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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 employers 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.   
 
Who can apply for the scheme? 
 
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. 
 
Any entity with a UK PAYE payroll scheme on or before 19 March 2020 can apply for the scheme, which includes businesses, partnerships, sole traders, charities, recruitment agencies and public authorities, provided they have a PAYE payroll scheme. 
 
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 minimum auto-enrolment employer pension contributions. Discretionary commission, tips, benefits in kind and bonuses are not included in calculating the employee’s wages.   
 
Details of the Scheme (so far)  
 
Which employees are eligible to be furloughed under the scheme? 
 
Employers can make a claim in respect of full-time employees, part-time employees, employees on agency contracts, employees on flexible or zero-hour contracts and apprentices. The employee must have been on payroll on or before 19 March 2020, (provided the employer had submitted real time information payroll data by that date); anyone hired after this date cannot be claimedfor through the scheme (unless they have been rehired by their employer, having been dismissed prior to the scheme being announced).  

 The following can also be furloughed:  

  • Individuals such as nannies (provided they are paid through PAYE) 
  • Administrators 
  • Employees on all categories of visa 
  • Shielded employees 
  • Employees with caring responsibilities 
  • Office holders (including company directors), salaried members of Limited Liability Partnerships, agency workers (including those employed under umbrella companies) and limb      (b) workers (“dependent contractors”) 
  • Apprentices can be furloughed in the same way as other employees and they can continue to train whilst furloughed

 
Employees on fixed term contracts can be furloughed and their contacts can be renewed or extended during the furlough period without breaking the terms of the scheme. However, when their contract ends, they will no longer be eligible for the scheme. 
 
Public sector organisations who are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response may be eligible for the scheme, but organisations who receive public funding specifically to provide services to respond to the COVID-19 are not expected to furlough staff. 
 
Employees that were employed as of 28 February 2020 and on payroll at this date but were made redundant or stopped working for the employer before 19 March 2020, can also qualify for the scheme if the employer re-employs them and puts them on furlough. 
 
For employees that have transferred across under TUPE, a new employer is eligible to make a claim under the scheme for employees of a previous business transfer after 19 March 2020, if either the TUPE or PAYE business succession rules apply to the change of ownership.  
 
What is a furloughed worker and how does an employee become one?  
 
Furloughed workers will remain employed for the duration of the scheme, which is currently in place for 3 months, from 1 March 2020 to 31 May 2020. 
 
To access the scheme, employers will need to “designate” employees as furloughed workers and instruct them to cease all work in relation to their employment. Any employee, including salaried directors and those who may be “shielding”, can be furloughed. The latest guidance has confirmed the scheme applies to employees who are furloughed by reason of circumstances as a result of coronavirus or coronavirus disease; that is, not just those employees who would have otherwise been made redundant. 
 
For company directors and members of LLP’s, any furlough arrangements should be adopted formally as a decision of the company or LLP and directors will still owe statutory duties to their company whilst on furlough. A furloughed director can only undertake work to fulfil a duty or other obligation arising from an Act of Parliament relating to the filing of company's accounts or provision of other information relating to the administration of the director's company.  This is a very narrow interpretation of directors' duties. 
 
Employers can rotate employees designated as furloughed in 3 consecutive week blocks, to distribute the impact across the workforce.  The direction has confirmed that 21 calendar days is the minimum period to qualify under the scheme. 
 
Employers, however, still need to proceed with caution, and in accordance with existing employment law:   
 

  1. 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. 

                                                                                                         

  1. Employers will need to seek written agreement from the employee to become a furloughed worker, given this is a change to their employment status and pay and is required under the direction.  

  
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 must be instructed by the employer to cease all work in relation to their employment. This must be agreed by the employer and employee in writing (which may be in an electronic form such as an email. The written agreement that the employee will be furloughed and cease all work in relation to their employment must be kept for 5 years.  
 
Training activities directly relevant to an employee’s employment (which have been agreed between the employer and the employee before being undertaken) is permitted while on furlough leave. 
 
Employees remain employed for the duration of the scheme, with continuity of service. While on furlough, the employee’s wage will be subject to usual income tax and other deductions. The employee’s employment rights are unaffected, and the employee should continue to accrue holiday pay over any period of furlough.   
 
The employee remains on the Company’s payroll but will not be able to undertake any work at all for their employer whilst on furlough. This includes carrying out work for any linked or associated organisation. If the employee were to carry out work, they would not qualify for the grant. This is the case even if the employee is working reduced hours or undertaking different work to usual. The only exception to this is training or volunteering (provided it does not generate revenue or services for the employer, and provided they are not required to complete training).  
 
Furloughed employees can, however, work for a different employer during their furloughed leave, if their contract permits them to do so.  
 
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 and their NI numbers
  • The claim period (start and end date) 
  • The amount claimed 
  • Bank account details 
  • Contact details 

 
A claim can only be put in every 3 weeks. An employee can, however, be furloughed multiple times but each separate instance must be for a minimum period of 3 consecutive 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 19 March 2020 and cannot take in to account any discretionary bonus or commission received. The Government will also cover related employer NI and pension contributions, past overtime, fees and compulsory contractual commission payments, subject to the cap.  
 
If the employee receives variable pay, a claim should be made for 80% of the higher of the following:  
 

  1. Same month’s earnings from previous year (e.g. March 2019); or 
  2. Average earnings of 2019/2020 tax year. 

 
If the employee was been employed for less than 12 months, the employer can claim for 80% of their average monthly earnings since they started work until the date they are furloughed. If they have been employed for less than a month, the employer should use a pro-rata for earnings to date and claim 80%. 
 
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 thatpaying 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 must  be agreed with the employee (as it is a variation to a key term of the employee’s contract), 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 if an employee is self-isolating or on sick leave? 
 
The Coronavirus Job Retention Scheme is not intended for short-term absences from work due to sickness and there is a 3 weeks minimum furlough period. If an employee is on sick leave or self-isolating as a result of Coronavirus, then they will be able to get Statutory Sick Pay, subject to eligibility conditions. 
 
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.  Any subsequent entitlement to SSP by virtue of the employee becoming unfit for work again after the original SSP period has ended must be disregarded; the employee would remain on furlough under the scheme.  
 
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 that the scheme is still in its infancy and being created, there is a lot we do not yet know and further guidance on the scheme is anticipated. For instance, we do not yet know about - the consequences of any refusal to re-engage/furlough employees. Another key query remains surrounding the issue of annual leave and pay during periods of furlough.  
 
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. An Agreement of this nature is necessary to record the variation to the employee’s terms (i.e. to instruct the employee that they must not work, and to reflect any reduction in pay), to protect the parties and to satisfy the Government’s requirement that it must be agreed, put in writing and saved for 5 years.  
 
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.  We are on hand to answer your day-to-day HR queries during the pandemic. Please contact us for assistance and advice: This email address is being protected from spambots. You need JavaScript enabled to view it.  
 
 

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