The HMRC's Coronavirus Job Retention Scheme ("CJRS"), announced on 20 March 2020 and opened for claims on 20 April, has now been extended for the second time. Originally due to end on 31 May, then 30 June, the Chancellor announced on 12 May that it would continue without change until the end of July 2020. It will remain in place and available to all sectors through to the end of October 2020, but from August there will be greater flexibility. Employers currently using the scheme will be able to bring furloughed employees back part-time. Employees will continue to receive at least 80% of their wages subject to the £2,500 per month cap, but employers will be asked to 'start sharing the cost' of the scheme. Full details will be available by the end of May.
The CJRS sets out the terms on which employers can claim reimbursement for a proportion of employee earnings (and does not alter employment rights as such). Claims can only be made where someone who was on the employer's PAYE payroll on or before 19 March 2020 is "furloughed" for a minimum period of 3 weeks. (The cut-off date was changed from 28 February on 15 April.)
Guidance for employers on the CJRS first published by HMRC on 26 March has since been updated several times (and divided into separate web pages) and changes continue to be made; the current version of the various pages (together the "Guidance") is available here and there is also a Step-by-step guide on making a claim. HMRC has also published guidance for employees ("Employee Guidance"). On 15 April the Treasury published a Direction and Schedule pursuant to powers under the Coronavirus Act 2020 setting out the legal framework for the CJRS (the "Schedule").
Although some issues have been clarified by recent iterations of the Guidance, there remain unanswered questions and some inconsistencies between the Guidance and the Schedule. In theory the Schedule should take precedence over the Guidance. However, in reality HMRC is likely to refer to its own Guidance in the first place. Employers do not need to provide any supporting evidence for claims up front and, given HMRC's limited resources, it seems likely that efforts to audit claims retrospectively will focus on identifying deliberate fraud (eg, claiming for employees who continue to work) rather than looking to claw back claims where an employer has followed the HMRC's own Guidance but arguably not complied with the Schedule. The Direction does contemplate the possibility of further amending Directions and of course the HMRC Guidance could be updated further so this should be kept under review. The briefing below sets out the key points and will be updated if and when further information becomes available.
A separate briefing here looks at other key employment issues arising in relation to the COVID-19 outbreak, including sickness and self-isolation, health data, homeworking, holiday and other issues.
Which employers can access the CJRS?
The CJRS is open to any entity with a UK bank account and a PAYE payroll scheme that was created and started on or before 19 March (changed from 28 February 2020), including businesses, charities, recruitment agencies and public authorities. The Guidance notes that employers who receive public funding for staff costs are not expected to furlough their staff, but there is no reference to this in the Schedule. Employers must also have enrolled for PAYE online.
The Guidance now confirms that the CJRS can be accessed by individuals who employ others (eg, nannies) where the payroll conditions are met and by administrators (although administrators would only be expected to access the CJRS "if there is a reasonable likelihood of rehiring the workers", for example after the sale of the business).
Can employers access the scheme only as an alternative to COVID-19 related redundancies?
The 4 April update to the Guidance added the following pre-condition for claims: "If you cannot maintain your current workforce because your operations have been severely affected by coronavirus (COVID-19), you can furlough employees and apply for a grant". The Guidance goes on to note that the CJRS "is designed to help employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy. However, all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus." (The reference to the purpose of the CJRS was included in the 26 March version, but it was not also expressed as a condition of access.)
This suggested that, as long as an employer "cannot maintain" its current workforce because of the impact of COVID-19, it will be possible to furlough an employee even though that specific individual would not otherwise have been made redundant due to the impact of the pandemic. Conversely, an employer whose business has not been adversely affected or closed as a result of the pandemic would not be able to access the CJRS, eg, to claim reimbursement for furloughed vulnerable individuals or parents unable to work from home.
The Schedule published on 15 April sheds some light on this issue. It states that the purpose of the CJRS is "to provide for payments to be made to employers on a claim made in respect of them incurring costs of employment in respect of furloughed employees arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease". It goes on to provide that no claim may be made "if it is abusive or is otherwise contrary to the exceptional purpose" of the CJRS.
Claims can only be made for a furloughed employee, defined as an employee who has been instructed by the employer to cease all work in relation to their employment, who has or will have ceased all work for the employer (directly or indirectly, or for a person connected with the employer) for at least 21 calendar days, and where the instruction is given "by reason of circumstances arising as a result of coronavirus or coronavirus disease".
It seems therefore that the decision to furlough must be causally connected with circumstances arising due to the pandemic, but it is not a condition that furloughed employees would otherwise have been made redundant.
