The Government announced its plans for financial assistance called the Job Retention Scheme aimed to help employers retain their employees for an extended period, whilst not in a position to offer work, and avoid layoffs. Below is some advice and information on how it will work. This is, of course, subject to continual review dependent on Government guidance.
WHAT IS THE JOB RETENTION SCHEME?
You will have learned a very new term used (originally an American term) ‘furloughed workers’ and means temporarily changing the status of employees so that they do no work but are retained on your books to be brought back in when you have work for them to do; effectively suspending them from their duties until normal business resume.
The Government will award a grant to all Employers which will cover 80% of furloughed employees’ wages, to a maximum of £2,500 per employee per month.
All UK organisations with employees can apply, including:
- recruitment agencies (agency workers paid through PAYE)
- public authorities
Further information and guidance can be accessed via this link Government Guidance on the Job Retention Scheme
HOW DO I GET THE GOVERNMENT GRANT?
The guidance sets out that you will need to submit information to HMRC on who your furloughed workers are. Once HMRC has received your claim and you are eligible for the 80% wage cost grant. The Government are creating an online portal to be used to submit the necessary information, this is anticipated to be the accessible end of April 2020 and payments will be backdated to 1 March 2020. Payments will need to be processed by HMRC and this may take some time so be prepared to fund employee costs until then. You can only make one claim at least every 3 weeks. When applying, you will need:
▪ your ePAYE reference number (for PAYE online this can take up to 10 days)
▪ the number of employees being furloughed
▪ the claim period (start and end date)
▪ amount claimed (per the minimum length of furloughing of 3 weeks)
▪ your bank account number and sort code
▪ your contact full name
▪ your phone number
You should make a claim in accordance with your actual payroll run or in advance of an imminent payroll. You must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
The grant is a reimbursement to the employer therefore you should make the wage/salary payment to the furloughed worker as normal. Employers who are struggling with salary payments because of the current situation may be able to obtain assistance from the Coronavirus Business Interruption Loan Scheme (CBILS).
This is open to employers who have a turnover of no more than £45 million per year and subject to other eligibility criteria. Larger companies may be able to receive financial assistance via the COVID- 19 Corporate Financing Facility.
The scheme is initially intended to run for 3 months but may be extended.
WHAT CAN I CLAIM THROUGH THE SCHEME?
Full time, part-time, employees on zero-hours, flexible or *fixed terms contracts, and apprentices. If employees have been employed (or engaged by an employment business in the case of **agency workers) for a full year, employers will claim for the higher of either:
▪ the amount the employee earned in the same month last year, or
▪ an average of their monthly earnings from the last year.
If employees are employed for less than a year, employers will claim for an average of their monthly earnings since they started work. The same arrangements apply if the employee’s monthly pay varies because they are, for example, a zero-hour hours employee. If the employee started work in February 2020, the employer will pro-rata the earnings from that month. For full time and part-time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.
Once you have worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.
* Fixed terms contacts can be renewed or extended without breaking the terms of Furlough. ** Agencies who pay agency workers through PAYE can claim for those workers if they are not working or on behalf of the agency. Where the agency supplies staff under an umbrella company that operates PAYE, it will be for the umbrella company and the worker to agree on terms of furlough.
WHAT ABOUT TAX, NATIONAL INSURANCE AND PENSIONS?
Wages of furloughed employees will be subject to Income Tax and National Insurance as usual. Employees will also pay automatic enrolment contributions on qualifying earnings unless they have chosen to opt-out or to cease saving into a workplace pension scheme.
Employers will be liable to pay Employer National Insurance contributions on wages paid, as well as automatic enrolment contributions on qualifying earnings unless an employee has opted out or has ceased saving into a workplace pension scheme.
All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees. Employers can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying those wages.
If you decide to top up employees’ pay above the 80%, employer National Insurance Contributions and automatic enrolment contribution on that top-up salary will not be funded through the Scheme. Nor will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards).
IF I PUT EMPLOYEES ON FURLOUGH AND I GET A GRANT TO COVER 80% OF THEIR WAGES, DO I HAVE TO MAKE UP THE OTHER 20%?
No, there is no requirement to do this but of course you can if you wish.
WHAT DO I NEED TO DO TO FURLOUGH MY EMPLOYEES?
You need to designate which employees are to be furloughed. This may be all your workforce or some of it. Theoretically, any employee can be furloughed, and this includes full time, part-time, zero-hours and variable hours, but they must have been on your payroll on 28 February 2020; any new employees taken on since they cannot be furloughed. Staff need to be on PAYE in order for you to be able to claim the grant for their wages.
Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February 2020. Employees on sick leave or self-isolation can be furloughed after their period of sickness or self-isolation ends. You can decide at that point whether they are to be furloughed. If your employee has more than one employer, they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
It is your choice over who to designate and employees cannot insist on it. If only a portion of your workforce is to be furloughed, you should consider carefully who it should be. Think about whose skills will continue to be in demand through this difficult period. Whilst you may assume that the best thing to do is furlough those employees labelled as high risk by the Government, forcing them on to furlough without their input (and therefore forcing them on to 80% wages) may result in discrimination claims from those who allege they were made to do it because of their age, disability or pregnancy.
Where you need to select employees for furlough, it may be best to ask for volunteers across the workforce and if any high-risk employees, who had previously been risk assessed as fine to still be in work, put themselves forward, it may well be appropriate to choose them first. There is no maximum or minimum number of employees who can be furloughed.
DO I NEED AGREEMENT FROM EMPLOYEES TO DESIGNATE THEM AS FURLOUGHED?
The guidance states that your ability to furlough an employee depends on their contract. It is not likely that employment contracts will include a specific right to use furlough. However, contracts may contain a right to lay off employees on no pay already so are likely to make the discussions around furlough a little smoother.
You do not essentially have to obtain agreement if you intend to pay 100% of their wages, zero-hours or flexible hours contracts (unless their contracts confirm minimum number of hours). However, you should, in all cases, discuss the situation with the employees first so that you can explain what is happening and agree with them that you are designating them as a furloughed worker.
It is especially important that you get agreement to the reduction in pay, otherwise, this may give rise to claims of breach of contract or constructive dismissal. Whilst the drop to 80% with a £2,500 cap may not be an initially attractive option to employees, it is likely to be viewed as more favourable when it is explained to the employee that redundancy may be the only other option available.
You may agree that 100% of pay is maintained for your employees during furlough, but you will still only be able to claim 80% up to the £2,500 per month cap via the Scheme.
Once agreement is obtained, you should confirm their temporary furloughed worker status to the employee in writing and keep a record of this information.
If sufficient numbers of staff are involved, then it is recommended that a collective consultation in order to procure agreement to change the terms of employment. Communicating with your workforce throughout your process, however many staff you have is integral to ensure you are managing your workforce fairly.
To be eligible for this grant you must be able to demonstrate that you have written to your employees confirming they have been furloughed so keep a record of this information.
It is important to note that a genuine agreement must be obtained in order to enforce any contractual changes to terms and conditions of employment. If it is found that the agreement was forced, you may face claims of constructive dismissal or unlawful deductions later.
CAN I FURLOUGH SOME EMPLOYEES BUT NOT OTHERS?
Yes, but your process needs to be fair. Please be mindful when making decisions in relation to this, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.
WHAT IF AN EMPLOYEE DOES NOT AGREE TO DESIGNATE THEM AS FURLOUGHED?
If an employee refuses a reasonable request for necessary changes to their employment due to the virus situation you may be able to dismiss fairly after following a proper process based on that refusal i.e. you would not be dismissing for redundancy. When you receive such a refusal you should explain again why you need the changes and ask the employee to reconsider and say that in the event they do not agree you will need to consider dismissal based on that unreasonable refusal.
In the unlikely event you have a more than one employee who does not agree to be furloughed, follow the above course of action via your collective consultation process.
As always you would need to take legal advice and follow a proper process before doing so.
IS THERE A MINIMUM FURLOUGH PERIOD?
Yes. An employee must be furloughed for a minimum of 3 weeks for you to be able to receive the grant to cover their 80% wages. You can designate an employee as furloughed more than once which theoretically means that you can bring them back after a period of at least 3 weeks to perform some work, and then designate them as furloughed again. There does not need to be any gap between furlough periods, either.
CAN EMPLOYEES BE MOVED IN AND OUT OF BEING FURLOUGHED?
Yes, to qualify for CJRS furloughed employees must be furloughed for a minimum of 3 weeks. After that, they can be furloughed for another 3 weeks or return to work. If they return to work, you must pay them their contractual wage and you cannot claim it back. If you wish to extend the furlough leave after the 3 weeks have passed or the employee returns to work, you must submit another claim.
WHAT IF I HAVE ALREADY MADE SOME EMPLOYEES REDUNDANT?
