Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
NOTE: This article was updated on July 10, 2020. Because the COVID-19 situation is dynamic, with new governmental measures each day, employers should consult with counsel for the latest developments and updated guidance on this topic.
On March 20, 2020, Chancellor Rishi Sunak announced an unprecedented package of measures to help workers and employers in the UK, including a Coronavirus Job Retention Scheme (CJRS). This article summarises the grant, which is available to all UK employers, and is based on detailed guidance published by HM Revenue & Customs (HMRC) on March 26, 2020 and updated up to and including June 15, 2020.
From July 1, 2020 until October 31, 2020 a new version of the CJRS will operate.
UK employees (1) paid by a UK employer, (2) who were on the payroll as at March 19, 2020, (3) who have a HMRC online RTI PAYE record submitted for them on or before March 19, 2020, (4) who have been asked to stop working but who remain in employment for either all, or, from July 1, 2020, some of their normal working time, and (5) who have completed a qualifying three-week period of furlough between March 1 and June 30, 2020. See Q12 below for special rules for employees who left employment and have been reinstated, including those who were on payroll as at the previous eligibility date of February 28, 2020, but left after then.
Up to July 31, 2020, HMRC will reimburse (1) 80%* of wages up to £2,500 per month; plus (2) associated employers’ national insurance and minimum automatic enrolment employer pension contributions. The grant maxes out for employees with a base salary of £37,500.
*From August 1, 2020 the reimbursement rules will change monthly (see Q3 below). Reimbursements will cease from October 31, 2020.
The original scheme runs from March 1 to the end of June 2020, for a minimum furlough period of 3 weeks at a time. On May 12, 2020 the scheme was extended to October 31, 2020. The scheme closed to new entrants after June 30, and any new furloughed employees must have been furloughed on or before June 10, 2020.
From October 31, 2020, employers may be eligible for a £1,000 job retention bonus if they continue to employ furloughed staff through January 2021 (see Q40 below).
To claim the grant employers will need to:
Employers do not have to top up payments to 100% of wages to qualify for the grant.
To qualify for the scheme, there must be “written agreement” between the employer and the employee for the employee to be furloughed.
From July 1, 2020, if an employee is being flexibly furloughed, a further "written agreement" is needed. There are new record-keeping requirements for employees placed on flexible furlough (see Q 31 below).
What constitutes “written agreement,” for the purposes of the scheme, is broader than one might ordinarily expect (see Q31 below).
We turn to some frequently asked questions about the scheme. Employers with additional questions about the scheme or appropriate wording for a furlough letter should consult with experienced employment counsel.
Q1: Can an employee work for the employer who has furloughed them during furlough?
The position differs for furlough up to and including June 30 2020, and on or after July 1, 2020.
Up to and including June 30, 2020
No. The guidance states that employees cannot do any work that makes money for your organisation or provides services for your organisation (or for any linked organisation).
An approved form of study or training is any study or training intended to improve the employee’s effectiveness in the business, or the performance of the business, and which does not:
- provide a service to the business;
- contribute to the employer’s business activities or to anything generating income or profit for the employer; or
- directly contribute to any significant degree to the production of any goods or to any service that the employer will provide to clients or customers.
If workers are required to complete online training courses whilst they are furloughed, then they must be paid at least the minimum wage for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
Although the guidance does not expressly deal with it, we do not see any likely issue with an employee logging-on to check HR emails or attending calls with HR by way of “keeping in touch” with the business whilst they are on furlough – but employees should not perform any substantive work. Similarly, there should be no objection to taking the occasional short call from colleagues to ensure continuity of work being undertaken by others. Employers should strive to make this clear when placing employees on furlough.
After July 1, 2020
After July 1, 2020 employers will be able to bring back furloughed employees to work part-time. Employers have considerable flexibility to decide how to structure flexible furlough. Employers will still be able to “fully” furlough employees after July 1 – i.e., where the employee does no work for the employer, as set out above – subject to the eligibility criteria being met. During periods where the flexibly furloughed employee is working, they are able to work as normal. During time where they are furloughed, they are subject to the usual restrictions set out above preventing work during furlough
Employers will need to calculate the “usual hours” for employees on flexible furlough (see Q5 below) as well as the amounts that must be paid to the employee and which can be reclaimed from the Government (see Q3 and Q4 below). Flexible furlough imposes new record-keeping requirements on employers to keep records of hours worked and hours spent on furlough in each period claimed for (see Q31 below).
Q2: Can an employee work for another employer during furlough, or get a new job?
Yes, provided the other employer is not related to the furloughed employer. If the employee gets a new job, the employee can start work for the new employer (again, provided the new employer is unrelated to the “furlough” employer).
