Coronavirus Job Retention Scheme (Furlough Agreement)
3rd June, 2020
What is this; who is eligible and what should employers be doing?
The Coronavirus Job Retention Scheme (Furlough)
The Chancellor has put in place a series of emergency measures in order to assist public services, individuals and businesses during COVID-19. One of the measures includes a Coronavirus Job Retention Scheme (“Scheme”).
What is the Scheme?
The Scheme is a temporary measure to assist employers to continue paying all or part of their employee’s wages, with a view to avoiding redundancies or laying off the employee whose operations have been severely affected by coronavirus (COVID-19)
HMRC will reimburse 80% of furloughed workers usual monthly wage costs, up to a maximum of £2,500 per month, plus the associated employer NIC’s and minimum automatic enrolment contributions on that wage. The normal monthly wage costs include wages, past overtime, fees and compulsory commission payments. However, discretionary bonuses (including tips and gratuities) and commission and non cash payments are not included.
On Friday 29 May 2020, Chancellor Rishi Sunak announced the latest updates to the Job Retention Scheme.
The Scheme is being extended until the end of October 2020. It guarantees that furloughed workers will continue to receive at least 80% wages up to the maximum of £2,500 a month but employers will need to begin to contribute towards the costs of furloughed staff.
The scheme updates mean that the following will apply for the period people are furloughed:
- June and July: The government will pay 80% of wages up to a cap of £2,500 as well as employer National Insurance (ER NICS) and pension contributions. Employers are not required to pay anything.
- August: The government will pay 80% of wages up to a cap of £2,500. Employers will pay ER NICs and pension contributions.
- September: The government will pay 70% of wages up to a cap of £2,187.50. Employers will pay ER NICs and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500.
- October: The government will pay 60% of wages up to a cap of £1,875. Employers will pay ER NICs and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500.
From 1 July, employers can bring back to work employees that have previously been furloughed for any amount of time and any shift pattern, while still being able to claim the Scheme grant for their normal hours not worked. When claiming the Scheme grant for furloughed hours, employers will need to report and claim for a minimum period of a week.
We are awaiting further information from the government to clarify how part-time working/part-time furlough will work in practice and will update information in this article accordingly. Given the implementation of the Scheme has generally been well-received, it is to be hoped that these changes will not cause any new confusion as to how to claim or what should be reimbursed by HMRC, or will not result in potential abuse of the system.
The scheme will close to new entrants from 30 June 2020. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full 3 week period prior to 30 June.
This means that the final date by which an employer can furlough an employee for the first time will be 10 June 2020, in order for the current 3 week furlough period to be completed by 30 June. Employers will have until 31 July to make any claims in respect of the period to 30 June.
Are benefits in kind and salary sacrifice schemes included in monthly wage costs?
No, it does not include the cost of non monetary benefits, including taxable benefits in kind. It also does not include benefits through salary sacrifice schemes. If such benefits are provided to employees, this is in addition to the terms of the Scheme and will not be recoverable from the Government.
The Government does however recognise that COVID-19 counts as a “life event” entitling an employee to opt out of the salary sacrifice arrangements freely. Should an employee wish to do this, the employment contract will need updating to reflect this.
Can employers top up wages?
Employers can choose to top up wage costs to 100% but they are not obliged to do so. For employees earning more than £2,500 per month, employers can choose to fund the differences between this and their normal salary, but they are not obliged to do so. However, employers should consider the contracts of employment in place. For most employees on a salary with a guaranteed minimum number of hours, the employer will remain obliged to pay the employee in full if it cannot offer work and therefore the Scheme does not replace an employer’s obligation to pay wages.
If there is a clause in the contract which allows employees to be laid off without pay then the payments made under the Scheme will be in addition to the employee’s contractual entitlement and there will be no obligation to pay the full amount.
If there is no lay off clause, employers should seek a temporary reduction in salary so that the amount paid by the Scheme represents their full entitlement during the period of furlough leave. The employee’s consideration for agreeing the reduction of salary is that they are being furloughed rather than making them redundant.
What is the amount paid and how is this calculated?
The amount payable will be based on the employee’s normal gross salary (as employees will still have tax and national insurance deducted from income) as well as employer pension contributions and national insurance contributions, on or before 19 March 2020.
For employees with a regular salary, the 80% will be calculated from the monthly salary in the last full pay reference period before 19 March 2020.
Where employees or workers are not on fixed hours or their pay depends on the hours worked, the 80% grant is applied to the higher of:
(1) the earnings in the same pay period in the previous year; or
(2) the average earnings in the whole previous 12 months (or, if less, the period of employment before the period of furlough began).
The Government will pay cash grants to employers, providing they keep the employees employed and this will be received from HMRC.
Can employees work for anyone else whilst on furlough leave?
