This note is current as at 9a.m. on 15 June 2020.
The Coronavirus Job Retention Scheme (“CJRS”) – what’s new?
We have previously reported on the introduction of and subsequent multiple clarifications to the CJRS, which was originally announced by the UK Government on 20 March 2020 in response to the COVID-19 crisis (for example COVID-19 – latest updates to CJRS). By 7 June, the scheme had already been used by 1.1 million employers to furlough around 8.9 million jobs.
Following the Chancellor’s announcement on 29 May that the CJRS will remain open until 31 October, with employers able to furlough their employees “flexibly” (i.e. part time) from 1 July but expected to make an escalating financial contribution from 1 August, the Government finally published updated guidance on the scheme late in the evening of Friday 12 June.
However, the Treasury Direction that sets out the legal framework for the CJRS, which was published on 15 April 2020 and updated on 20 May (the “Direction”), has not yet been updated, and remains inconsistent with the Government guidance in various respects.
Updated and new guidance
Unhelpfully, the Government has both updated its previous guidance on the CJRS and issued new guidance, such that the workings of the scheme are now explained across numerous different documents.
However more helpfully, all of the key guidance documents can now be accessed from this single page here.
The key changes are as follows:
All of the Government guidance now emphasises (in a box at the beginning) that:
- the first time employers will be able to make claims for days in July will be 1 July; and
- 31 July is the last day that claims can be submitted for periods ending on or before 30 June.
The guidance says HMRC will provide a new file upload template to complete for claim periods starting on or after 1 July. The online calculator can still be used for claims ending on or before 30 June, and also for later claims although it cannot be used if employees “have returned from parental leave (see further below), get director’s payments, have been transferred under TUPE, have been employed at separate times throughout the year, receive employer pension contributions outside of an auto-enrolment pension scheme, or have an annual pay period”.
Amounts that can be claimed
The new guidance Policy paper- changes to the CJRS includes a helpful table setting out the Government contribution, the required employer contribution and the amount employees who are fully furloughed will be entitled to receive from July through to October. In summary, fully furloughed employees remain entitled to receive at least 80% of their regular wages up to a cap of £2,500 per month, with employers responsible for employer National Insurance contributions and pension contributions from 1 August and an escalating proportion of employees’ minimum furlough payments from 1 September (10% rising to 20% in October).
It makes clear that, if employees are flexibly furloughed (see further below), the £2,500 per month wages cap is proportional to the hours the employee is furloughed – so for example if they are placed on furlough for 60% of their “usual hours” and work the other 40%, the wage cap is reduced pro rata to 60% of £2,500 (£1,500). It also highlights that it remains the employer’s choice whether or not to top up furlough payments, but employers will have to pay their employees in full as normal for any hours they actually work (presumably unless they are able to agree something different with them).
It remains the case that the guidance includes no express prohibition on employers leaving employees on furlough during any notice periods. Whether employers are obliged to top up employees’ minimum furlough pay to full pay during their notice periods is a complex and somewhat grey area, and specific advice should be sought on this.
Employers remain able to claim for employees they have furloughed if they have a UK PAYE scheme which started on or before 19 March 2020, are enrolled for PAYE online, submitted under the Real Time Information reporting system for the employees on or before 19 March, and hold a UK bank account.
However, from 1 July:
- Employers can only make a claim for employees who have been furloughed for at least three consecutive weeks at some point between 1 March and 30 June (i.e. for the first time by no later than 10 June) and who the employer has “successfully claimed a previous CJRS grant for”.
- Where a previously furloughed employee starts a new furlough period before 1 July, this period must be for at least three consecutive weeks (regardless of when it ends), but otherwise the minimum three week furlough period ceases to apply.
- The number of employees an employer can claim for in any single claim period is limited to the maximum number of furloughed employees claimed for under any claim ending by 30 June – although there is an exception to this for employees who return from maternity, shared parental, adoption, paternity or parental bereavement leave (“parental leave”) after 10 June and are furloughed, who can be added to that number.