It is uncertain what, if any, evidence HMRC might require to confirm this eligibility. Employers are not required to provide any evidence at the time of uploading their claim. In evidence given to the Treasury Committee on the CJRS on 8 April, Jim Harra, First Permanent Secretary and Chief Executive of HMRC stated that claims identified as 'high risk' would be checked before payment, but that otherwise HMRC was relying on individuals contacting it if they are aware of employers abusing the scheme. HMRC does expressly retain the right to retrospectively audit all aspects of any claim with scope to claw back fraudulent or erroneous claims.
Recent iterations of the Guidance emphasise that HMRC will check claims made through the CJRS and that payments may be withheld or need to be repaid in full to HMRC if the claim is based on dishonest or inaccurate information or found to be fraudulent. The Guidance stresses that dishonest or deliberately fraudulent claims "put our essential public services and the protection of livelihoods at risk during these challenging times". It also notes that an online portal has been created for employees and the public to report suspected fraud. Similar additions have been made to Employee Guidance, which states that the CJRS is part of a collective effort to protect people's jobs and urges employees to report abuses (such as the employer not paying the grant received to the employees, asking employees to work whilst on furlough, or making a backdated claim to include periods when an employee was working).
It is worth noting that an employer submitting a claim online is required to confirm that the claim is "for costs of employing furloughed employees arising from the health, social and economic emergency resulting from coronavirus" and "in accordance with the HMRC's published guidance".
Employers will need to bear in mind reputational issues when determining whether it is appropriate to access the CJRS.
What will the grant cover?
Employers can apply for grants of 80% of furloughed UK employees' gross monthly earnings, subject to a cap of £2,500 a month, plus the associated Employer National Insurance Contributions (NICs) and minimum automatic enrolment employer pension contributions on that wage, provided they keep the individual on payroll. The CJRS will cover the cost of earnings backdated to 1 March 2020, if applicable. Claims should only cover the period from when an employee finishes work and starts furlough, and not from the date of the decision or when the employee is written to confirming their furloughed status.
The employer must pay the employee at least the lower of 80% of earnings or £2,500. The employer can choose to top up earnings to 100% but is not obliged to do so (and Employer NICs and employer pension contributions on any top-up cannot be reclaimed). Any more generous pension contributions above the minimum mandatory employer contribution cannot be reclaimed, nor can the cost of other benefits (so some employers may seek to agree with the employee, as a condition of furlough, that certain benefits are paused where this gives rise to a cost saving). Equally, the Apprenticeship Levy and Student Loans should continue to be paid and cannot be reclaimed.
Earnings paid during furlough will remain subject to the usual income tax and other deductions (including any automatic enrolment employee pension contributions). However, where an individual pays for benefits via a salary sacrifice arrangement, deductions for these benefits cannot be taken from the furlough salary to the extent that this would take the individual's furlough pay below the minimum amount payable under the CJRS.
The method of calculating the "reference salary" (used to calculate the 80% (subject to the cap) which must be paid and can be reclaimed) depends on whether the individual is a "fixed-rate employee" or on variable pay. The Schedule defines a fixed-rate employee as an employee entitled under their contract to be paid an annual salary (and no other payment) in respect of basic hours determined by the contract, paid in equal instalments per pay period (of a number of weeks or a month) regardless of the number of hours worked in that period, and where the basic hours do not normally vary according to business, economic or agricultural seasonal considerations.
For fixed-rate employees, the reference salary is the rate as at the last pay period before 19 March 2020 (changed from 28 February 2020). The employer can use the 28 February figure, if different, for its first claim under the CJRS. Subject to this, the Schedule also provides that where an employer has been paying less than is required under the CJRS (using the 19 March reference salary) for furlough periods between 1 March and 18 April (three days after the Direction), the employer can and must top this up to the required amount before making a claim under the CJRS.
The Guidance was updated on 9 April to clarify that, for employees without variable pay who have returned from statutory family-related leave or sick leave after 28 February and subsequently been put on furlough, the reference salary for furlough purposes should be their normal gross salary and not the pay they received while on leave. The latest version clarifies that normal gross salary should also be used for those returning from unpaid parental leave, unpaid sabbatical or other unpaid leave. This is reflected in the Schedule.
Where benefits are provided through salary sacrifice schemes (including pension contributions), the reference salary for reclaiming 80% is the post-sacrifice salary. However, the Guidance notes that HMRC agrees that COVID-19 counts as a life event allowing employees to switch out of salary sacrifice arrangements, if the relevant employment contract is updated accordingly. Our Pensions Team have publishing a briefing covering the pensions aspects of the CJRS and the Pensions Regulator's guidance.
For employees whose pay varies, the reference salary is the higher of the employee's earnings in the same month the previous year or the employee's average monthly earnings for the 2019/20 tax year (or, if the employee has been employed for less than 12 months, an average of the employee's monthly earnings since starting work). The employer must pay 80% of the higher of these, subject to the £2,500 per month cap.