Employees will remain employed whilst on Furlough Leave but they cannot work for the employer who furloughed them whilst on Furlough Leave. The concept of Furlough Leave seems similar to “lay off” in that the individual remains an employee but is provided with no work. However, the key difference between Furlough Leave and “lay off” is that in the former the employee is provided with no work but will receive some or all of their pay; whereas in the latter, the employee is not entitled to wages (but they may be entitled to a statutory guarantee payment).
If the employee or worker already has two jobs they would still be able to work for another employer, provided it is not the employer who furloughed them.
The updated guidance also states that an employee on furlough leave may take up paid employment elsewhere, however, this will be subject to their contract of employment and whether their contract allows for them to work elsewhere. An employer may wish to include in the Furlough Agreement a clause that they cannot work for anyone else without the employer’s consent or allow them to do so without consent.
How to access the Scheme?
Employers need to designate affected employees as “furloughed workers” and submit information to HMRC about the employees to be furloughed, and their earnings, through a new online portal.
The portal opened on 20 April 2020 and can be accessed here:
To claim, you will need:
- your ePAYE reference number;
- 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 name;
- your phone number; and
- You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
The government have produced a booklet giving step by step guidance on claiming on the scheme, which is available here.
The first payments have now been made and by all accounts the scheme has been running well.
Who is eligible?
All UK wide businesses, irrespective of size, with a UK payroll and a UK bank account will be able to claim, but employees must have been on the employer’s PAYE payroll before or on 19 March 2020 and the employer must have submitted real time information (RTI) payroll data on 19 March 2020.
Any UK organisation with employees can apply, including businesses, public authorities, charities and recruitment agencies (agency workers paid through PAYE).
Where a company is under the management of an administrator, the administrator will be able to access the Scheme.
The Government does not expect the Scheme to be used by many public sector or publicly funded organisations as the majority of public sector employees are continuing to provide essential services at this time. However, the Direction is silent on the exclusion of public sector or publicly funded employers.
Employers (public or private) who receive public funding for employees or workers and that funding is continued should not use Furlough Leave and instead should pay staff covered by funding in the usual way.
The Scheme does not apply for any employees who were employed after 19 March 2020.
How to implement the Scheme?
If employers wish to put in place the Scheme, they will need to keep employees on the payroll rather than lay them off.
The limited Government guidance states that “changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation”.
To claim furlough, the Direction provides that the employer and employee must have agreed in writing (which may be in an electronic form such as an email) that the employee will cease work.
If written consent has not been previously provided, employees who have already been placed on furlough may not fall within the meaning of the Scheme. However, the Direction does not specify that the agreement in writing must predate the period of furlough leave. If the agreement to place an employee on furlough leave is not already evidenced in writing we recommend that employers now seek the written consent of employees in order to access the Scheme.
How long will the Scheme be in place for?
The Scheme has effect for the period beginning on 1 March 2020 and, in light of continuing social distancing measures, has now been extended until 31 October 2020.
The Scheme will cover the costs of wages backdated to 1 March 2020. However, this only covers back payment for those workers who have already been made redundant or laid off. It does not include those employees who were furloughed after the date of the announcement.
If businesses re-employ staff made redundant after 1 March 2020, those employees are eligible to be furloughed and the employer would be eligible for the grant.
When will grants be paid?
The online portal to claim payments is now up and running and first payments have been made.
Do employees still have to pay tax on this?
Yes, employees will still pay Income Tax and NIC’s on any payments received through the Scheme.
Will the grant cover the Employer National Insurance contributions and automatic enrolment pensions?
Yes, employers can apply for a grant to cover Employer NIC contributions and minimum automatic enrolment pension contributions on paying the lower of 80% of normal salary or £2,500 per month.
What if the pay takes employees below the National Minimum Wage (NMW) or the National Living Wage (NLW)?
NMW and NLW apply to hours worked. As furloughed workers are not working during this period, the NMW and NLW do not apply. However, if workers complete any training during a period of furloughed leave they must be paid NMW or NLW for the period they carried out that work.
What about zero hour workers, flexible contracts and agency workers?
The Scheme is designed to support workers who are on the PAYE system. Therefore, regardless of the contract someone is engaged under or their working arrangement or pattern, they will be eligible if they are on the PAYE system. This includes casual, flexible, zero hour and agency workers. For atypical workers the 80% grant is the higher of:
- The earnings in the same pay period in the previous year; or
- The average earnings in the whole previous 12 months (or, if less, the period of employment before the period of furlough began).
Does the Scheme apply to employees whose hours and salary have been reduced but are still working?
No, the Scheme is designed to help those who would otherwise be made redundant or unemployed. The Government has announced enhancements to the benefits system which may support those whose hours have been reduced.
Is there a minimum period that employees can be furloughed for?