- Employers must keep records of any flexible furloughing agreements reached including the relevant employees’ usual hours (with any calculations that were needed) and how many of those hours the employees are/are not working (see further below).
It is not clear whether an employee who ceased work before 10 June but was not provided with written confirmation that they have been furloughed until after 10 June would be covered.
The rules on furloughing employees with caring responsibilities, who are sick or self-isolating or shielding, or who are on various different types of leave have not changed – although as noted above no one in those categories can be furloughed for the first time after 10 June (unless they are returning from parental leave). The position where an employee is sick or self-isolating is however likely to come to into greater focus following the introduction of the Government’s track and trace system, which employers are expected to support (https://www.gov.uk/guidance/nhs-test-and-trace-workplace-guidance), and there is an apparent inconsistency between the Government guidance and the Direction in this regard.
The (updated) guidance says the CJRS “is not intended for short-term absences from work due to sickness [and] short term illness/self-isolation should not be a consideration in deciding whether to furlough an employee. If, however, employers want to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees. In these cases, the employee should no longer receive sick pay and would be classified as a furloughed employee”. This suggests that if an employee becomes unwell (for any reason) or is required to self-isolate and cannot work from home, their employer could in principle re-furlough them, or move them from being flexibly furloughed to fully furloughed, “for business reasons”.
However, the Direction states that where statutory sick pay (“SSP”) is in payment or due to be paid at the time when the instruction to cease work is given, furlough doesn’t start until “immediately after the end of the incapacity for work for which the SSP is in payment or due to be paid (provided that the time of the end of that period of incapacity for work is determined by an agreement between the employer and the employee)”. It will be interesting to see whether, and if so how, the guidance and/or the Direction is subsequently updated to deal with this.
Group company payroll
Where all of the employees of a group of companies transfer into a new, consolidated UK PAYE scheme after 28 February 2020, the employees can still be claimed for under the CJRS provided the new employer (or, where the transfer occurs after 10 June, the previous employer) had furloughed and made a claim for them for at least three consecutive weeks during the period between 1 March and 30 June.
The maximum number of employees that can be claimed for under the consolidated PAYE scheme is the total of the maximum number of employees under a single claim in each of the payroll schemes being consolidated.
TUPE and business succession rules
Where, in the case of a business transfer occurring after 28 February 2020:
- the employees have been the subject of a relevant transfer under TUPE (or would have been but for the fact that the original employer is in compulsory liquidation); or
- the business succession rules apply to the change of ownership of a business,
the new employer (or, in the case of a business transfer occurring after 10 June, the previous employer) will also need to have furloughed the employees and made a claim for them for at least three consecutive weeks falling between 1 March and 30 June 2020.
For the purposes of calculating the maximum number of employees the new employer can claim for in these circumstances:
- the maximum number of employees the new employer claimed for in any one claim ending on or before 30 June; and
- the number of transferring employees who have been furloughed and claimed for for at least three consecutive weeks between 1 March and 30 June 2020 (or the maximum cap applicable to the previous employer if less),
are added together.
Employees returning from parental leave after 10 June
On 9 June, the Government announced that parents on statutory maternity and paternity leave, who returned to work in the coming months, would be eligible to be furloughed for the first time under the CJRS even after the 10 June cut-off date – although the guidance now clarifies that this also covers employees on shared parental, adoption, and parental bereavement leave.
In summary, even after 10 June, employers can furlough employees returning from statutory parental leave for the first time, provided:
- the employee was on the employer’s payroll on or before 19 March (with an RTI submission to HMRC in respect of that employee also having been made by that date);
- the employer has already furloughed another employee in their organisation for at least three weeks during the period 1 March to 30 June; and
- the employee started their statutory parental leave before 10 June and returned after that date.
As noted above, any such employees are not included in the cap on the number of employees an employer can claim for after 1 July.
