Edit 24th April – the team have now recorded a webinar regarding the scheme which you can view here.
It is clear that the Government’s Coronavirus Job Retention Scheme has really focused the minds of our clients at this difficult time. There is an evident desire across businesses to utilise the scheme where possible. But decisions as to whether the scheme can be utilised in certain situations are seemingly becoming more complicated by the day.
Since our last major update on 6 April, there have been three further updates to the Government guidance (on 9, 15 and 17 April respectively – which you can access here) as well as a Treasury Direction containing instructions to HMRC on how the scheme should be administered (you can access this here).
The 17 April guidance, which was released on Friday evening, contains important updates in relation to fixed term contracts and holiday pay (see here for details on holiday pay and guidance on how to calculate furlough payments). It also helpfully extended the duration of the scheme for a further month until the end of June 2020 (it had previously been due to end on 31 May 2020).
We have set out below our analysis of what has changed since our last briefing note on 6 April:
- Fixed-term Contracts: The latest iteration of the guidance provides that if a fixed-term contract ends because it is not extended or renewed before its natural conclusion, the individual will not be eligible under the scheme. On the face of it, this would suggest that fixed term employees whose contracts have already ended cannot be re-engaged and furloughed which is not in line with how most had interpreted the Government’s previous guidance. Unfortunately, even with the new wording, there is still some ambiguity here and the question therefore remains as to whether it is actually possible to re-engage and furlough a fixed term contract that has ended.For individuals still under contract, the position is more straightforward. The guidance confirms that it is possible for their contract to be renewed or extended and that there is no minimum period which must be left to run on the contract in order to do so.
- Holiday: The government has confirmed that holiday will continue to accrue during furlough leave, that employees can take holiday whilst on furlough and that any holiday (including bank holidays which the employee would otherwise have taken as leave) should be paid at 100% of the employee’s normal pay (i.e. not the reduced furlough amount). As it stands, employers will therefore need to top up furlough payments for bank holidays and any other holiday days which are taken or accrued during furlough leave.We suspect that these additional costs in respect of holiday will deter some businesses from furloughing their staff. However, it is important to note that the situation could still change as the guidance notes state that “during this unprecedented time, we are keeping the policy on holiday pay during furlough under review”.
- Cut-off dates: As noted in our update on 15 April 2020, the cut-off date in respect of eligibility under the scheme has been extended from 28 February 2020 to 19 March 2020. It is important to note that at this stage, this date would appear to only apply to employees and PAYE workers who were employed and notified to HMRC on an RTI submission on or before 19 March 2020 who have not yet had their contracts terminated.In relation to employees and PAYE workers who have already been terminated, the guidance suggests that they will only be eligible to be re-engaged and furloughed if they were on the payroll on or before 28 February 2020 and, in light of the change referred to above in respect of fixed term contracts, they presumably must also have been engaged on permanent contracts. This means that the change in cut-off date is actually not as helpful as it may otherwise have been.We understand that there are a large number of individuals who started work early in March but have since had their contracts terminated on the basis that they were not eligible according to the previous Government guidance. If those terminations had not occurred, these individuals may have been eligible to be furloughed but this is no longer possible. In other words, some have suffered inadvertently as a result of their employers relying on the previous guidance materials. The Government is already under more pressure to look at this again and it would presumably be fairly simple to change both cut-off dates to 19 March.
- Calculation of Furlough Payments: Given the change to the cut-off date, the guidance on calculating an employee’s furlough payment now provides that for employees on a fixed salary the claim should be based on 80% of the employee’s salary as in their last pay period prior to 19 March 2020 rather than as at 28 February 2020, as the guidance originally suggested. If there are differences between the figures, you can use the initial calculation (i.e. based on the salary as at 28 February 2020) for your first claim but subsequent claims will need to be based on the salary as at 19 March 2020.
While for many employees the amounts will be the same, this change will unfortunately impact those who had their salaries or hours reduced in early March. For those employees, the amount of reimbursement for each claim after the first will be less and employers need to be careful that their furlough letters address this properly unless they are prepared to pay the difference.