The position as to what payments should be included in the calculation has evolved over time. The 26 March Guidance stated that fees, commission and bonuses should not be included. The 4 April version altered this, stating that employers can claim for "any regular payments [they] are obliged to pay" including "past overtime, fees and compulsory commission payments" but excluding "discretionary bonus (including tips) and commission payments and non-cash payments". This was reworded again, focussing on regular payments which the employer is obliged to pay, "including regular wages [paid] to employees, non-discretionary overtime, non-discretionary fees, non-discretionary commission payments and piece rate payments". Payments where the employer is under no contractual obligation to pay are excluded, for example tips, discretionary bonuses, and discretionary commission payments. Non-cash payments and non-monetary benefits are also excluded. The Schedule provides that "regular" salary or wages excludes "conditional payments" and benefits in kind, and only includes payments which arise from "a legally enforceable agreement, understanding, scheme, transaction or series of transactions". It can include pay that varies according to the business's performance, the employee's contribution to the business's performance, the employee's performance of employment duties, or otherwise at the employer's discretion but only where pursuant to such a legally enforceable arrangement.
The Schedule (and, until recently, the Guidance) is not entirely clear whether the intention is to exclude regular overtime payments (which are "conditional" on working in excess of contractual hours), particularly if the overtime is not compulsory on the part of the employee and/or guaranteed by the employer. That question was finally addressed in the 14 May update to the Guidance. This states that non-discretionary payments only include payments which an employer has a contractual obligation to pay and to which the employee had an enforceable right, but notes that when variable payments are specified in a contract and those payments are always made, then those payments may become non-discretionary. The Guidance goes on to provide that payments for overtime worked are non-discretionary for the purposes of the CJRS when the employer is "contractually obliged to pay the employee at a set and defined rate for the overtime that they have worked". The focus is therefore on whether the employer is obliged to pay specifically for overtime hours worked and it does not matter whether the overtime itself is compulsory and/or guaranteed.
The requirement to pay the national minimum wage (NMW) will normally not apply, as furloughed employees will not be doing any work. However, if employees are required, for example, to complete online training courses while they are furloughed, then they must be paid at least the NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised; this will be particularly relevant for apprentices. The annual increases to NMW rates took effect on 1 April 2020.
An online calculator is now available to assist with calculating the more straightforward claims and HMRC intend to add more employment situations to the calculator in due course. For the more complex situations, employers are referred to the examples given here.
Which employees can be covered by the CJRS?
- The Guidance provides that employers can only claim for employees who were employed on 19 March 2020 and on the employer's payroll on or before 19 March 2020 (changed from 28 February) on any type of employment contract. The 23 April update to the Guidance confirmed that claims can be made for employees who satisfy this condition but subsequently are made redundant or stop working for the employer after 19 March 2020 (if the employees are re-hired and furloughed). The Guidance and Schedule now clarify that being on payroll for these purposes means that a real time information (RTI) submission notifying payment in respect of the employee to HMRC must have been made on or before 19 March 2020. The RTI submission deadline will mean that some employees put on payroll between late February and mid-March will still not be covered by the CJRS, particularly if payroll is only run monthly.
- Employees who were employed as of 28 February 2020 and on payroll (ie, notified to HMRC on an RTI submission on or before 28 February) but who were made redundant or stopped working for the employer on or after that date can also be covered by the CJRS, if they are rehired and put on furlough (even if this is not done prior to 19 March).
- The 23 April version of the Guidance confirms that the re-hiring provisions also apply to individuals on fixed term contracts. It acknowledges that individuals (whether or not on a fixed term contract) whose employment starts and ends between 28 February and 19 March 2020 are not covered by the CJRS.
- With regard to individuals who are re-hired as set out above, it seems that this could include those who resigned or were dismissed for personal reasons, although the CJRS eligibility conditions discussed above would still apply. Claims can only be made for the period from the date on which the employee is furloughed through the CJRS (ie, this cannot be backdated to cover the period when they were not employed by the employer). There is no obligation on employers to rehire staff. The Guidance does not address the issues of continuity of service or repayment of any redundancy payments in these circumstances.
- The Guidance expressly provides that an employer can furlough and claim for staff transferred to it under a TUPE business transfer or PAYE business succession rules after 28 February (notwithstanding any inability to satisfy the condition of making a RTI submission on or before 19 March). The date of 28 February was in the initial versions of the Guidance, but for a fortnight from 15 to 30 April, the date was changed to 19 March – this is still the date in the Schedule but presumably this will be amended in due course. Assuming the Schedule is updated to be consistent, the reversion to the original date resolves the problem created by the first date change, namely that transferees that acquired employees between 28 February and 19 March may have expected to be eligible for a grant, based on the earlier guidance, but found themselves unable to claim due to not making an RTI submission by 19 March. Similar provisions are made where a group of companies have multiple PAYE schemes and the employees are transferred into a new consolidated PAYE scheme after 28 February (also changed from 19 March).
