April 6, 2020
Since the Government’s Coronavirus Job Retention Scheme was announced just over two weeks ago, businesses have been anxiously awaiting guidance on how the scheme would work and whether it would apply to their existing workforce as well as those whose contracts had recently ended.
Initial guidance was released on 26 March 2020 although, in some areas, this raised even more questions than it answered. Following intense lobbying over the past week – a process in which Wiggin has been involved through our contacts at the Treasury’s Covid-19 team – the Government published updated guidance on 4 April 2020 (see here) which addresses some of the key questions.
We’ve analysed the guidance over the weekend and have summarised the key points below together with our thoughts on how it may affect your business.
Reading between the lines of the new guidance, it would appear that there has been a shift in Government policy regarding the purpose and scope of the scheme. When first announced, the scheme was clearly aimed at those who were likely to or had already lost their jobs as a result of the Covid-19 crisis. However, the goal now seems to be broader in that it is apparent that the scheme can be used as a mechanism to provide financial support to individuals even if they would otherwise not have been working, regardless of Covid-19.
Extensions: The most obvious example of this is the new guidance on extensions. It has now been confirmed that fixed term contracts can be renewed and extended during furlough leave without breaking the terms of the scheme. This is broadly defined and means that those who were on contracts that would otherwise have ended anyway can have them artificially extended so that they can benefit from the furlough scheme. This will mean that those engaged on very short-term contracts (such as PAYE freelancers in the Film & TV industry who are engaged on weekly or daily contracts) can be furloughed for the duration of the scheme (provided they were on the payroll on or before 28 February 2020).
Backdating: The guidance states that claims should be made from the date that the employee finishes work and starts furlough leave and not from when the decision to furlough was made or when the employee is written to confirming their furlough status. This would appear to further indicate that backdating is possible although we would still prefer more explicit confirmation of this. There is unfortunately no clarity on whether you can backdate the start of a re-engagement but our view is that this is also likely to be permitted.
Childcare and Shielding: We now know that it is possible for an employee to be furloughed if the reason they cannot work is because they have caring responsibilities resulting from Covid-19. With the schools and nurseries still shut, many clients have been grappling with the question of whether furlough would be available for those who are unable to work because of their childcare responsibilities and it’s useful to have clarity on this point. It has also been confirmed that an employee can be furloughed who is shielding in line with public health guidance (or needs to stay at home with someone who is shielding) if they are unable to work from home and would otherwise need to be made redundant.
Re-engagements: The protection in respect of re-engagements has been widened. Provided an employee was on the payroll on or before 28 February 2020, they can be re-employed and furloughed regardless of the reason they stopped working. There had been some concern over the last week that those who had resigned from their jobs in early March to work elsewhere would not benefit from the scheme, but it is now clear from the guidance that they are covered. However, to be furloughed in these circumstances the individual would need the co-operation of their previous employer to re-employ and then furlough them. The question of whether an employer would agree to such a request is likely to depend on whether or not the individual left on good terms.
Working elsewhere: It is now confirmed that an employee can be furloughed for one employer but still work for another. We suspected this was the case (given that the previous guidance indicated that furlough could still apply when a person had two jobs) and we had been advising as such, but it is helpful to have this clarified. This also helps to bring the scheme more in line with the recently announced protection for self-employed individuals.
Other details which it may be useful to note
While the points mentioned above are the most crucial, the new guidance also provides further details regarding the scheme which are worth noting:
- Office holders and workers: The guidance is now explicit that office holders and workers paid via PAYE (which will include freelancers working within the Film and TV industries who are paid on a PAYE basis) can be furloughed. For company directors, it has been confirmed that they can be furloughed and still continue to perform their obligations as a statutory director (provided they don’t provide any executive services to their employer);
- Pro-rating: The guidance states that reimbursements will be pro-rated if a claim only relates to part of a pay period. This was not known previously and means that clients need to calculate their furlough payments very carefully. For example, if the reimbursement is only being claimed for a one and a half months, the grant would be capped at £3,750 (1.5 x £2,500) plus the relevant employer’s NICs and pension contributions;
- Calculations: What constitutes ‘normal pay’ for the purposes of calculating the reimbursement has helpfully been expanded. We now know that overtime can be included together with commission and fees (although it’s not clear what is actually meant by fees). This could be particularly useful for any staff who work regular overtime or those involved in sales where the majority of pay is often made up of commission;
- Salary Sacrifice: It has been confirmed that benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should not be included in the reference salary when calculating the furlough reimbursement. However, the Government have confirmed that Covid-19 will count as a life event to warrant a change in salary sacrifice arrangements, provided the furlough letter amends the contract accordingly;
- What is not included: The Government have stated that Apprenticeship Levy and Student Loan payments should continue to be paid as normal and the grant will not cover these. We do not expect these costs will prohibit or discourage businesses from accessing the scheme;
- Furloughing more than once: The guidance has confirmed that employees can be furloughed multiple times while the scheme is open provided each period lasts at least 3 weeks. This will allow businesses to rotate staff on and off furlough which could be very helpful when trying to ensure that the scheme is operated a fairly and consistently. It was widely expected that this was possible but again it’s useful to have certainty on this.
There is no doubt that the new guidance is a significant improvement on what was available previously and helps to clarify how the scheme will operate. In particular, it addresses many of the concerns and questions raised by many of our Film and TV clients over the past two weeks and should hopefully provide them with some reassurance.
There are still however some outstanding issues. We remain stuck with the 28 February cut-off date which now seems to be set in stone and will mean that many individuals miss out. There remains no guidance in respect of what happens to holiday during furlough or when collective consultation obligations may be relevant.
We expect that we will continue to deal with many queries regarding the job retention scheme over the coming weeks and would be very happy to chat through any questions you may have. We also have a template furlough letter which we have prepared which we would be delighted to share with you.
If you would like any assistance at all in this area, please do let us know