From July 1, 2020, this rule also applies to those on flexible furlough, meaning that such employees will be able to work for another employer in the time they are furloughed (even if they are working part time for their original employer).
Q3: What amounts can an employer claim?
This is changing and depends on what furlough period is being claimed for.
Q4: How is the monthly wage calculated?
Employers will need to take a different approach for employees who are on full time furlough and those who are flexibly furloughed from July 1, 2020. There is now dedicated guidance on how to calculate the monthly wage of a furloughed employee, including a calculation tool – see here.
Up to and including June 30, 2020 / Those on full-time furlough
For salaried employees (full-time or part-time), the government’s employer guidance is that the monthly wage is calculated by reference to the employee’s “salary” for the last pay period prior to March 19, 2020 (previously as at February 28, 2020) and the payments addressed in Q5 below.
For salaried employees who are returning from a period of statutory absence (such as family-related leave) and are furloughed, the general principle is that employers use their salary, before tax, and not the pay they received whilst on statutory absence. Although the guidance does not provide a specific date against which to measure salary, presumably it would be the employee’s salary as of the date they returned.
There is also a saving provision in the CURRENT rules, which states that if an employer relied on the original rules and used February 28 instead of March 19, the employer can still use the salary as at that date instead for its first furlough reimbursement claim.
For employees with variable incomes, including “zero-hour” employees, the situation is more complicated. For employees with variable incomes who have been employed for a full year, employers will be able to claim the higher of either:
- the amount the employee earned in the same month in 2019; and
- an average of their monthly earnings for the 2019-20 tax year.
For employees with variable incomes who have been employed for less than a year, employers will be able to claim for an average of the regular monthly wages since they started work and until they are furloughed.
For employees with variable incomes who only started work in February 2020, the wages will need to be pro-rated from that month.
If employee is flexibly furloughed
Calculating how much can be recovered from the UK Government where an employee is flexibility furloughed is complex and requires employers to calculate the following:
- the employee’s usual hours (see below, Q5);
- the employee’s monthly wage, as set out above;
- the number of hours worked and on furlough in the claim period; and
- the wage costs in respect of furlough hours recoverable under the CJRS.
The amount that can be recovered under the CJRS is the lesser of 80% of the employee’s usual wages (subject to the tapering from September 1, see above Q3) or the maximum monthly amount for the relevant month (see above Q3), multiplied by the number of hours spent on furlough in the claim period, divided by the number of hours spent working in the claim period.
Q5: How do we calculate a flexibly furloughed employees "usual hours?"
The calculation needed will vary depending on whether (i) the employee has fixed contractual hours and their pay does not vary based on the hours worked and (ii) the employee works variable hours. Detailed Government guidance is available here and some worked examples are available here.
If the employee works fixed hours their “usual hours” in the claim period are calculated by reference to their contractual hours as at the end of the last pay period ending on or before March 19, 2020. A detailed description of the calculation to follow is available here.
If the employee works variable hours their “usual hours” are calculated based on the higher of:
- the average number of hours worked in the tax year 2019 to 2020 up until the day before they were furloughed, or the end of the tax year if earlier; and
- the hours worked in the corresponding calendar period in the tax year 2019 to 2020.
This should include any hours of paid leave in the period where the employee received full pay (such as annual leave) and any overtime hours where pay was not discretionary.
You must then calculate the usual hours for the pay period (or partial pay period) you are claiming for. The calculation used will vary depending on whether you are using the average number of hours in 2019/20 or the hours in the corresponding pay period. A detailed description of the calculation to follow is available here.
Q6: What payments to employees does their monthly wage cover?
As referred to above, there is now dedicated guidance on how to calculate the monthly wage of a furloughed employee, including a calculation tool – see here.
An employer can claim for any “regular” payments it is obliged to pay its employees. This figure includes wages, past overtime, compulsory fees and compulsory commission payments. However, any discretionary bonus (including tips) and commission payments, any “irregular” or conditional payments, and any non-cash payments or benefits-in-kind should be excluded.
Q7: What about pension and other benefits?
Employers have a statutory obligation to automatically enrol employees in a workplace pension and there are no powers in place to vary that obligation. Employers will continue to have to make these payments.
Up to the end of July 2020, the scheme covers the minimum pension contribution under UK auto-enrolment rules. In other words, the scheme will cover 3% of the employee’s qualifying earnings based on their furlough payment of up to £2,500 per calendar month.
The scheme rules state that any pension payment to a business must be paid into the employee’s pension account in full (i.e., without any deductions at all). The UK Pensions Regulator has also issued new guidance on auto-enrolment compliance during furlough (see here).
From August 1, 2020 employers will need to make pension contributions themselves. This will not be covered by the scheme for reimbursement (see Q3 above).