Working during furlough
It remains the case that during any hours when the employer records their employees as being on furlough they cannot undertake any work for their employer or any associated on linked organisation – although they can undertake training (being paid at least the National Minimum Wage (“NMW”) for any compulsory training), volunteer for another employer or organisation, work for another employer (if permitted), and undertake union/non-union representative and pension trustee duties.
However, from 1 July, employers will have the option (although no obligation) to bring previously furloughed employees back to work, for any amount of time and on any working pattern, and still claim under the CJRS for the portion of their “usual hours” that they have not worked.
Flexible furlough arrangements can last for any length of time (and can be agreed more than once), although the minimum period that an employer must claim for is seven calendar days.
The guidance is clear that flexible furlough arrangements need to be agreed with employees (or their trade unions) and recorded in a “new written agreement” which is kept for at least five years.
This is in contrast to full furlough arrangements, which the guidance now states only have to be agreed and “confirmed” to the employee in writing – the employee does not have to provide a written response.
Calculating “usual hours”
The new Steps to take before calculating your claim using the CJRS guidance sets out how an employer should work out an employee’s usual hours and furloughed hours. In summary, it provides that:
- The employer does not need to work out the usual hours (and furloughed hours) of any employee who is fully (rather than flexibly) furloughed.
- Otherwise (if an employee is flexibly furloughed), the employer must calculate the employee’s usual hours, and record both the actual hours they work and the hours for which they are furloughed for each claim period.
- There are two calculation methods depending on whether the employee works fixed hours, or variable hours (i.e. they are not contracted for a fixed number of hours or their pay depends on the hours they work).
- The employee’s working pattern does not have to match their pay period (for example they could be contracted to 40 hours a week but be paid monthly).
- If the employee has fixed contractual hours of work and their pay does not vary according to the hours they work, the employer must calculate their usual hours of work for each pay period (or part of a pay period that falls within the claims period) based on the hours the employee was contracted for at the end of the last pay period ending on or before 19 March 2020 – with any time that the employee was on leave during that pay period disregarded.
- If the employee works variable hours, the employer must calculate their usual hours of work based on the higher of either (1) the average number of hours worked by the employee in the 2019/2020 tax year or (2) the hours worked in the corresponding calendar period in the 2019/2020 tax year – including any hours worked as overtime where the pay for those hours was not discretionary, and any hours of leave for which the employee was paid their full contracted rate such as annual leave (with any hours of leave for which the employee was not paid their full contracted rate presumably, although not expressly disregarded).
- If the employee is paid per task or piece of work done, the employer must calculate their usual hours of work in the same way as for other employees who work variable hours if possible, but if not the employer can estimate their hours based on the number of “pieces” they produced (query over what period) and the average rate of work per hour which the employer should already have worked out to comply with NMW rules.
- When calculating the number of furloughed hours for each employee, the employer should start with the employee’s usual hours and subtract the number of hours they actually worked over the claim period, even if this is different to the number of hours the employee agreed to work – which may require a repayment to HMRC where the employer claims in advance (see further below), so employers are encouraged (but not obliged) not to claim until they “have certainty about” the number of hours the employee is working in the claim period.
The Government has also published this Example of how to calculate the amount you should claim for an employee who is flexibly furloughed.
The focus is therefore very much on hours, rather than days usually worked. It is clear that an employee can agree to flexible furlough arrangements which constitute a wholly different working pattern for them.
The guidance on calculating usual hours for employees who work variable hours assumes that an employer is “likely to have records of the number of hours worked” where pay varies by the amount of time worked, since this should be shown on employee’s payslips. What the guidance does not properly address is calculating usual hours for employees who work variable hours but whose pay does not vary accordingly – for example the many employees whose contracts provide that they will work fixed hours “and such other hours as the employer may reasonably require, without additional remuneration” (or similar), whose actual working hours will often not be measured. It is hoped that the Government will provide some further clarity on this point.
