On March 20, 2020, the Chancellor Rishi Sunak announced the introduction of a new Coronavirus Job Retention Scheme. The intention of this scheme was to enable UK employers to access a grant to continue paying part of the salary of employees who would otherwise have been laid off or made redundant as a result of the coronavirus pandemic.
The Chancellor’s initial statement was radical but distinctly lacking in specific detail, and over the past week employers and employees alike have been left feeling in the dark, trying to work out how the scheme might apply to them and how it is likely to affect the long term sustainability of their business. On Thursday 26 March, the government finally published detailed guidance for employers on how the scheme will operate.
We have divided the guidance into the frequently asked questions we have been most asked over the last week:
What is the purpose of the Coronavirus Job Retention Scheme (JRS)?
The Coronavirus Job Retention Scheme is a temporary scheme initially open to all UK employers for at least three months starting from 1 March 2020, but extended by the Chancellor on 12th May 2020 to October 2020. It is designed to support employers whose operations have been severely affected by coronavirus (COVID-19).
Employers can use a portal to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month (for employees earning over £3125 a month), plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on the wage being paid. Employers can use this scheme anytime during this period. From 1st August 2020, there will be amendments to the Scheme whereby employers are stated to be required to share the cost of meeting 80% of the employee’s costs, and the Scheme’s rules will be amended to allow employees to work part time with the wages received being deducted from the Government subsidy. Details are yet to be published of these changes to the rules.
Which employers are eligible to access the scheme?
Any UK organisation with employees can apply, including:
- Businesses – companies/ firms/ sole traders
- recruitment agencies (agency workers paid through PAYE)
- public authorities – but see section below.
- You must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
Where a company is being taken under the management of an administrator, the administrator will be able to access the Job Retention Scheme.
Public sector organisations
The government expects that the scheme will not be used by many public sector organisations, as the majority of public sector employees are continuing to provide essential public services or contribute to the response to the coronavirus outbreak.
Where employers receive public funding for staff costs, and that funding is continuing, we expect employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them. This also applies to non-public sector employers who receive public funding for staff costs.
Organisations who are receiving public funding specifically to provide services necessary to respond to COVID-19 are not expected to furlough staff.
In a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate for some staff.
Who can be furloughed?
The issue of employment status was confusing in the government’s original guidance, with references to employees and workers being used interchangeably. In addition, the government has now confirmed that the JRS will support any individuals who are engaged through the PAYE system, regardless of their employment contract. This means workers who are paid through PAYE will be covered, including those on zero-hour contracts or other flexible contracts. For ease, this note uses the term employee to refer to all those who are paid via PAYE.
Only employees employed on or before 19th March 2020 provided that real time payroll information has been submitted to HMRC for the employees who will be covered by the scheme by 19th March 2020. Those taken on after 19th March 2020 are excluded (ie cannot be furloughed or have a claim made in respect of their wages). The JRS will also cover employees who were made redundant since 28 February 2020, if they are rehired by their employer. It is therefore possible for employers to re-employ staff made redundant after 28 February, and place them on furlough in order to benefit from the JRS.
What about employees on sick leave/ self-isolating or shielding?
The Guidance is clear that employees who are sick or self-isolating should not be furloughed. However, highly vulnerable employees being advised to shield, can be furloughed
What wages are covered by JRS?
Employers need to make a claim for wage costs through this scheme.
You will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included.
At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month for employees earning in excess of £3125 per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to do so.
How long will the scheme operate for?
The JRS is a temporary scheme initially set up for at least three months from 1 March 2020 but extended initially until the end of June but then on 12th May 2020 to October 2020. Employers can access this particular scheme at any point during this period of time.
Will the payment made to employees be taxable?
Yes, individuals will pay income tax and National Insurance Contributions as usual on any payments received as part of the JRS (via PAYE deductions made by their employer). Employees will also pay automatic enrolment contributions on qualifying earnings, unless they have opted out.
What about employees on reduced hours?
To be eligible, employees on furlough will not be able to undertake any work for or on behalf of the employer organisation. The scheme is aimed at supporting individuals who would otherwise be dismissed, therefore employees who are still working, but on reduced hours or for reduced pay, will not be eligible to be covered by this scheme as they are still entitled to be paid by their employer. Employees should be instructed not to undertake any work during this period including dealing with emails. At present there appears to be no de minimis-exception. We now anticipate that this may change from 1st August 2020 and that employees can work some hours’ part time with the wages earnt offset against the furlough subsidy.
What holiday rights apply during Furlough Leave?
As the employee remains employed whilst they are furloughed holiday entitlement will continue to accrue. Employer may consider negotiating that employees only accrue Working Time Leave while furloughed.
What about employees on family leave/ maternity leave etc.?
Individuals who are on or plan to take Maternity Leave must take at least 2 weeks off work (4 weeks if they work in a factory or workshop) immediately following the birth of their baby. This is a health and safety requirement. In practice, most women start their Maternity Leave before they give birth.
If your employee is eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance.
Employees who qualify for SMP, will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is currently £148.68 a week, rising to £151.20 a week from April 2020.
If you offer enhanced (earnings related) contractual pay to women on Maternity Leave, this is included as wage costs that you can claim through the scheme.
The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.
Process for furloughing employees
The government has confirmed that any decision must be discussed with staff and any changes made “by agreement”. The guidance also states that “if sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment”.
In deciding who to furlough, the government stresses that “equality and discrimination laws will apply in the usual way”. In other words, not surprisingly, decisions about who or who not to furlough should not be based on a protected characteristic. Otherwise, nothing is said about how employers should go about selecting who to furlough (assuming only part of the workforce needs to be furloughed), suggesting the discretion remains with the employer. Nevertheless, it is still likely to be sensible to try to establish a fair selection process and criteria, which in these times, may include consideration of those who fall within vulnerable groups or have additional caring responsibilities as a result of the coronavirus outbreak.
In order to be eligible for the subsidy, the guidance states that employers should write to their employee(s) confirming that they have been furloughed and should keep a record of this letter. The potential implication is that without written evidence of such communication, there is a risk that employers may not be able to claim under the JRS. We can assist with the drafting of appropriate furlough letters where needed.
Is there a minimum period an employee can be furloughed for?
The government has stated that the minimum length an employee can be furloughed for is three weeks. To ensure employers comply with that, they will only be able to submit one claim every three weeks.
This means employers will not be able to rotate employees on furlough with those working over short periods. It is possible to have a group of employees on furlough for 3 weeks. End that furlough period and then place another group of employees on furlough again for a period of not less than 3 weeks. We will need to see details of how the Scheme will operate from 1st August 2020.
Does the JRS place restrictions on subsequent dismissals?
Although we had wondered if the government might make it a requirement of the scheme that employees are retained for a period after the furlough scheme ends, the government has not imposed any such conditions.
Instead, the guidance states that, at the end of the scheme, employers will need to decide whether employees will be able to return to their duties, or whether it will be necessary to consider redundancies. These will be subject to the usual rules on carrying out a fair dismissal.
What about other benefits?
Any other contractual benefits will continue unless otherwise agreed. It is therefore important that the agreement with the employee as to the terms of Furlough Leave clearly set out if other benefits are to cease during the period of Furlough Leave.