Coronavirus Job Retention Scheme – what you need to know

Following our posts last week on the employment law implications of the coronavirus outbreak, we wanted to ensure that our clients are aware of the UK Government’s new Coronavirus Job Retention Scheme which was announced by the Chancellor on Friday 20 March. Potentially this could be a very useful scheme for those of our clients who are considering making redundancies or have already done so since 1 March.

The aim of the scheme is to avoid mass redundancies across the country. In summary, the scheme represents a promise by the UK Government to reimburse 80% of the pay of employees and certain workers up to a cap of £2,500 per month per worker where those individuals have been categorised as a ‘furloughed worker’. The employer can choose to top up the remaining 20% of the worker’s pay but there is no obligation to do so. There is limited guidance as to what is meant by the term ‘furloughed’ but it is clear that the person must:

  • remain employed or engaged by the employer for the entire period that they are furloughed; and
  • not be required to do any work for the employer whilst in furlough.

The scheme will only apply to individuals who have tax deducted at source via PAYE so it will not apply to individuals who are genuinely self-employed for tax purposes. For our Film and TV clients, this will typically only include direct hire freelancers who are paid via PAYE and not those who are treated as self-employed for tax purposes (otherwise known as ‘Schedule Ds’). The scheme will also not apply to those freelancers who are engaged via personal service companies (loan outs). However, it is possible that the personal service company itself could claim under the scheme if they are registered for and make payments to the individual via PAYE (although this would only cover 80% of the amount that was paid to the freelancer via PAYE and we understand many do not actually operate in this way).

The scheme is currently set to only apply for a 3-month period from 1 March 2020. This means that employers can potentially backdate the furlough period as having commenced on any date from 1 March provided that the above conditions are met. We understand HMRC are urgently in the process of setting up a system to reimburse employers for payments and the first reimbursements are expected to be made in April.

While the scheme is only set to run until the end of May 2020, the Chancellor indicated that he would be prepared to extend the scheme beyond this period if necessary. It was also reported in the media over the weekend that the scheme will still be available to employees and workers who have already been dismissed provided they are rehired and immediately placed into furlough, but there is no official guidance on this yet. The limited guidance available at this stage can be found here.

As the scheme was only announced recently, there are many unanswered questions about how it will work. For example:

  • is an employee’s agreement needed for them to be placed into furlough?
  • does the 80% reimbursement include pension contributions and employer’s NICs or will the employer be required to pay these on top?
  • will it be unfair to make an employee redundant rather than place them on furlough leave?
  • how will the 80% reimbursement be calculated for those who don’t work regular hours?
  • will holiday continue to accrue during the period when someone is in furlough?

Hopefully additional guidance will be forthcoming this week that will answer all or some of these questions. It would also not be surprising if additional financial measures are introduced to protect self-employed workers.