Coronavirus Job Retention Scheme

Yesterday the Government published the hotly anticipated details of the Coronavirus Job Retention Scheme (the “Scheme”) which it announced on Friday 20 March. Click here to read the Government Guidance, issued by HMRC. In this Law-Now we discuss how the Scheme will operate and highlight some questions that remain.

When will the Scheme be operational?

• The Scheme is expected to be up and running “by the end of April” and is stated to be “designed to support employers whose operations have been severely affected by coronavirus.” Administrators can also access the Scheme, subject to the various rules that apply in an insolvency context, but the Guidance is silent as to whether the Scheme will apply in all insolvency situations.

What amounts are covered?

• Employers can use the online portal to claim for 80% of furloughed workers’ usual monthly “wage costs” up to a cap of £2,500 plus the associated employer’s National Insurance contributions (“NICs”) and minimum auto enrolment employer pension contributions.
• Employers must pay furloughed employees at least the lower of 80% of their gross “regular wage” or £2,500 per month (but are not obliged to top this up) – they cannot charge any fee. “Fees, commission and bonuses” are expressly excluded from the definition of wage costs. The amounts paid to furloughed employees will be subject to deductions for income tax and employee’s NICs.

What evidence of cash flow problems is required to access the Scheme, and must employers demonstrate that their financial distress is COVID-19 related?

• The HMRC Guidance states that the Scheme “is designed to support employers whose operations have been severely affected by coronavirus.” There is no reference in the Guidance to employers certifying that they are unable to pay staff costs because of the COVID-19 crisis or provide any form of evidence of their financial distress, or potential redundancies. Therefore, it appears that the Government is taking a broad approach to the eligibility requirements for access to the scheme although currently the Department for Business, Energy and Industrial Strategy Guidance is still live which 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.” (our emphasis). Employers should also consider the potential regulatory implications of accessing the scheme, for example, where there are capital requirements, and the reputational issues where they would not otherwise publicise the fact of the necessity of impending lay-offs.

Which employers can access the Scheme?

• The Guidance states that “Any UK organisation with employees can apply, including: businesses, charities, recruitment agencies (agency workers paid through PAYE), and public authorities.”
• The expectation is that the Scheme will not be used by many public sector organisations. The section headed “Public Sector Organisations” explains: “Where employers receive public funding for staff costs, and that funding is continuing, we expect employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them. This also applies to non-public sector employers who receive public funding for staff costs.”

What are the timing restrictions for employees and businesses?

• The Scheme is open to all UK employers operating PAYE on 28 February 2020 (the “Key Date”) and furloughed employees must have been on the PAYE payroll on the Key Date to qualify. Employees “hired” after the Key Date cannot be furloughed/claimed for under the Scheme.
• Employees already on unpaid leave cannot be furloughed unless they were put on unpaid leave after the Key Date.
• The Scheme also covers employees who were made redundant since the Key Date if they are re-hired. There is no obligation on an employer to re-hire employees that have been made redundant. Similarly, there is no obligation on an employee to agree to the withdrawal of a redundancy notice.

Are casual employees included?

• The Scheme covers not just full and part time employees but also employees on agency contracts and flexible/zero hours contracts.

How do you calculate the amount of pay?

• There are different calculation methods depending on whether the employee’s pay varies.
• For full time and part time employees with regular hours the Guidance states that employers will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month. It also states that the figure used should be employee’s actual salary before tax, as of 28 February 2020.
• Where an employee’s pay varies, the employer can claim for 80% of the higher of (1) the same month’s earnings from the previous year or (2) the average monthly earnings from the 2019-2020 tax year (or, if the employee has been employed for less than a year, their average monthly earnings since they started work). Earnings is a wider term than wages, and the Guidance uses the terms wages, salary and earnings interchangeably, which may cause confusion.

What can a furloughed employee (not) do?

• Employees cannot carry out any work for their employer while furloughed, although they can take part in volunteer work or training (as long as it doesn’t generate revenue for the employer). However, if employees are required by their employer to undertake training, they must be paid at least the National Minimum Wage/National Living Wage for the time spent.

Does the Scheme cover short-time working?

• The Scheme does not cover short-time working.

Are employees on sick pay or other leave covered?

