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Changes to the Coronavirus Job Retention Scheme

21 April 2020

In the past week there have been some significant changes to the Government’s Coronavirus Job Retention Scheme (the “Scheme”). We will highlight the main changes and clarifications at the top of this note and repeat our main summary (with the changes incorporated) below that.

  • The Scheme applies to employees on the payroll on 19 March 2020 (previously 28 February 2020).
  • The Scheme is now running until 30 June 2020 (previously 31 May 2020).
  • The Employer and Employee must have agreed in writing that the employee will cease all work; or at least agreed between themselves and then the employer has confirmed that in writing. (This can take the form of an email.)
  • Employees who are furloughed may take annual leave during the furlough period; they will need to be paid 100% of normal pay (i.e. it will need to be topped up by the employer if the employer is paying 80% during the furlough period).
  • A director who is furloughed can only undertake work to fulfil a duty or other obligation arising from an Act of Parliament relating to the filing of company accounts or provision of other information relating to the administration of the director’s company.
  • Employers could apply to join the Scheme from Monday 20 April 2020.
  • HMRC will check applications for fraud/mistake and it is understood that the portal will allow fraud to be reported. A record of the communication must be retained for at least five years.
  • Grants cannot be used to fund redundancy payments.
  • The grants are for employees who are furloughed “by reason of circumstances arising as a result of coronavirus or coronavirus disease”. This is wider than the previous wording “to avoid redundancies” but it is to be seen whether it will be used as an anti-abuse measure in due course.

As of 10am on 21 April 2020, the Government’s Coronavirus Job Retention Scheme (the “Scheme”) can be interpreted as follows:

Fundamentals

  1. The Scheme will apply from 1 March 2020 to 30 June 2020; it may be extended again.
  2. The Government will refund up to 80% of “usual monthly wage costs” (excluding  discretionary elements of pay) up to a maximum of £2,500 per month for those employees furloughed PLUS the associated Employers’ National Insurance Contributions AND minimum auto-enrolment pension contributions.
  3. It applies to employees on the PAYE payroll as at 19 March 2020 (including zero-hour contract workers and agency workers if on PAYE). Critically, it also includes anyone who was on the payroll at 19 March 2020, made redundant thereafter and then re-hired by the employer.
  4. Employers could apply to join the Scheme from Monday 20 April 2020.
  5. HMRC will check applications for fraud/mistake and it is understood that the portal will allow fraud to be reported. A record of the communication must be retained for at least five years.
  6. Currently, under this Scheme, the provisions only relate to employees under PAYE. There is a separate scheme for those who are self-employed.
  7. The Scheme is not limited to those employees who would otherwise have been made redundant as a result of Coronavirus and its economic effects. It applies to any employees who are furloughed “by reason of circumstances arising as a result of coronavirus or coronavirus disease”.
  8. The contribution will be against the Employer’s gross payments.
  9. The Scheme applies to “PAYE employees” and includes: (I) office holders (including Company directors), (II) salaried members of LLPs, (III) agency workers (including those employed by umbrella companies), (IV) limb (b) workers, and (V) apprentices (who may continue to undertake training if they are furloughed).
  10. A director who is furloughed can only undertake work to fulfil a duty or other obligation arising from an Act of Parliament relating to the filing of company accounts or provision of other information relating to the administration of the director’s company. This is obviously a very restricted list of duties for a furloughed director.
  11. Employers who receive public funding for staff costs are not expected to apply for funding under the Scheme; neither are those employers who provide services necessary to the Coronavirus response.
  12. Grants cannot be used to fund redundancy payments.
  13. For those whose pay varies, there is a choice of calculation – the higher of: (a) the earnings in the same month in 2019; or (b) average over the 2019/20 tax year (or a monthly average for a shorter period if they have not been in the job for the whole year). In the case of an employee who only started in February 2020, the employer will be required to pro-rate the employee’s earnings so far.
  14. It is possible to “claim for any regular payments you are obliged to pay your employees”. The recent guidance states this includes “past overtime” and “compulsory commission”, but not “discretionary bonus and commission payments”. HMRC are advising that this includes, only, those contractual payments that fall due in the furlough period. The relevance of the term ‘regular payments’ has not yet been clarified.
  15. The Employer and Employee must have agreed in writing that the employee will cease all work; or at least agreed between themselves and then the employer has confirmed that in writing. (This can take the form of an email.)
  16. There is no requirement under the Scheme for employers to “fund the differences between this payment and…salary”.  However, that does not mean a suspension of general contract law or statutory protection.  There would still need to be a contractual right to reduce salary and/or consent to the reduction. There would also need to be a contractual right to furlough or consent to being furloughed.
  17. The employer will need to: (i) designate affected employees as ‘furloughed workers,’ and agree this change with them (which should then be confirmed by the employer in writing) (such agreement should be retained for six years (five years under the Scheme)) – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation; and (ii) submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. Employers could apply to join the Scheme from Monday 20 April 2020.
  18. Employees cannot furlough themselves.  It is at the discretion of employers although it will require the Employee’s written consent.
  19. Employees on fixed term contracts can be furloughed. The Scheme also permits those contracts to be extended and for furlough to apply. However, the extension must be agreed during the (initial) term (although query whether they could just be re-employed as is the case with permanent employees).
  20. The minimum period for which an employee can be furloughed is three weeks. In theory, part of a workforce could be furloughed for three weeks, then working again, while another part of the workforce is furloughed for three weeks i.e. employers can rotate employees, but for a minimum of three weeks at a time. Employees can be furloughed multiple times.
  21. An employee cannot carry out any work for the employer during the furlough period. However, they are able to undertake training and do volunteer work, provided they do not provide services to or make any money for their employer. They are also able to take paid employment with another employer whilst furloughed with the first employer (subject to any contractual restraints/consent).
  22. One very unfortunate consequence of the Scheme is that it arguably encourages employers to furlough employees that could otherwise do reduced hours from home.  Many employees have work to do, it is just greatly reduced.
  23. Ordinarily, individuals are entitled to the minimum wage for the hours they work. So if they are furloughed and do not work, and 80% of their normal earnings would take them below the minimum wage based on their normal working hours, they still only receive 80% as they are not working.  However, they are entitled to be paid National Minimum Wage for any time spent training. If the hours spent training result in the employee earning over their furlough income, the employer will need to pay this.
  24. Employers can only claim once every three weeks; they cannot get weekly reimbursement. Claims can be backdated to the Scheme’s commencement.
  25. Employees on maternity (or similar) leave can continue to draw SMP (or similar) payments.  The guidance does not prohibit women on maternity leave agreeing to return to work early and then being furloughed, or electing to change to Shared Parental Leave and then being furloughed.
  26. The employer must be careful not to discriminate in deciding who to offer furlough to. Something akin to a redundancy selection process would be a possible option.
  27. Inevitably, ordinary discrimination principles and constructive dismissal issues will apply to an employer’s selection of employees for furlough (or any other perceived detriment).  Employees may see a selection for furlough as a quasi-selection for redundancy (and it may involve “accepting” a reduced salary).
  28. If employers are considering dismissing employees that refuse to be furloughed, the full number of potentially furloughed staff will apply for the purposes of triggering collective consultation requirements (subject to timings etc).
  29. Furloughed workers will continue to accrue holiday entitlement during the furlough period.
  30. Employees who are furloughed may take annual leave during the furlough period; they will need to be paid 100% of normal pay (i.e. it will need to be topped up by the employer if the employer is paying 80% during the furlough period).
  31. The guidance is currently silent on whether an employer can force an employee to take annual leave while they are furloughed. There is debate amongst employment lawyers as to whether employer can or cannot do that.
  32. An unfortunate consequence of the Scheme is that those on SSP are likely to be paid less than those furloughed. Employers cannot claim for employees that are receiving SSP. However, employees that are ‘shielding’ in line with public health guidelines and are not working from home can be furloughed.
  33. The Treasury issued a Direction and accompanying Schedule to HMRC on 15 April 2020 under powers conferred by the Coronavirus Act 2020. This contains the authority and instructions for making payments under the Scheme: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/879484/200414_CJRS_DIRECTION_-_33_FINAL_Signed.pdf

Additional resources:

www.businesssupport.gov.uk/coronavirus-job-retention-scheme (last updated on 17 April 2020)

https://www.gov.uk/government/publications/coronavirus-job-retention-scheme-step-by-step-guide-for-employers Coronavirus Job Retention Scheme: step by step guide for employers (published 17 April 2020)

https://www.gov.uk/guidance/check-if-you-could-be-covered-by-the-coronavirus-job-retention-scheme

https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

The content is produced for guidance purposes only and does not constitute legal advice. It should also be noted that the guidance is deliberately narrow and to aid understanding of the new Scheme and its administration.