Flexible furlough and holiday
Holiday will continue to accrue as usual, whether an employee is fully or flexibly furloughed.
The guidance expressly notes that if any furlough hours are taken as paid holiday, the employer will need to top up the employee’s pay to full pay for those hours – and still states that the Government is keeping the policy on holiday pay during furlough under review “during this unprecedented time”!
The link to the Government’s example of how to calculate the amount an employer should claim for an employee who is flexibly furloughed is above.
What to include when calculating wages
The guidance still provide that the amount employers should use when calculating 80% of their employees’ wages is “regular payments you are obliged to make, including: regular wages you pay to employees; non-discretionary overtime; non-discretionary fees; non-discretionary commission payments; piece rate payments” excluding “payments made at the discretion of the employer or a client - where the employer or client was under no contractual obligation to pay, including: tips; discretionary bonuses; discretionary commission payments; non-cash payments; nonmonetary benefits like benefits in kind (such as a company car) and salary sacrifice schemes (including pension contributions) that reduce an employees’ taxable pay”.
However, it now includes two new paragraphs clarifying that:
- Non-discretionary payments are payments which the employer is contractually obliged to pay and to which the employee has an enforceable right; and
- Variable payments specified in a contract and always made “may become non-discretionary” in which case they should be included in an employee’s wages.
The wording used in the guidance remains completely different from (and far more straightforward than) that used in the Direction, but the consistent principle is that only regular payments which employers are contractually obliged to pay employees are covered.
The Government guidance now includes extensive examples to help employers calculate their employees’ wages.
Deciding the length of the claim period
The claim period is made up of the days in respect of which the employer is claiming a grant.
There is no maximum length for claim periods that end on or before 30 June. However, claims for any periods starting before 1 July must end on or before 30 June. This is the case even where an employee furloughed in June continues to be furloughed full time in July – in which case separate claims will need to be submitted to cover the days in June and the days in July. Claims for periods ending on or before 30 June 2020 must be made by 31 July 2020.
Claim periods starting on or after 1 July must start and end within the same calendar month, given that the scheme rules will change each month. Claim periods must be at least seven days, unless the employer is claiming for the first few days or the last few days in a calendar month – where this is the case, the claim period must include either the first or last day of the calendar month, and the employer must have already claimed for the period ending immediately before it. Claims for periods after 30 June can be made from 1 July.
Repayment of fraudulent or incorrect claims
The guidance has now been amended to state that HMRC will check claims made under the CJRS and payments may be withheld or may need to be paid back if a claim is found to be fraudulent or based on incorrect information – the previous references to “dishonest” claims and information have been removed.
The guidance now provides that if an employer has made an error in a claim that has resulted in an overpaid amount (which might include the situation where an employer has made an advance claim for a flexibly furloughed employee who actually worked more hours than originally envisaged – see further above), it must pay this back to HMRC, and the employer call now tell HMRC about the overclaimed amount as part of their next claim. The employer will then be asked when calculating the new claim whether it needs to adjust the amount down to take account of a previous error.
An employer can also contact HMRC if it has underclaimed to correct this, although HMRC will then “conduct additional checks”.
If an employer has made an error in a claim but does not plan to submit further claims, HMRC is apparently “working on a process” to deal with this.
It has been widely reported that businesses will soon be given a 30 day window of opportunity to “confess” to furlough fraud under new Government plans being drawn up after thousands of workers have reported their employers to HMRC for cheating the system, with new draft legislation being drawn up and expected to become law early next month to include powers to pursue company directors where businesses become insolvent, but this is not currently reflected in the guidance.
With the lockdown now gradually beginning to lift, but with social distancing still a significant barrier to business as usual, it seems likely that the number of employees continuing on some form of furlough will remain high. However, it remains to be seen how many employers will be able to maintain a full workforce in circumstances where they will now have to contribute to the costs of the CJRS.