If employees have been made redundant since 28 February 2020, you can agree to bring them back and place them on furlough.
WHEN MY EMPLOYEES ARE ON FURLOUGH, CAN I BRING THEM IN ON A COUPLE OF DAYS IF I FIND WORK FOR THEM?
Once employees are on furlough, they will not be able to work for you during that period, which counts out a couple of days here and there, or a more regular ‘short time’ working arrangement. They can undertake online training or volunteer subject to public health guidance, as long as they are not making money for you or providing services to you.
If employees are required to, for example, complete training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
Because you can place employees on furlough more than once, you do have the option of bringing them in if there is work to do but a period of furlough must stop for this to happen. You can then agree to place them on furlough again. Each period of furlough must be at least 3 weeks in duration.
CAN EMPLOYEES SEEK WORK ELSEWHERE DURING FURLOUGH?
Although nothing is explicitly stated within any guidance, the Job Retention Scheme is intended to compensate employees for income they would have earned had they continued to work and not intended to give anyone the opportunity to profit whilst on the scheme.
This would also depend on what is stated in your current terms of employment. You may want to consider including this as part of your contractual amendments.
WHAT IF 80% OF WAGES FALLS BELOW NATIONAL MINIMUM WAGE/ NATIONAL LIVING WAGE?
National Minimum/Living Wage is a rate payable for hours worked. As no hours are being worked by the employee, it does not matter if 80% of wage falls below the minimum hourly rate.
WHAT ABOUT THOSE ON MATERNITY / PATERNITY LEAVE?
Those about to go on maternity leave will go on leave as normal. However, if their earnings have reduced due to a period on furlough prior to the start of leave, and specifically during the period used to calculate their entitlement to Statutory Maternity Pay, their entitlement may be affected. Those already on maternity leave will remain so until they wish to return, at which point you would need to assess whether there is work for them or reach an agreement with them to be ‘furloughed’. Individuals 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.
Employees who qualify for Statutory Maternity Pay 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 contractual pay to women on maternity leave, this is included as wage costs that you can claim through the Scheme. Paternity and shared paternity leave pay can also be furloughed in the same way.
WHAT ABOUT STATUTORY SICK PAY (SSP)
If an employee is on sick leave or self-isolating because of sickness they should receive Statutory Sick Pay (SSP) Once this ends, they should be furloughed.
WHAT ABOUT ANNUAL LEAVE?
The Working Time Regulations have been amended to give workers an entitlement to carry over 4 weeks of their annual leave if they are unable to take it because of coronavirus. This may be because:
– they’re self-isolating or are too sick to take holiday before the end of their leave year – they’ve been temporarily sent home as there’s no work (‘laid off’ or ‘put on furlough’) – they’ve had to continue working and could not take paid holiday
Leave can be carried over into the next two leave years after this one. This only applies to the first 4 weeks of leave under the Regulations. The other 1.6 weeks of stat min leave is already capable of being carried over to the next leave year with agreement from the employer and the new laws do not change this.
This means that all stat min annual leave accrued in this leave year is now capable of being carried over, in the following way:
– 4 weeks (legal entitlement to be carried over to next two leave years)
– 1.6 weeks (employers can agree that this be carried over to the next leave year. If employers do not already have rules in place about carry-over of this portion, then it would be advisable to have some now for clarity purposes (whether to allow it or not). If they have rules which do not permit carryover of this portion to the next leave year, they may want to consider relaxing these)
– Anything above stat min (down to employer’s rules and some employers already has rules on employer buyback)
Employees are entitled to request annual leave in the normal way during the furlough. They are entitled to 100% of their normal wages for any holidays taken during the furlough, including bank holidays. You will continue to receive the 80% grant for furloughed employees for such annual leave. Be mindful, however, that annual leave pay is calculated differently to normal wages under furlough and you may end up receiving less than 80% of annual leave pay.
Annual leave continues to accrue during lay off/furlough.
ARE DIRECTORS ELIGIBLE FOR THE SCHEME?
Yes. Directors may be eligible for the scheme, but this is only if they do not perform any revenue generating activity. They may still deal with the statutory duties such as filing and admin as this will not be considered as revenue generating. In which case 80% of salary will be funded by the scheme. This applies to single director companies also. Dividends are not included. Directors who are self- employed cannot be furloughed.
We are continuously looking to update guidance on all the above and will update this Forum to ensure you have the best and most up to date information to hand.