Employees continue to be entitled to all their other benefit rights under their employment contracts unless they are varied – so employees will be entitled to bonus, commission, healthcare, etc.
Varying these rights may or may not require consent depending on the terms of the employment contract. Employees who are furloughed may agree to forgo these benefits.
Q8: What about holiday accrual, taking holidays and holiday pay?
There are various related questions here. Below, we set out the current position as we best understand it, however the relationship between furlough (which is governed by the Treasury/HMRC scheme rules) and holiday entitlement (which is governed by the Working Time Regulations 1999) will need to be dealt with by the courts/tribunals (i.e., it is not just a matter for HMRC to provide guidance on). On May 13, 2020 the Government issued some guidelines on taking holiday during furlough, which are separate from the CJRS rules. These guidelines are likely to be followed by everyone, though they do not have the force of law.
- Does holiday continue to accrue during furlough? The general view is that the answer is yes for statutory holiday entitlement accrual. It will also normally be yes for extra holiday entitlement provided by employers (i.e., in excess of the statutory minimum), unless the employee’s furlough agreement/letter specifically provides to the contrary. This will continue to be the case where an employee is flexibly furloughed - in respect of time spent working, holiday will accrue as normal, subject to any agreement between the parties to the contrary.
- Is an employee allowed to take a holiday during furlough or is this legally prohibited? Yes (and this is the current view of the Government).
- Can an employer force an employee to take holiday during furlough? Ordinarily, the Working Time Regulations allow an employer to require an employee to take their holiday on specific dates by notice. It presumably does, and the Government has published guidance expressing its view that an employer can still require an employee to take holiday during furlough (provided it is reasonably practicable for the employee to do so – see below, in relation to the new carry-over rules).
- Does taking a holiday break the Government’s furlough scheme “3 week” rule (and mean the employer cannot claim for reimbursement under the scheme)? No.
- What about holiday pay? This also remains unclear. Based on views shared by the Government and ACAS, if a salaried employee takes a holiday then they are entitled to be paid at their “normal” rate (i.e., their pre-furlough pay) unless they have agreed to a permanent reduction in their normal salary (not just a temporary reduction during the furlough period). The courts may need to look at this question in particular because it involves interpreting the Working Time Regulations. For employees who are not salaried but have variable pay, the position is more complicated; we recommend employers speak with an employment law adviser to discuss this open issue. The Government also indicated that this rule applies to bank holidays that an employee would normally take as a holiday day (i.e., to be paid at the employee’s “normal” rate), but not bank holidays the employee would normally be working (which can remain at the “furlough” rate).
- What are the new rules on carry-over? The Working Time Regulations have been amended so that employees can carry over up to four weeks’ holiday to the next and subsequent holiday years where it was not reasonably practicable for the employee to take their holiday accrual "as a result of the effects of the coronavirus (including on the worker, the employer or the wider economy or society).” Interestingly, the Government issued guidance on May 13, 2020 that included its view that it would not be “reasonably practicable” for an employee to take a holiday if the employer could not afford to pay the employee their normal holiday pay entitlement for the day(s) off.
Q9: What about employment rights?
Employees will continue to accrue continuous service whilst on furlough. Thus, some employees who do not yet have the two years’ service required to claim a statutory redundancy payment and to bring an unfair dismissal claim may acquire these rights whilst on furlough.
Q10: What about tax, national insurance and other deductions?
Payments made by the employer will be subject to the usual deductions for income tax and national insurance.
Up to July 31, 2020 employers are able to reclaim the employer’s national insurance (subject to the financial limits discussed above). After August 1, 2020, employers will need to bear the cost of employer’s national insurance deductions themselves.
Pension is dealt with separately (see Q7 above).
Payments are also subject to other deductions, such as student loan repayments.
Q11: Do employers have to pay employees who are not able to work at the moment?
Yes, whilst employers probably have the right to send employees home and/or to not require performance in these exceptional times, employees have the right to be paid provided that they are ready, willing and able to work.
Apparent exceptions would be if the employment contract expressly permitted lay off without pay or if the employee agreed to any pay reduction as part of a furlough arrangement.
Q12: What payroll dates apply? What is the position of employees who have already been made redundant or otherwise stopped working?
Eligibility. The general rule now seems to be that an employer can claim for any employee (including a fixed-term employee) who was “on your payroll” as at March 19, 2020.
“On your payroll” for these purposes means that the employer had made a HMRC online RTI PAYE submission notifying payment for that employee on or before the relevant date (here: March 19, 2020).
Special rules apply to employees who stopped working before March 19, 2020, provided they were “on your payroll” as at February 28, 2020.
