Coronavirus Job Retention Scheme
27 March 2020
The much awaited guidance on the Government’s Coronavirus Job Retention Scheme ("the Scheme") was released late last night (Thursday 26 March 2020). We have set out the key features of the Scheme below and responded to the most frequently asked questions that we have received in recent days.
Key Features of the Scheme:
- It is open to all UK employers for at least 3 months from 1 March 2020.
- Employers can claim for 80% of furloughed employees’ usual monthly wage costs, up to £2,500 per month, plus the associated employer national insurance contributions (NICs) and minimum auto enrolment employer contributions (based on the 80% wage). While on furlough, the employee’s wage will be subject to usual income tax, employee NICs and other deductions.
- The employer must have had a PAYE payroll scheme on 28 February 2020 and have a UK bank account to claim under the Scheme.
- The furloughed employee must have been on the employer’s PAYE payroll on 28 February 2020. If the employee has been made redundant since 28 February 2020 or been placed on a period of unpaid leave after that date, they can still qualify for the Scheme. If the employee was made redundant he / she will need to be re-employed by the employer in order to qualify under the Scheme.
- The employee can be on any type of contract such as full-time, part-time, agency or zero-hours.
- The minimum period of furlough is 3 weeks.
- When an employee has been furloughed they must not carry out any work for the employer. However, they are able to undertake volunteer work or training, as long as it does not “provide services to or generate revenue for” the employer’s business.
- Employees on sick leave or who are self-isolating can be placed on furlough after the period of sick leave, but not during the period of sick leave / self - isolation.
Frequently Asked Questions
1. How is the 80% calculated?
The guidance states that the employer can claim for wages up to £2,500 per month plus employer NICs and minimum auto-enrolment contributions (calculated on the lower wage). Fees, commission and bonuses should not be included in the calculation. The 80% will be paid through PAYE and subject to the usual deductions.
The guidance is clear that HMRC retain the right retrospectively to audit the amounts being claimed under the Scheme and therefore we would strongly recommend that employers carefully calculate the amounts being claimed under the Scheme and retain evidence of those calculations.
2. How does an employer make a claim and when does the Scheme “go-live”?
Employers will make any claim under the Scheme through a new HMRC portal. HMRC has confirmed that it expects the Scheme to be up and running by the end of April 2020. Employers will need the following information to make a claim: ePAYE reference number; confirmation of the number of employees being furloughed; the claim period (start and end date); the amount claimed; bank account and sort code; contact name; and phone number.
Once HMRC has received the claim and confirmed eligibility for payment, the monies will be paid via BACS into the employer’s bank account.
3. I have decided to top up my employees’ salary to 100% (and / or beyond the £2,500 cap). How does this impact the calculation?
If the employer decides to top up employees’ salaries, the excess amount (plus associated employer NICs / pension contributions attributable to the excess amount) will not be funded by the Scheme. The employer will have to bear those excess costs itself.
4. Does an employer need to have a contractual right to furlough?
“Furlough” is a new term, certainly within the context of UK employment law, and therefore it is very unlikely that employers will have an express entitlement to furlough employees. It is much more common (but by no means universal) for employers to have a right to place employees on a period of temporary lay-off with only an entitlement to statutory guarantee pay, so check contracts of employment and employee handbooks. Subject
to the wording of that temporary lay-off clause (if you have one), our view is it is likely that such a right under the contract is sufficient to place the employee on furlough. We have reached that view on the basis that if you have the contractual right to lay-off the employee on no pay, it should follow that you have the contractual right to furlough them on 80% pay. We stress however, that is only our view, and as this is a brand new and rapidly developing employment law issue, it is entirely untested. If you want absolute certainty, you would be best to seek specific agreement with your employees.
If the employer does not have an express or implied contractual right to lay-off, then it will need to seek agreement from the employees to be placed on a period of furlough and (unless the employer is maintaining full pay) to reduce the employee’s pay.
As with any change in terms and conditions of employment, that is a complex area of law and raises risks of unlawful deductions from wages and breach of contract, heightened in this instance because of the urgency. The guidance also suggests that, depending on the numbers of employees involved, collective consultation obligations may be triggered. We recommend that you seek specific legal advice.
5. Can an employer furlough an employee on sick leave?
Employees who are on sick leave or who are self-isolating should receive statutory sick pay and, if they meet the terms of any enhanced employer sick pay scheme, should receive payment under that scheme. The employee can only be placed on furlough (and therefore the employer can only claim under the Scheme) when the employee is no longer on sick leave or self-isolating.
If the employee is shielding in line with public health guidance, they can be furloughed and a claim can be made under the Scheme in respect of that employee.
6. How does the Scheme deal with employees on or about to take maternity leave?
If the employee is eligible for Statutory Maternity Pay or Maternity Allowance, the normal rules apply and the employee remains entitled to claim up to 39 weeks of statutory pay or allowance. If the employer offers enhanced maternity pay, this enhanced element can be claimed through the Scheme.
7. I have a number of employees with variable wages. How do I know what I am entitled to claim?
Where the employee has been employed for a full twelve months prior to the claim, the employer can claim for the higher of:
- The same month’s earnings for the previous year (e.g. if you are making a claim for April 2020, you can use April 2019 as your benchmark); or
- The average monthly earnings from the 2019 - 2020 tax year.
If the employee has not been employed for a full twelve months, the employer should calculate the average monthly earnings since the date that the employee started work and can claim up to that amount.
For those employees with fixed monthly wages, you can claim 80% of their basic pay in the month prior.
8. Can an employer rotate periods of furlough with periods of “normal” work?
The guidance does not mention staggered furlough or rotational furlough. However, our interpretation (with the same caveat that this is all new and developing) is that provided it is managed carefully, staggered furlough and / or placing employees on furlough multiple times should be possible. The guidance states that the minimum period of furlough is three weeks. It also states that an employer is able only to make one claim (for reimbursement) in each three week period. Let’s say you have 10 employees but you only need five to work at the moment, you could consider putting half of them on furlough for weeks 1 to 3, make a claim for those five employees (one claim per three weeks) and then rotate the other five employees for weeks 4 to 6 (again, one claim per three weeks).
Another important consideration is how you should choose employees for furlough. That is straightforward if you are completely closing and all employees are to be furloughed. But if it is a partial closure the guidance reminds employers that selection needs to comply with existing employment laws, and must not operate in a discriminatory way. To take an extreme example, you could not simply furlough all your female employees on the assumption that (as schools are closed) it makes more “sense for women to be at home and men to be at work”.
9. If dropping pay to 80% means that the employee will receive less than National Minimum Wage (“NMW”) under the Scheme, is the employer obliged to top the payment up to comply with NMW?
No. Employees are only entitled to NMW for hours that they are working. Given that employees will not be working during the furlough period, it will not be a breach of NMW legislation for them to receive less than NMW during the furlough period. However, there is an NMW increase in a few days’ time. To our knowledge, there is no suggestion that the increase will be postponed. That means for those of your employees earning at / close to existing NMW rates, you should still increase their pay in line with the new NMW rates, then apply the 80% / £2,500 threshold.
10. Do employees continue to accrue holiday whilst on furlough?
Yes. Employees continue to accrue holiday entitlement in the usual way.
If you require any further information, please do not hesitate to contact our Employment team at Carson McDowell.
*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.