough – then they will be entitled to be paid at least NMW for the time spent training. This is the case even if it amounts to more than 80% of their wage that will be recoverable from the government.
The earnings of a furloughed employee will remain subject to income tax and other usual deductions.
Furloughed workers can be rotated on and off furlough, provided each period is for a minimum of three weeks.
Which employers can use the scheme?
All UK entities are eligible to use the scheme. This is provided that they have a UK bank account, have created and started a PAYE payroll scheme on or before 19th March 2020 and enrolled for PAYE online (which can take up to 10 days). The guidance provides that whilst employers who receive public funding for staff costs would be able to access the scheme, if this public funding continues, it is expected that the money should be used to continue to pay staff as normal so that they are not placed on furlough.
Whilst the purpose and spirit of the scheme is to prevent redundancies, a redundancy situation, is not a precondition for access. When the guidance was first published on 20th March, it stated that the purpose of the scheme was ‘to help employers whose operations have been severely affected by coronavirus to retain their employees’. However, it also made clear that ‘all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus’.
The guidance published on 4th April has now added the following pre – condition: That employers can furlough employees ‘if [they] cannot maintain [their] current workforce because operations have been severely affected by coronavirus’. Whilst no further definition has been provided on what is meant by ‘cannot maintain current workforce’ it is clear that this falls short of the threshold of a redundancy situation in employment law.
Therefore, the current position is that the scheme retains a distinction between its purpose, which is to prevent redundancies and mass unemployment, and broader and looser criteria for eligibility; all employers who ‘cannot maintain their present workforce’. The guidance does not provide details of the evidentiary standard required in order to claim. It is likely that HMRC will pay the amount requested after basic checks to make sure the funds are accessed quickly. However, HMRC reserves the right to retrospectively audit claims which means that incorrect and fraudulent claims are likely to be recovered in the future.
The updated guidance also clarifies that individuals can furlough employees such as nannies and cleaners provided that they have been paid through PAYE as of the 19th March 2020.
Who can be furloughed?
The guidance clarifies that a wide range of individuals can be furloughed who are not employees so long as they are paid through PAYE. This includes: Office holders (including company directors), salaried members of Limited Liability Partnerships, agency workers (including those employed by umbrella companies) and Limb b workers (who are under contractual obligations to provide work of personal service but not as part of their own business/profession).
The guidance was updated on 4th April to clarify that salaried company directors can be furloughed so long as they do not work for the company whilst on furlough. This is apart from to the limited extent required to comply with statutory obligations i.e. filling annual returns.
Employees who are on Statutory Sick Pay (SSP) or self-isolating and getting SSP should continue to get SSP but can be furloughed after the period of sick pay has ended. Employees who are shielding in line with public health guidance are eligible to be placed on furlough.
The 15th April guidance also clarifies that employees who were employed as of 28 February 2020 and were made redundant or stopped working for the employer after that (but prior to 19 March 2020) can also qualify for the scheme. This is provided that the employer re-employs them and puts them on furlough. This will be at the discretion of the former employer.
Prior to the guidance published on 9th April, concern was expressed about the position of employees who TUPE transferred over to a new employer. The 9th April guidance clarified that these employees were protected by the scheme. The guidance published on 15th April now states: 'A new employer is eligible to claim in respect of the employees of a previous business transferred after 19 March 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership'.
What process does an employer have to follow to furlough an employee?
The scheme does not allow employers to impose furlough on their employees. It also does not allow employees to demand furlough as of right. It provides that employers should obtain the agreement of employees it wishes to furlough. This is because the scheme remains subject to the ordinary principles of contract law.
The guidance also states that when employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws continue to apply as normal. However, if employers do decide to prioritise furlough for those who are vulnerable, and this results in the over 65s in the workforce being furloughed for example, this is unlikely to fall foul of discrimination law. This is because whilst this would indirectly discriminate against those under the specified age it is likely to be found to be proportionate.
Employers are required to write to an employee who has been furloughed confirming this and to keep a record of this communication for five years. This is an anti-fraud measure to prevent employers claiming for employees who are unaware that they have been placed on furlough and continue to carry on working.
Are employees allowed to work whilst on furlough?
Employees are not permitted to work for the employer who furloughs them during this period. If an employee is working but on reduced hours, then this violates the scheme.
Employees are permitted to undertake training or carry out volunteer work whilst on furlough provided that this does not generate revenue for or provide services for the employer who has furloughed them. The purpose of this is to allow furloughed individuals to assist the national coronavirus effort.
The 4th April guidance has also clarified that where an employee has two jobs, these two jobs are to be treated separately for the purposes of the scheme. This means that the employee can be furloughed from either one or both of these jobs. The result of this is that the cap of £2500 applies separately to each job.
The 4th April guidance also makes clear that an employee who has been furloughed can get a new job with a different employer whilst on furlough. This will only be possible where:
a. The employees’ contract of employment and existing employer allows this, and
b. Where the employee is able to return to their original job should their employer end their period of furlough.
Again, the purpose of this seems to be to allow individuals to plug shortages in the national workforce as part of the coronavirus effort.
The Government is likely to publish further guidance to address outstanding issues including in relation to the online portal and how claims can be made in the coming days.
This article is intended to provide an overview of the relevant law. It is not a replacement for specifically tailored legal advice.
Preetika Mathur is a Pupil Barrister in the Employment and Discrimination Team at Doughty Street Chambers.