Employees who first started working for an employer after February 28, and who stopped working for that employer before March 19, appear not to be covered (however, this is complicated so please discuss it further with your adviser in the unlikely case that this scenario applies to your business).
Employees who stopped working. The rules are now as follows:
- An employee who was “on your payroll” as February 28, 2020 and who stopped working after that date, can be reinstated and placed on furlough even if the reinstatement occurs after March 19, 2020.
- An employee who was “on your payroll” as at March 19, 2020 and who stopped working after that date, can be reinstated and placed on furlough (again even if the reinstatement occurs after March 19, 2020).
Fixed-term employees. HMRC is now saying that a fixed-term employee whose contract has expired can be re-employed and placed on furlough if:
- their contract expired after February 28, 2020 and they were “on your payroll” on or before that date; or
- their contract expired after 19 March 2020 and they were “on your payroll” on or before that date.
The guidance says that fixed-term employees who started and ended the same contract between February 28, 2020 and March 19, 2020 will not qualify for the scheme.
If an employee has had multiple employers over the past year, has only worked for one of them at any one time, and is being furloughed by their current employer, their former employer/s should not re-employ them, put them on furlough and claim for their wages through the scheme.
Q13: What is the position of employees with whom employers have already agreed to reduced hours or reduced salaries?
Up to June 30, 2020, the guidance states that employees who remain working, but with reduced hours/pay, will not be eligible for the scheme. There would seem to be no objection to placing those employees on flexible furlough from July 1, 2020, subject to the eligibility requirements – in particular the employee must have completed a qualifying three-week period of furlough as of June 30 (meaning they were first placed on furlough no later than June 10). As a consequence, if an employee has been working on reduced hours throughout the pandemic and has never previously been furloughed, they will not be eligible for flexible furlough from July 1, 2020.
Q14: What is the position of employees who are currently on notice of termination (but working through their notice period)?
There is no objection for an employer to rescind those notices, to furlough and to reassess their position when the scheme ends.
Q15: What is the position of employees who are contracted to join us but have not done so?
The scheme only covers employees who were “on the payroll” on March 19, 2020 (note: previously February 28). “On the payroll” means that a payroll record has been set up and submitted under HMRC’s real time information (RTI) system for that employee.
Q16: Can an employee who is furloughed return to work and be furloughed again?
Until June 30, 2020, there is a minimum furlough period of three consecutive weeks. This means that any employee who begins an additional period of furlough after returning to work on or before June 30 must complete a full three consecutive weeks of furlough before they can return to work or be moved to flexible furlough. For example, if an employee returned to furlough on June 22, they must remain on furlough until at least July 12 in order for the period from June 22 to July 12 to be recoverable under the CJRS. After July 12, the employee can return to work and/or move to flexible furlough.
After July 1 2020, this three-week minimum has been removed and furlough periods can be any length of time. However, the minimum claim period is seven calendar days.
Q17: Are directors eligible?
Executive directors (i.e., those with an employment contract) are eligible. Non-executive directors are also eligible if they are remunerated by PAYE.
The guidance was updated on May 1, 2020 to make it clear that directors who are paid annually, not just periodically during a year, are also eligible (provided they meet the other criteria).
Furloughed directors can carry out duties to fulfil statutory obligations so long as they do no more than would be judged reasonably necessary for those purposes. Directors should be careful not to overstep this limit at the potential risk of prejudicing a grant application. The new Treasury rules, which will now bind the HMRC, state that statutory obligations for these purposes mean work undertaken by a director to fulfil a duty or other obligation arising by or under legislation relating to: (1) the filing of company accounts; or (2) the provision of other information relating to the administration of the company.
Finally, it is worth noting that the scheme rules state that any furlough arrangements applying to directors must be adopted formally as a decision of the company (presumably, by a board resolution).
Q18: Are partners eligible?
Most partners and LLP members are self-employed and so will be outside the scope of the scheme.
However, members of LLPs who are designated as employees for tax purposes (“salaried members”) are eligible to be furloughed, although amendment of the LLP agreement may be required.
On March 26, 2020, the government announced a scheme for the self-employed, but this applies only to those with profits of less than £50,000. We are not covering the detail of this scheme in our FAQs, but more information can be found here.
Finally, it is worth noting that the scheme rules state that any furlough arrangements applying to LLP members must be adopted formally as a decision of the LLP (presumably, by a resolution).
Q19: Are zero hours employees and agency workers eligible?
Yes, assuming that they are paid through PAYE.
Q20: Can employees who are currently absent on sick leave (including those self-isolating in accordance with government advice) instead be furloughed?
Employees can move between sick leave and furlough leave by agreement, provided employers are not doing so to abuse the system.
