20th April 2020
It has now been just over a month since the Government announced that it would be launching its Coronavirus Job Retention Scheme (“the CJRS”), which introduced the concept of “furlough” to assist those who had been laid off or made redundant, or faced the threat of such action, due to the effect of the Covid-19 pandemic on businesses. Since then the details of the scheme have been provided by way of HMRC’s guidance, albeit having been published in fits and starts, and still containing a few ambiguities and gaps.
We provide below a brief summary of the key developments of which all employers, whether they have furloughed staff already or believe they may need to do so in the future, should be aware:
1. The CJRS has been extended to the end of June 2020
- The CJRS was originally stated to last for three months, with payments available in respect of salaries backdated from 1 March 2020 and running up to 31 May 2020. The Chancellor made clear that this would be kept under review, and it has now been announced that this will be extended to 30 June 2020. The CJRS will continue to be kept under review and may be extended further.
- At the point at which the CJRS ends, employers will be confronted by difficult questions as to whether they are able to continue with their employees’ employment or whether alternative measures are required, such as further pay cuts, lay-offs or redundancies.
2. HMRC’s online portal for claims should open in the week commencing 20 April 202
- The online portal through which employers may claim the grant to cover 80% of wages (up to a maximum of £2,500 per month) per furloughed employee was announced by HMRC to be opening on 20 April 2020, although in the Chancellor’s media briefing he was more vague and referred to the “week commencing” on that date.
- Where an employer has furloughed fewer than 100 employees, the details of each individual furloughed employee will need to be submitted on the online system; employers who have furloughed 100 employees or more may upload a separate file containing the relevant information.
- It is expected that there will be a huge number of claims in the first few days of the portal opening, with estimates that 9 million employees have already been furloughed. HMRC have assured that the online portal has been “stress tested” to allow up to 450,000 applications per hour.
- Payments are expected to be made to employers with six working days of the application being submitted online. Any employers wishing to ensure the grant has been received before month end should therefore apply within the first two days of the portal opening.
3. A step by step guide for employers to claim has been produced
- The guide is available at https://www.gov.uk/government/publications/coronavirus-job-retention-scheme-step-by-step-guide-for-employers.
- The guide provides clear details of the information employers need to submit in their application, as well as how to calculate the grants for gross pay, employer National Insurance contributions, and employer pension contributions, though more detailed guidance is available in respect of complex cases, such as employees with variable pay.
4. Key date for employment has been changed to 19 March 2020
- When the CJRS was announced on 19 March 2020, it was made clear that those employees who were on the employer’s payroll as at 28 February 2020, even if they had subsequently been dismissed or laid off, would be eligible for furlough. Those employed on or after 29 February 2020 would therefore not be eligible, with the Chancellor explaining that this was to protect against fraudulent claims.
- On 15 April 2020, the government changed its position. Employers can now claim for any furloughed employees that were employed and on their PAYE payroll on or before 19 March 2020. This means that the employee must have been notified to HMRC through an RTI submission notifying payment in respect of that employee on or before 19 March 2020. This includes employees who were employed as of 28 February 2020 and were dismissed or stopped working after that date but before 19 March 2020. The change is expected to benefit a further 200,000 employees. Those who fall to benefit from this change will need to be rehired by their former employers and agree to be placed on furlough to be eligible.
5. Written agreement from the furloughed employee is required
- The decision to place an employee on furlough has always required the agreement of the affected employee, as it is a variation of contract and so subject to the usual employment law requirements for such variation.
- On 17 April 2020, the Treasury published a Direction which took this one step further, stating that an employee may only be furloughed if “the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment”. It is therefore not possible to rely on implied consent, and employers should ensure that every furloughed employee has expressly agreed in writing to being furloughed, even if the written agreement has been obtained after the start of the furlough period.
- HMRC advises that the furlough agreement should be retained for at least five years so that it may be considered as part of any HMRC audit, though as it is a variation of contract we advise that the agreement should be retained for at least six years from the end of the furlough period.
6. Holiday may be taken during furlough leave
- The position on the interplay between annual leave and furlough leave was notably absent from HMRC’s guidance until new information was published on 17 April 2020. This confirmed that furloughed employees can take holiday whilst on furlough, but they should receive their “usual holiday pay” for such holiday (i.e. based on their pre-furlough salary). The CJRS will cover the holiday pay up to the usual 80% figure, and still capped at £2,500 per month, so the employer will be responsible for “topping up” the holiday pay.
- There remains some ambiguity as to whether employers may direct employees on furlough to take holiday during their furlough leave (i.e. to avoid employees accruing significant annual leave, which becomes payable on termination or exercisable following their return to work), or whether employers may deny holiday being taken during furlough leave, which would be understandable where the additional top-up costs are a concern. The HMRC guidance recognises that employers have the flexibility to restrict when leave can be taken if there is a business need, but this is only guidance and does not therefore address the issues that arise in law regarding these points. It is advisable to agree the position with the employee in the furlough agreement, though this may not avoid all issues in respect of statutory leave.
- The fact that the announcement on holiday pay: (a) came shortly after the bank holiday weekend, and (b) was published only in the guidance addressed to employees and not to employers, will no doubt frustrate employers who will now have to either top up any furloughed employee’s pay to their usual holiday pay for the bank holiday days, or offer days of holiday in lieu.
7. Employees may not be furloughed if they are entitled to SSP?
- HMRC’s guidance indicated that employers could, at their election, furlough employees who were already on sick leave and eligible for statutory sick pay (SSP). However, this has been thrown into doubt as the Treasury Direction, which has the same force and effect as legislation and therefore “trumps” HMRC’s guidance, indicates that the period of furlough cannot commence until the period of SSP (whether actual or deemed) has ended, whether or not SSP has in fact been claimed by the employer.
- This puts into serious conflict the Direction and the guidance. Until clarification is provided, it is advised that employers take a cautious approach to furloughing employees on sick leave, save for those who are shielding.
8. Company directors may make a claim in respect of their salary
- It has been made clear previously that company directors may apply for reimbursement of their salary costs (up to the specified sums), but not for dividends.
- Directors may work only to fulfil a statutory duty relating to the filing of company accounts or provision of other information relating to the administration of the director’s company. The performance of directors’ statutory duties will therefore not break their period of furlough. Directors who wish to benefit from the CJRS in respect of their own salaries should be careful not to overstep this rule, and in particular should avoid any revenue generating activities or the provision of services that would not be considered part of their statutory duties.
The information provided above is correct as at 20 April 2020, but the situation is changing frequently and rapidly. We will continue to monitor the situation and provide further updates, but please check the gov.uk website regularly for the most up to date information and clarifications.
If you have any questions regarding the CJRS, or any other employment related queries, please contact Matthew Cranton - Employment & Immigration Partner.
This article is offered for general informational purposes only, and does not constitute legal advice. The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the views or opinions of Solomon Taylor & Shaw.