• Employees on sick leave or self-isolating should receive statutory sick pay as a minimum but can be furloughed “after this”.
• If employees then need to self-isolate or become unwell once they are on furlough, they are entitled to receive statutory sick pay as a minimum.
• For employees on family-friendly leave/pay whilst the Guidance is not entirely clear it appears that where an application for furlough is made in respect of an individual on family leave, the normal rules apply to statutory pay, and any enhanced pay provided is included in the “wage costs” employers can recover.

How do we put furlough in place for our employees? Do they need to agree to this?

• Yes, employees need to agree. Employers will need to make any changes to employees’ employment contracts (which is understood to mean to change their status to furloughed and any related changes, for example, to benefits) by agreement unless they have a contractual right to lay off.
• To be eligible, employers must write to their employees to confirm they have been furloughed and keep a record of this.

Are collective consultation obligations triggered?

• The Guidance says that if sufficient numbers of staff are involved “it may be necessary to engage collective consultation processes to procure agreement”. The law in this area is complex and advice should be taken. There may be ways of avoiding triggering the collective consultation obligations if employers seek volunteers or obtain the agreement of sufficient numbers of staff to be placed on furlough.

What about selection processes?

• It may be necessary to use a selection process when deciding who should be offered furlough. When selecting employees to “offer furlough to”, the Guidance states that equality and discrimination laws apply in the usual way. This could include the justification defences where offers are made to older employees or vulnerable employees who the employer would like to protect from exposure to others.

For how long can employees be furloughed?

• The minimum length of time an employee can be furloughed for is three weeks. The Scheme is currently operational for at least three months. Claims can be backdated to 1 March 2020.

Swapping employees

• There is nothing in the Guidance to suggest that employers cannot swap employees in and out of furlough (subject to the minimum three-week furlough period).

Can employees be made redundant at the end of the Scheme?

• Yes. When the Government ends the Scheme, employers will have to decide whether furloughed employees can return to their duties or will have to be made redundant.

Rights during furlough

• Employees who are furloughed “have the same rights as they did previously” including unfair dismissal and redundancy protection. No specific reference in the Guidance is made to holiday entitlement.

How should furlough payments be treated by the business?

• Payments received by businesses under the Scheme must be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes.

Outstanding questions

Ability to clawback

• What is the scope of the Government’s “claw back” ability in relation to fraudulent and erroneous claims under the Scheme referred to in its recent FAQs? The Guidance is silent on this save that it states “HMRC will retain the right to retrospectively audit all aspects of your claim”.

Meaning of “regular wage” for certain sectors

• Within the hospitality sector questions remain about whether service charge/tronc payments (where tips are paid into a fund and distributed centrally) will be considered part of an employee’s “regular wage”.

Holidays and benefits

• Will employers be required to continue all benefits in kind during furlough? What if that is not practical or they cannot afford to do so? What about share options and employer pension contributions over and above the auto enrolment minimum level, are they still payable? It may be the case that employers will be able to agree a cessation of these benefits above the minimum statutory requirements as part of the furlough arrangements.
• Presumably statutory and contractual holiday entitlement continues to accrue during the furlough period, but can employees take/be required to take holiday and if so would that be on full pay?

Redundancies

• With regard to redundancies made since the Key Date, what is the mechanism for “re-hiring” employees? We would expect that employers will seek consent to withdraw the redundancy notice and the employee’s agreement to be placed on furlough.
• How will the backdating of claims to 1 March 2020 work, will claims run from when employees ceased working, or when their employer stopped paying them?
• If the employer has to consult collectively, will it be able to rely on the “special circumstances” defence if it does not have time to conduct a full process?

Working elsewhere

• Can employees take other jobs (as they might during a period of unpaid lay off) when the Government is paying 80% of their wages? This will also depend on whether an employer has an exclusivity clause in the contract of employment. If an employee has two jobs they can continue to work in one role while being furloughed by their other employer from their other role, or they can be placed on furlough by both employers.

Interaction with lay off

• If the relevant employees’ contracts include a traditional lay off clause can the employer rely on that to enforce furlough without agreement? The Guidance is silent as to whether an employer may rely on a contractual lay off clause,

Tax

• How will employers calculate claims for employer’s NICs?

Self-employed status

• The Government also published proposals for supporting freelancers and the self-employed yesterday. Our guidance on these measures can be found here.

We also have a dedicated section on our website for all legal matters Coronavirus-related: https://cms.law/en/int/insight/coronavirus-sars-cov-2-covid-19