Remember that the SSP has been modified so that with effect from March 13 2020, employees can claim from their first day of incapacity and, with effect from March 14, 2020, employers with less than 250 employees can reclaim SSP paid in respect of the first 14 days of COVID-19-related sickness absence.
Employers can reclaim the costs of up to two weeks of SSP for COVID-19 related absence under the Coronavirus Statutory Sick Pay Rebate Scheme. Needless to say, an employer cannot claim back payments to an employee under both the SSP rebate scheme and the CJRS in respect of the same period.
Q21: Can employees who are at home looking after children or others be furloughed?
Q22: Do employers have to follow a redundancy or any other process before designating employees as furloughed workers?
There is no mandatory process. Employers should try to ensure there is a clear business rationale for decisions about who to furlough in order to avoid allegations of discrimination and further arguments around the unfairness of any subsequent redundancies. This consideration is especially important where there are a number of employees carrying out a similar role and only some of those employees are to be furloughed.
Informal consultation in a manner appropriate to the business in question is recommended.
Q23: What about sponsored workers?
The scheme rules state that “you can furlough employees on all categories of visa.”
The Home Office has now confirmed (in a separate statement) that the scheme can be used for sponsored migrants. They have to meet the same payroll date eligibility requirements as other employees (see above Q12). Some sponsored workers – especially some Tier 2 (Intra-company Transfer) migrants – will not qualify because they are not on PAYE.
It has also been clarified that sponsors can temporarily reduce the salaries of sponsored migrant workers to 80% of their salary or £2,500 per month, whichever is the lower. Any reductions must be part of a company-wide policy to avoid redundancies and in which all workers are treated the same. Pay must be returned to normal once these arrangements have ended. Sponsors must report on the SMS that a worker has been furloughed and report the reduction in salary. Employers should confer with immigration counsel for specific advice.
Q24: Does an employer’s decision to furlough trigger collective consultation obligations?
No, not in relation to the decision to furlough, but collective consultation may still be required if redundancies are proposed, even if they will not take effect until the end of the furlough period.
Where an employer goes beyond contemplating the possibility of redundancies, to making a proposal to dismiss as redundant 20 or more employees at any establishment within a 90-day period then collective consultation obligations are triggered. Such consultation must begin in good time and for a minimum period of 30 days (45 if more than 100 redundancies are contemplated). This process requires consultation with any recognised trade union or, if no other appropriate representatives, employee representatives who are elected for this purpose.
For these purposes, proposing to “dismiss” an employee is deemed to include a situation where the employee proposes to dismiss them under their current contract of employment and offer them new employment on a different (less costly) contract.
Many employers that do not wish to top up salary to 100% of pay will require employee consent to agree to the reduction in pay. When seeking such agreement, employers should be careful not to inadvertently trigger the collective consultation obligations by suggesting that there are firm proposals to make redundancies.
Even if collective consultation obligations are triggered, failure to consult awards can be made only to those individuals who are actually dismissed. If the expectation is that every employee will consent to be furloughed now rather than to be made redundant after a minimum 30/45-day consultation period, then theoretically, there will be no aggrieved person.
In certain situations, it may be sensible for employers to start collective consultation, as they can be in a position to implement any necessary redundancies once the scheme comes to a close. Employers faced with potential redundancies should check with an adviser.
Q25: Can employers carry out redundancy consultation whilst employees are furloughed?
The guidance does not explicitly address this question. In theory, being “consulted” arguably is not “work,” but HMRC could adopt a different position. This issue may become significant because some employers may want to be positioned to potentially implement redundancies if things don’t improve once the government grant concludes.
Just to recap:
- individual redundancy consultation -- is required in all cases, where employees have acquired 2 years continuous service.
- collective redundancy consultation -- is required in all cases where an employer proposes to dismiss as redundant 20 or more employees at any one establishment in a 90-day period.
As another reminder, union representatives and employee representatives have the right to paid time off for carrying out their duties. Depending on the circumstances, it may be necessary to “top up” their salaries for those days that they are carrying out their duties. It is also unclear whether performing these duties would be considered “work,” endangering a claim for furlough payments.
Q26: Will being placed on furlough impact an employee’s a redundancy payment or a payment in lieu of notice (PILON)?
Taking each in turn:
- Statutory redundancy pay: This may be an issue for those earning less than £525 a week on furlough. For this group, by accepting a reduction to salary whilst on furlough, their statutory redundancy payments will be based either on their furlough wages or on the average earnings in the prior 12 weeks. We expect that the government will legislate to close this anomaly.
- PILON: This will depend on the drafting of the furlough letter, but we would expect an employee terminated at the end of the furlough period will receive a PILON by reference to their normal salary.
