A Quick Guide for Businesses
In March, the Chancellor announced his plans to support employers and employees to endure both the immediate and long-term effects of COVID-19.
In the uncertain economic climate, the key focus for employer’s over the coming months is going to be on keeping costs to a minimum wherever possible. The Government recognised that this would no doubt lead to redundancies amongst the work force, which ordinarily would not have taken place. The Coronavirus Job Retention Scheme is designed to avoid businesses having to take those drastic steps.
The guidance is ever evolving and there are still many questions unanswered.
All businesses, including limited companies, partnerships, sole traders and charities, can benefit from the scheme provided they had a PAYE scheme in place at 28 February 2020.
Employers can make a claim in respect of full-time employees, part-time employees, employees on agency contracts and employees on flexible or zero-hour contracts. The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.
Employers can claim a grant of up to 80% of an employee’s wages, up to a maximum of £2,500, plus employer National Insurance contributions and pension contributions.
Fees, commissions and bonuses are not included in calculating the employee’s wages.
Employees remain employed for the duration of the scheme, with continuity of service.
Employees placed on the scheme are unable to work for that employer whilst the grant is being claimed.
THE DETAIL (SO FAR)
If you are unable to sustain staff wages due to COVID-19, you may be able to benefit from a grant under this scheme by nominating employees as furloughed workers.
What is a furloughed worker and how does an employee become one?
To access the scheme, employers will need to “designate” employees as furloughed workers. A furloughed worker is an employee who would have otherwise been made redundant or put on short time working or unpaid leave as a result of the impact of COVID-19 on the business. The employee must have been on payroll at 28 February 2020; anyone hired after this date cannot be furloughed.
Employees can rotate employees designated as furloughed in 3-week blocks, to distribute the impact across the workforce.
Employers, however, still need to proceed with caution, and in accordance with existing employment law:
Employers must take care not to discriminate in designating employees as furloughed workers. Current guidance suggests that selecting vulnerable employees or those suffering from existing health conditions as a priority is unlikely to be discriminatory, as it is in line with Government guidance and can be justified as proportionate means of achieving a legitimate aim.
Employers will need to seek agreement from the employee to become a furloughed worker, given this is a change to their employment status and pay.
It is expected that most employees will agree to become a furloughed worker, as this provides both job security and guaranteed wages. However, if an employee does not agree, employers will need to consider the alternatives. If redundancy is necessary, employers should follow their usual redundancy procedure. Those employees with over two years’ service will be entitled to a statutory redundancy payment. All employees will be entitled to notice or pay in lieu, and payment of accrued but untaken holiday (if any).
What happens to the employee once designated as a Furloughed Worker?
The employee remains on the Ccompany’s payroll but will not be able to undertake any work at all, except training or volunteering (provided it does not generate revenue or services for the employer, and provided they are not required to complete training). The employee’s employment rights are unaffected; the employee should continue to accrue holiday pay over any period of furlough.
If the employee were to carry out work, they would not qualify for the scheme. This is the case even if the employee is working reduced hours or undertaking different work to usual.
Furloughed workers will remain employed for the duration of the scheme, which is currently in place for 3 months, from 1 March 2020..
How does the employer access the grant?
An employer will need to provide HMRC with the following information through an online portal, which is yet to be set up:
ePAYE reference number
The number of employees designated as furloughed workers
The claim period (start and end date)
The amount claimed
Bank account details
A claim can only be put in every 3 weeks.
The employer will also be required to show that they have written to the employee to confirm their furloughed status. It would be sensible to start collating the above information now, in readiness for when the system launches.
Employers must take care in collating information and ensuring it is accurate. It has been indicated that HMRC will be retrospectively auditing the payments made under the scheme, to ensure they are legitimate and accurate.
The Government has indicated that the scheme will be run through a HMRC online portal, but this is not yet in place. This will undoubtedly take time to set up, but it is currently hoped that the system will be accessible by the end of April 2020, to allow payments to be made to the business. In the meantime, employers should continue to pay the employee their wage (either 100% or 80%, provided this is agreed with the employee).
How should the amount be calculated?
The employer will need to calculate the amount it is claiming for each employee. For most employees, this will need to be 80% of the lower of £2,500 or their regular monthly wage. The calculation must be carried out on the employee’s wage as at 28 February 2020 and cannot take into account any bonus or commission received. The Government will also cover related employer NI and pension contributions.
If the employee receives variable pay, a claim should be made for 80% of the higher of the following:
Same month’s earnings from previous year (e.g. March 2019); or
Average earnings of 2019/2020 tax year.
If the employee was employed in February 2020 (and therefore has limited evidence of earnings), the employer should use a pro-rata for earnings to date.
What happens if 80% of an employee’s wage would fall below National Minimum Wage?
If the employee’s wage would fall below National Minimum Wage, the Government has stated that paying at a rate of 80% of usual wages will not fall foul of National Minimum Wage legislation and is permitted.
There is however an exception; if an employee is required to carry out training whilst they are furloughed, they must be paid the National Living Wage or National Minimum Wage for the time they spend training, even if this equates to more than the 80% wage to be obtained from the Government.
What happens to the grant once paid?
The employer will need to pay the employee the whole grant subject to NI and tax liabilities. The employer is not permitted to charge any fees in respect of this process – the employee must receive the entire grant.
The employer is free to top up the employee’s salary to 100%, should it wish, however it is not obliged to do so under the scheme. If the employer intends only to pay 80% to the employee, this will need to be agreed with the employee, otherwise a reduction in pay would give rise to a potential breach of contract claim and/or an unlawful deduction of wages claim by the employee.
The employer will need to include the grant received as income for Income Tax and Corporation Tax purposes, but this should be deductible from taxable profit as an employment cost, as usual.
What about Statutory Sick Pay, Maternity Pay, Adoption Pay, Paternity Pay or Shared Parental Pay?
If an employee is receiving Statutory Sick Pay, they should continue getting SSP for the duration they are entitled to. The employer is then free to designate the employee as a furloughed worker, once they are no longer able to receive SSP.
Similarly, if an employee is receiving, or is due to receive maternity pay, adoption pay, paternity pay or shared parental pay, they should continue to receive this pay. An employer has the option to agree with the employee that they will return to work early (provided this is in line with any Health and Safety Regulations) and can be immediately designated as a furloughed worker at that juncture.
Are there any potential downsides?
Whilst the scheme is a welcome support for businesses during this time, employers will need to consider the impact on the workforce as a whole.
If there are employees still retained by the company who are able to continue working, there may be some underlying hostility towards furloughed workers, who are effectively receiving 80% pay for not carrying out any work for the business. This may be a difficult pill to swallow for employees who are still working to receive their full pay.
However, as a business, retaining valued and qualified staff is essential to future success. Whilst laying off staff may cut costs in the short term, it can lead to greater problems further down the line if your staff force is reduced. This is aside from the obvious impact redundancies have on team morale.
Need more help?
Given this is still in its infancy, there is a lot we do not yet know, particularly as to the correct procedure for placing someone on furlough, and the intricacies of the same. Balancing the needs of the business and its individual employees will be a difficult task at this time.
Our Employment Team will post regular announcements and advice for employers as soon as new guidance is released, so do keep an eye out – we anticipate many of our unanswered questions will be addressed over the next few weeks.
We can also assist with drafting Furlough Leave Agreements to assist you with putting the Government scheme into practice.
Curzon Green and their experienced Employment Team are also able to provide tailored, up to date advice to support your business in navigating the rapidly changing Government guidance and preparing for the uncertainty that lies ahead.