Yes, a worker must be furloughed for a minimum of 3 weeks to be eligible to claim under the Scheme. This supports the public health guidance for employers to request employees to remain at home.
However, there is nothing to suggest that an employer cannot rotate staff in and out of the furlough scheme provided each rotation is three weeks long. This not only allows for the employer to focus on those areas of the business that need attention at any one time, but also allows a fair distribution of work and leave among employees.
Can an employee work or train during a period of furlough?
Up until 30 June 2020, an employee cannot undertake work for or on behalf of an organisation whilst on Furlough Leave. If an employee does any amount of work for the organisation before this date, even on reduced hours or pay, they will not be eligible for the Scheme and the employer will need to pay them in the usual way, subject to any revised terms agreed with the employee.
However, the latest government announcements revealed that from 1 July 2020 the Scheme will change to allow employees to go back to work part-time whilst also furloughed part-time. It is understood that employers will have to pay their staff as normal for any hours worked, but can continue to pay 80% wages (or £2,500 per month) proportionately for any hours not worked. The Scheme will reimburse employers for the non-working hours.
Even before 1 July, an individual can volunteer or train, on the strict proviso that this does not involve any manufacture or creation of an item or part of an item that can yield revenue for a company or provide services. If an employee undertakes training for an employer whilst on furlough leave, the employer must ensure the employee receives the National Minimum Wage (NMW) for any time training, including for apprentices. In most cases the furlough payment should cover this, but employers should check if employees receive close to the NMW.
Can employees be made redundant whilst on furlough leave or at the end of the leave?
Yes, whilst the Scheme is designed to help businesses and support them in bringing employees back to work at the end of Furlough Leave, if this is not possible, then employers can make redundancies during or at the end of Furlough Leave. If an employee is made redundant during furlough leave the employer would not be eligible for further grant payments in respect of that employee.
Employers must still follow normal redundancy procedures and any contractual policies if they wish to make employees redundant, including furloughed employees. This includes consultation requirements, redundancy payments and notice.
What rights continue under furlough?
Employees will have the same rights under furlough leave, including (but not limited to), statutory sick pay, maternity rights, other parental rights and the right not to be unfairly dismissed.
Please note that employers cannot claim under the Scheme for specified benefits, i.e. statutory sick pay, statutory maternity pay, statutory adoption pay, statutory paternity pay, statutory shared parental pay and statutory parental bereavement pay.
Will employees accrue holidays on furlough leave?
The government has recently published new guidance on holiday entitlement and pay during coronavirus, which addresses the interaction between annual leave and furlough. This guidance is available here.
Annual leave will continue to accrue during furlough leave, as per the contract of employment. Almost all workers are entitled to 5.6 weeks of statutory paid annual leave per annum which they cannot go below.
Employers will have the flexibility to restrict when leave can be taken if there is a business need (both during the furlough period and the recovery period).
Can workers take annual leave whilst on furlough leave? If so, should they receive their “normal” rate of pay?
The latest Government guidance confirms that workers can take annual leave whilst on furlough leave. Based on this information, our understanding is that this would not interrupt the minimum three week furlough leave period.
The Government guidance confirms that if a worker takes annual leave whilst on furlough, they should be paid at their normal rate of pay or, where their rate of pay varies, calculated on the basis of the average pay they received in the previous 52 working weeks (in accordance with the Working Time Regulations (WTR)). Employers will be obliged to pay anything above the capped 80% wage not recoverable under the Scheme. Alternatively, the furlough agreement may agree to vary holiday pay entitlement.
If a worker usually works on a bank holiday, then the employer can agree that this is included in the grant payment. If the worker usually takes the bank holiday as leave, then the employer would either have to top up their pay to their usual holiday pay, or give them a day’s holiday in lieu.
Can I instruct employees to take annual leave while they are on furlough?
Yes. However, if requesting an employee to take annual leave, the employer must give them double the amount of notice in respect of the leave it wishes the employee to take. For example, if you wanted someone to take two weeks annual leave, the employer would need to give them four weeks notice.
Practically, it may be better to request employees to cancel their annual leave and take it at another time within the holiday year (if possible).
What happens if employees cannot take holiday due to furlough leave or the Coronavirus and business needs?
Where it was not “reasonably practicable” for workers and employees to take all of their statutory annual leave due to COVID-19, they will be able to carry over whatever remains of their statutory annual leave entitlement into the next two years. This provision is primarily designed for those employees who cannot take leave because they are required in their role as a key worker or essential to the business and unable to take holidays.
The latest guidance explains that workers who are on furlough are unlikely to need to carry forward statutory annual leave, as they will be able to take it during the furlough period (as discussed above). However, to do so they must be paid the correct holiday pay which is likely to be higher than the rate of pay that will be covered by government grants, with the employer making up the difference. If, due to the impact of coronavirus on operations, the employer is unable to fund the difference, it is likely that this would make it not reasonably practicable for the worker to take their leave, enabling the worker to carry their annual leave forwards.