When seeking consent to reduce salary levels, employers may wish to give comfort to employees that they will not be disadvantaged as a result of accepting a reduced salary although doing so may impact the tax treatment of any “top up” payments.
Q27: *UPDATED* Can we give notice of termination of employment now and furlough an employee for the duration of the scheme?
Unfortunately this is not clear as there have been multiple contradictory pieces of guidance from the UK Government.
The original policy intent of the scheme is to avoid redundancies. Based upon the guidance published on March 26, 2020, it was a requirement of the scheme that the furloughed worker would otherwise have been made redundant. However, nothing in the earlier guidance would appear to specifically prohibit an employee being given notice of termination and then furloughed during their notice period.
Current CJRS guidance states that the scheme “cannot be used to substitute redundancy payments” but it is not clear what the term “redundancy payments” is intended to mean. The ordinary meaning of those words would be a statutory or contractual redundancy payment but would not extend to a period of employment whilst an employee is on notice.
To further complicate matters, the third Treasury direction released states that it is “integral to the purpose of the CJRS [that funds claimed are] used to continue the employment” of affected employees. This arguably means that using the CJRS to claim for an employee’s notice period is not a legitimate use and could result in claims for repayment from HMRC. HMRC have indicated that this is not the case and claims can be made for wage costs during notice periods. This advice has been non-binding, however, and until official guidance is updated employers should be conscious of the risks.
Of course, in a sense, giving notice of termination, furloughing employees and obtaining a grant does have the effect of reducing overall termination costs. For that reason employers that choose to do this should: (a) keep the guidance under close review with a view to making a claim in due course; but (b) accept the risk they may not be able to recover payments to employees who are serving out notice.
In light of the shifting sands and open questions, employers should ensure that they keep their decision to make redundancies under review for the duration of the furlough period and seek specific advice from experienced employment counsel.
Q28: How will the scheme be policed?
We expect that the grant application will include a simple “check box” declaration. It is expected that HMRC will have extensive enforcement powers to audit applications after the fact in order to prevent fraud and abuse. Successive iterations of the guidance and the Treasury Direction have placed increasing emphasis on the intention to police perceived abuse of the scheme.
In recent days, there has also been a growing public criticism of profit-making businesses (especially larger businesses) using the CJRS to shore up their own profits, at the expense of the taxpayer.
A new self-policing mechanism was introduced into the CJRS on June 12. This allows employers to declare that they have made an error in previous claim when they make a new claim on the online portal. If the error resulted in the employer overclaiming, this should be declared and the new claim will be reduced down to account for the overpayment.
If the error resulted in an underpayment in a previous claim period, HMRC will need to be contacted directly as they will carry out additional checks.
Employers should keep records of any adjustments made to payments received under the CJRS for six years.
Q29: When will payments be made?
Payments to employers have started being made. Employers will need to pay and therefore fund salary costs in the meantime and may be eligible for a Coronavirus Business Interruption Loan.
An employer could reach agreement with employees so that furlough payments are instead made on receipt of the payment by HMRC.
Q30: What paperwork do we need? What should employers include in furlough communications?
Up to and including June 30, 2020
Paperwork. To qualify for payments under the scheme, the employer needs an agreement with an employee (either an individual agreement or a collective agreement) which meets the following criteria:
- it states that the employee will cease all work in relation to his or her employment;
- it sets out the main terms and conditions upon which the employee will cease working;
- it is incorporated (expressly or impliedly) in the employee’s contract;
- it is made in writing or confirmed in writing (including by email) by the employer; and
- it is retained by the employer until at least June 30, 2025 (or the confirmation is retained until that date instead).
The furlough letter/agreement. This letter/agreement/email should be retained on file until June 30, 2025. Topics to consider include:
- Whether there will be a reduction to basic salary whilst on furlough;
- When the furlough period will end and the employer’s right to require the employee to return to work early;
- Any impact on any benefits (life assurance, etc.) that are impacted by the change to salary;
- The duration of furlough and ability of the employer to end furlough leave early; and
- The fact that employees should not work (perhaps otherwise than undertaking approved training, allowing voluntary activity, orchecking emails for HR updates).
Employers may also wish to encourage employees to explore training and to consider undertaking volunteer work in support of the wider community while on furlough.
From July 1, 2020
Paperwork. When an employee is moved to flexible furlough, a new written agreement must be put in place (either an individual agreement or a collective agreement). This should meet the following criteria:
- it should set out the new working patterns, covering the hours the employee will be working and the hours they will be furloughed;
- it sets out the main terms and conditions of the flexible furlough arrangement;
- it is incorporated (expressly or impliedly) in the employee’s contract;
- it is made in writing and agreed with the employee. It appears that, unlike the position until July 1, the employee is required to respond to this written agreement. Employers should ensure they receive written confirmation of the employee’s agreement to the flexible furlough arrangement; and
- it is retained by the employer for at least five years (or the confirmation is retained until that date instead).