- Family Friendly Leave: For individuals returning from statutory leave (e.g. maternity, paternity, adoption, shared parental leave, sick leave and parental bereavement leave), the Government has confirmed that claims should be calculated on the basis of their normal salary before tax and not the pay they received while they were on statutory leave. This is useful and may mean that some staff on maternity leave could benefit from returning and being placed on furlough. However, care will again be needed here as being placed on furlough would bring their maternity leave (and the rights that attach to that period) to an end with all that entails.
- Sick Pay: The recent guidance has confirmed that if an employee falls ill while on furlough leave, their employer can choose either to pay them Statutory Sick Pay (“SSP”) or to continue their furlough payments. If an employer chooses to pay SSP, the guidance states that will not be able to reclaim this through the job retention scheme. However, if an employer chooses to continue furlough payments, the employer remains eligible to claim these through the scheme. Over the weekend, HMRC also updated its statutory payments manual which arguably goes further than the job retention scheme guidance and states that employees now no longer qualify for SSP if they are on furlough. This could mean that paying an employee SSP while on furlough risks bringing the furlough period to an end which could jeopardise a claim under the scheme in certain circumstances (for example, if it reduced the length of the furlough period to less than 3 weeks). It therefore seems that in almost all situations, employers should ensure that furlough payments are maintained while employees are sick to prevent their furlough periods ending unintentionally.The situation is slightly more complicated for staff who are already off sick when a furlough decision is being made. The Treasury Direction indicates that, in circumstances where an individual is eligible for SSP, they may not be placed on furlough and it would therefore seem that employers will need to delay furloughing such staff until they are fit to return to work.
- Need for written agreement: The Treasury Direction states clearly that, for an employee to be eligible, the instruction for them not to perform work for their employer must be agreed in writing (which may be by email). This is inconsistent with the most recent Government guidance, which provides that “the employee does not have to provide a written response”. If the Treasury Direction takes precedence over the guidance, this may mean that employers who have already furloughed employees without obtaining written confirmation of their agreement may not be able to claim under the scheme. If this is relevant to your business, we would suggest that you seek specific advice on this point.
Other details which it may be useful to note
- Furlough Payments: The latest guidance has expressed beyond doubt that all of the reimbursement received by the employer must be paid to the employee in cash via the PAYE system (i.e. subject to usual deductions). The grant should not be netted off to pay for benefits or a salary sacrifice scheme and employers cannot enter into any transaction with employees which reduces their wages below 80% of their reference pay (up to a cap of £2,500). This is not unexpected but is useful clarification for those contracts where holiday pay is typically separated out from the worker’s base pay. In those cases, holiday pay must not be taken out of the sum received from HMRC and held over till the end of the engagement.
- Unpaid Leave: We now know that employees who started unpaid leave after 28 February can be placed on furlough but employees who were on unpaid leave on or before 28 February cannot be furloughed until their agreed period of unpaid leave has come to an end. Presumably the rationale here is that decisions to place staff on unpaid leave post-28 February are more likely to have been Covid-19 related whereas those before that date probably weren’t.
- Backdating claims: The latest guidance has unfortunately made it less clear whether backdating claims is possible in all circumstances. It seems implicit that you can backdate a claim to the point when an employee was placed on unpaid leave (subject to the general points made above regarding unpaid leave) provided the employee’s contract did not come to an end. However, in the section of the guidance which deals with re-engagements, new wording has been added which states that when you re-engage and furlough you can claim for their wages “from the date on which you furloughed them”. This would appear to suggest that you should not backdate the start of someone’s re-engagement and that those claims would need to start from the date they are actually put back on contract.
- TUPE: The Government has confirmed that where there has been a TUPE transfer, a new employer is able to claim under the scheme in respect of the employees of a previous business that transferred after 19 March 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership. This had been a grey area for some businesses so the clarity here is useful.
- Making a claim: The guidance has been updated with further details on what you need in order to make a claim. Employers with fewer than 100 furloughed staff will be asked to enter the relevant details for each employee directly into the system whereas employers with 100 or more furloughed staff will be asked to upload a file containing the relevant information.
While the scheme guidance has changed significantly since its original publication, there are still clearly a number of points that could benefit from additional clarification.
We will of course keep you updated on any further developments.