In this situation, the worker must still be given the opportunity to take their annual leave, at the correct holiday pay, before the carried annual leave is lost at the end of the next 2 leave years.
The government guidance also provides some examples to clarify this principle.
Can employees on sick leave be placed on furlough or should they be paid SSP?
The Direction confirms that an employee on sick leave or other form of unpaid leave will not qualify for furlough. However, the latest government guidance states that an employer can decide to furlough someone who is off sick. Short term illness/ self-isolation should not be a consideration in deciding whether to furlough an employee. If, however, employers want to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees. In these cases, the employee should no longer receive sick pay and would be classified as a furloughed employee.
What if a furloughed employee becomes sick?
The Direction confirms that any subsequent period of sickness, after the original period of sickness has ended, must be disregarded which suggests that this period of sickness does not break the period of furlough leave. Indeed, as long as the furlough lasts there is unlikely to be any reason for the employee to even tell the employer that they have developed symptoms.
What about shielding employees (i.e. employees who are extremely vulnerable and need to self-isolate in line with public health guidance and employees who are caring for people in the same household and have therefore been advised to do a household quarantine)?
A shielding employee can now claim SSP. This includes individuals who are caring for people in the same household and have therefore been advised to do a household quarantine. This will help employees in cases where their employer does not agree to place them on furlough leave under the Scheme, they are not able to work from home or take another form of appropriate leave.
A shielding employee can be placed on furlough leave provided they are shielding in line with the current public health guidance for those employees who need to stay at home or need to stay with someone else who is shielding; they are unable to work from home and you would otherwise have to make them redundant.
Can employees with caring responsibilities be furloughed?
Yes, employees who have caring responsibilities resulting from COVID-19 can be furloughed if they are unable to work from home. For example, employees who need to look after children.
Could someone return early from maternity or adoption leave to benefit from the furlough scheme?
It is possible that they could as maternity and other family based leave is unaffected by the Scheme. An employee could give notice to return early and the employer would then be free to place them on furlough leave. However, employers should bear in mind that an employer is not obliged to place them on furlough and may find work for them to do.
What happens to employees made redundant or who stopped working for the organisation after 28 February 2020 for another reason?
Employees who were made redundant or stopped working for you after 28 February 2020 can be re-employed and put on furlough leave. However, they must have been on the payroll before or on 19 March 2020.
Government guidance provides the following useful table setting out these eligibility requirements:
|Was the employee employed with you as of this date?||Date RTI submission notifying payment was made to HMRC||Eligible for CJRS?|
|28 February 2020||On or before 28 February 2020||Yes|
|28 February 2020||On or before 19 March 2020||Yes|
|28 February 2020||On or after 20 March 2020||No|
|19 March 2020||On or before 19 March 2020||Yes|
|19 March 2020||On or after 20 March 2020||No|
|On or after 20 March 2020||On or after 20 March 2020||No|
We would recommend taking legal advice regarding the potential implications of re-instating employees who may have left for other reasons due to the potential employment law rights that may apply to them if they return to work.
Does it cover employees on unpaid leave?
If an employee was on unpaid leave on 28 February 2020, the 3 week period (in order to qualify for the Scheme) does not begin in respect of the employee until the expiry of the period of unpaid leave.
No claim to the Scheme may be made in respect of a period of unpaid leave beginning before or after 19 March 2020. This date is revised from 28 February 2020 which allows more employees to be brought within the scope of the Scheme.
What process should be followed to implement Furlough Leave?
Furlough Leave must be with written agreement of both parties and cannot be enforced on an employee. Employers should seek agreement with their staff and agree written contractual changes. Employers need to write to their staff about the changes and keep a record of this communication to be eligible for the Scheme. When making decisions as to who to select, usual equality and discrimination laws will apply.
Collective consultation may be necessary if an organisation proposes to change the terms and conditions of employment of more than 20 people.
What if an employee was transferred to a new employer after 19 March 2020, and this was a transfer for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”)?
Notwithstanding the fact that the employee was not on the new employer’s payroll as of 19 March 2019, the new employer can still agree with the employee to place them on furlough leave, and will be eligible to claim 80% of the employee’s wages provided that the transfer to the new employer takes place after 28 February 2020.
How can we assist?
We have a range of discounted packages available to assist companies with placing employees on Furlough Leave. Please contact Helen Watson for further details.
An increasing number of clients are contacting Aaron & Partners’ employment law team with issues relating to COVID-19. If you are experiencing difficulties, we have the expertise to assist you in dealing with these concerns.
Date: 5 June 2020
Head of Team and Partner
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