The furlough letter/agreement. This letter/agreement/email should be retained on file for at least five years. Topics to consider include:
- the revised working time during flexible furlough;
- whether there will be a reduction to basic salary whilst on furlough;
- when the furlough period will end and the employer’s right to require the employee to return to full time working;
- any impact on any benefits (life assurance etc.) which are impacted by the change to salary;
- the duration of the current flexible furlough arrangements and ability of the employer to end the period of flexible furlough early; and
- the fact that employees should not work (perhaps otherwise than undertaking approved training, allowed voluntary activity, or checking emails for HR updates) during hours where they are furloughed.
Q31: Are there any record-keeping obligations?
Yes. Furlough records including the furlough letters (i.e., designating employees as furloughed) must be kept for at least five years.
Note that the furlough period starts form the date that employees ceased working rather than date of the furlough letter. As a result, if furlough letters have not yet been issued, they should be issued as soon as possible.
Employers should also keep records of the following for at least six years:
- the amount claimed in each claim period for each employee;
- the calculations used to determine the amount to claim, in case HMRC need further information about the claim (or audit the claim in the future); and
- any adjustments made to payments received from the Government under the CJRS (see above Q28).
If an employee is flexibly furloughed, the employer needs to comply with additional record keeping requirements (such records should be retained for at least six years), including:
- the usual hours worked for each claim period and the calculations used to determine this figure;
- the actual hours worked for each claim period; and
- the hours spent on furlough for each claim period.
These records must be kept for at least six years.
Q32: Payroll Mechanics - Are there any other practicalities to be aware of?
We understand that the scheme will only pay out to businesses that have a UK bank account and are registered with HMRC’s online RTI PAYE system in respect of a furloughed employee, on or before March 19, 2020. The CJRS online portal commenced operation on April 20, 2020.
Employers should be prepared to complete declarations that furloughed workers have not been working in periods of furlough (we expect a revised declaration will be implemented from July 1, 2020 to reflect the introduction of flexible furlough). This step will be easy for some employers but less easy for employers with employees who can operate remotely. Employers will wish to ensure that the “no work” rules are understood by line management and appropriately policed.
An issue has arisen in respect of furlough periods that last for longer than 3 weeks, in terms of when the employer is allowed to seek payment from the government under the scheme. It is now clear than an initial furlough period can be extended by the employer even if the extension in itself is not for 3 weeks or more. The question, however, is how this relates to the mechanism for claiming a payment from the government.
For example, if an employee is furloughed for 5 weeks, does the employer have to wait and claim for the full 5 weeks in one submission, or can the claim be split into two submissions of, for example, 3 weeks and 2 weeks? The guidance is not clear on this; it just says each furlough period has to be at least 3 weeks long.
We checked with an advisor at HMRC who told us informally that two submissions can be made, even though the second submission in our example would only be for 2 weeks, instead of 3 weeks, provided the overall furlough itself is longer than 3 weeks. We are unable to verify this approach further but are passing along the information we received from the HMRC advisor. Employers that desire to split a furlough submission should be sure to raise this issue with their payroll provider, which may want to clear it with HMRC first.
As the revised CJRS is introduced from July 1, 2020, the existing scheme gradually will be retired. This means that claims under the old scheme (i.e., for periods up to and including June 30, 2020) must be made by July 31, 2020.
From July 1, 2020 a number of practical changes are being made to the claim system, including:
- Claims periods must start and end in the same calendar month. If a period of furlough crosses the end of a month, separate claims must be made for the days falling in each month. This includes claims for periods that span the end of June into July – if an employee is on furlough for three weeks from June 22 to July 12, two claims will need to be made covering (i) June 22-30 and (ii) July 1-12.
- Claim periods must be a minimum of seven calendar days (unless the period you are claiming for includes either the first or last day of the calendar month, and you have already claimed for the period ending immediately before it).
Q33: Are nannies and other domestic workers eligible?
Yes, provided that they are paid through PAYE.
Q34: What about employees who transferred into our business because of TUPE, after February 28, 2020?
TUPE transfers on or before June 10, 2020
These employees will be covered, provided that the new employer has submitted a claim for the employees in relation to a furlough period of at least three consecutive weeks taking place any time between March 1 and June 30, 2020.
TUPE transfers after June 10, 2020
These employees will be covered, provided that:
- the TUPE or PAYE business succession rules apply to the change in ownership; and
- the employees being claimed for have previously had a claim submitted for them by their prior employer in relation to a furlough period of at least three consecutive weeks taking place any time between March 1 and June 30, 2020.
For TUPE transfers effective after June 10, 2020, the maximum number of employees that the new employer can claim for under the CJRS is the total of:
- the maximum number of employees the new employer claimed for in any one claim ending on or before 30 June; and
- the number of employees that are being transferred to the new employer which have had a claim submitted for them in relation to a furlough period of at least three consecutive weeks taking place any time between March 1 and June 30, 2020.
Q35: What about employees who are on unpaid leave?
Employees on unpaid leave cannot be furloughed for the purposes of the CJRS scheme until their period of unpaid leave naturally comes to an end (in other words, any agreement between the employee and employer to cut short the period of unpaid leave will not be effective.
This is subject to an exception for any employee who started unpaid leave before March 1, 2020 and who agreed with the employer before March 20, 2020 to cut short the period of unpaid leave and be placed on furlough instead. A claim can be made in relation to such an employee.
If an employee was on unpaid leave before February 28, 2020, the employer should wait for them to come back to work according to their previously-agreed schedule, before furloughing them. The relevant salary for furlough reasons will be 80% of their salary had they been on paid leave instead of unpaid leave.
If an employee was placed on unpaid leave after February 28, 2020, they can be furloughed instead.
Q36: Are there any implications for employers that operate share incentive plans?
This question, though frequently asked, is not addressed in the government’s furlough scheme at all.
EMI options are the most tax-advantaged – and therefore the most popular – of all UK employee share incentives, but the favourable tax treatment ceases if a “disqualifying event” occurs in relation to an EMI option. One such event is if the holder of the option ceases to be required to work for their employer for at least 25 hours per week or, if less, 75% of their total working time. If option holders are furloughed, they presumably would fail to meet this requirement during the furlough period.
There can be no real doubt that the government will not want the tax status of furloughed employees to be tarnished as a result of having been furloughed. HMRC are aware of the problem and are promising to issue guidance in the very near future. While this guidance will no doubt be intended to be helpful to taxpayers, we cannot offer any insight until we have read their solution.
We also understand that valuations agreed with HMRC for the grant of EMI options, which until now have been valid for 90 days (increased last year from 60 days) will now be valid for 120 days. This is subject to the usual caveat if there are material developments affecting the company’s value.
There should be no significant implications for share plans other than EMI.
Q37: What about employees with salary sacrifice arrangements?
An employee who has reduced their base salary as part of a salary-sacrifice arrangement will have their furlough payments calculated by reference to 80% of their new base salary, not their “notional” or “reference” salary (up to the monthly cap of £2,500).
The HMRC guidance states that HMRC will consider COVID-19 as a “life event” allowing an existing salary-sacrifice arrangement to be changed, without upsetting the tax treatment of a prior arrangement.
Employees who have a salary sacrifice arrangement “reversed” and whose base salary increases as a result, however, should still have their CJRS grant amount determined by reference to the normal timing rules (see above, Q3).
Q38: Can employees who have stopped working insist on being rehired and placed on furlough?
There is nothing in the guidance or any law that would require an employer to reinstate someone in this situation, if the employer did not want to do so.
However, it may be possible for an employee who is let go to bring an unfair dismissal claim against their ex-employer (assuming they have enough service to bring such a claim) and in the process of doing that argue that the dismissal was “unfair” because the employer could have furloughed them instead. It is unclear whether an Employment Tribunal judge would be persuaded by this type of argument.
Q39: What is the market doing?
There has been a significant uptake of the scheme. HMRC data as at June 11, 2020, which you can see here, shows that 81% of all businesses have accessed the furlough scheme to date. It remains to be seen how the market responds to flexible furlough and the tapering of government subsidy from August 1. It is likely that many businesses will restart any discussions about redundancies.
One issue to be aware of is the potential public relations aspect of accessing the scheme. A number of employers in the UK have been criticised for furloughing staff and have subsequently decided to reverse those decisions as a result of adverse coverage. In other markets, some journalists are also now questioning whether large businesses with well-paid executives should be accessing public funds to pay furloughed staff. Organizations that furlough and claim government subsidy should expect their operations to be open to public/press/parliamentary scrutiny.
Q40: *NEW* How is the Government encouraging job retention after the CJRS ends?
On July 8, 2020, the UK Government announced a new measure to encourage employment after the CJRS ends on October 31, 2020. Under this new scheme, the Government will pay employers a £1,000 bonus for each employee who has been placed on furlough that they retain in employment until the end of January 2021. The employee must earn at least £250 each month from November 1, 2020 to January 31, 2021 for the employer to be eligible to receive the bonus.
As of July 8, 2020 full details of this new scheme have not been published.