- The CJRS covers full-time and part-time employees, employees on agency contracts, employees on flexible or zero-hour contracts and apprentices – anyone paid through PAYE. The Guidance expressly notes that foreign nationals can be furloughed and the recent versions have made clear that grants under the CJRS are not counted as "access to public funds", meaning that employees on all categories of visa can be furloughed. Claims can be made in respect of furloughed employees on fixed-term contracts, and the updated Guidance confirms that employers can renew or extend those contracts during the furlough period without breaking the terms of the CJRS, as long as this is done before the contract would otherwise have ended.
- The Guidance sets out a number of types of worker who are not necessarily employees but for whom claims can be made if they are paid via PAYE. These cover office holders (including salaried company directors and salaried individuals who are directors of their own personal service company), salaried members of Limited Liability Partnerships (where the reference salary will be the LLP member's profit allocations, excluding amounts determined by the member's or LLP's performance), agency workers including those employed by umbrella companies, and "limb (b) workers" (those with a contract to provide work of services personally and not as part of their own profession or business). On 9 April a section was added covering contractors with public sector engagements in scope of IR35. (Note that those who pay tax on their trading profits through Income Tax Self-Assessment may instead be eligible for the Self-Employed Income Support Scheme.) The 30 April update to the Guidance confirmed that directors who pay themselves once a year can also access the CJRS subject to certain conditions.
- A 1 May addition to the Guidance provides that employees receiving Maternity Allowance cannot receive furlough pay at the same time and so, if they have agreed to be furloughed, they should give at least 8 weeks' notice of ending their maternity leave early and be told to contact Jobcentre Plus to stop their Maternity Allowance payments. They will not be eligible for furlough pay until the end of the 8 weeks.
No work for employer
The CJRS will only apply where employees do no work for (ie, do not provide services to or generate revenue for) the employer directly or indirectly, nor for a company linked or associated to the employer. The CJRS cannot be used to cover the wages of employees whose hours or pay have been reduced (but there is no suggestion that employers could not now agree to amend contracts again in order to place employees on furlough leave instead). The employee can do volunteer work or training; on 14 May a clarification was added that an employer cannot furlough an employee and then ask them to 'volunteer' for the employer in the same or a different role.
The Guidance provides that training can take place provided it is not used by the employer to generate revenue or for the provision of services. In contrast, the Schedule provides that training activities "directly relevant to an employee's employment agreed between the employer and the employee before being undertaken" will not count as work for the employer. This leaves open the argument that training other than this limited type of training, and/or which is not agreed in advance, could invalidate CJRS claims. This would clearly conflict with the Government's encouragement to furloughed employees to use the time to develop more general skills. On 28 April the Government launched a new online learning platform, the Skills Toolkit, with free digital and numeracy courses, expressly highlighting that the platform offers furloughed employees "an opportunity to keep up their skills development while they are at home".
The updated Guidance proposes that employers can allocate critical business tasks to staff that are not furloughed, suggesting that there will not be any de minimis exception to the no-work rule. In theory at least, it seems that permitting employees to carry out small administrative tasks or answer the odd email could prevent an employer claiming reimbursement for these employees. In contrast, employees performing tasks in relation to their own disciplinary or grievance issues, agreeing changes to their own employment contracts, or attending social catch-ups should not amount to a breach of the rule for those employees (although clearly this could be 'work' for the managers involved).
The Schedule states that a director carrying out statutory duties relating to the filing of company accounts or other information would not breach the rule.
Initially, neither the Guidance nor the Schedule made clear whether employees' participation in information and consultation processes such as for proposed collective redundancies (whether in terms of nominating and voting for representatives or performing the representative role) is permitted. The 30 April update amended the Guidance to provide that furloughed employees can undertake "union or non-union representative duties and activities for the purpose of an individual or collective representation of employees or other workers" (as long as, in doing this, they do not provide services to or generate revenue for, or on behalf of the employer or a linked or associated employer). This is helpful given the possibility that employers may wish to start the information and consultation process for collective redundancies during furlough. Although the amendment is not clearly covering the involvement of individual employees in electing non-union representatives, this should also be permissible. Employers without existing representative bodies may wish to consider starting the election process while employees are on furlough now, to ensure they have representatives in place if and when needed. The amendment also makes clear that employees can accompany colleagues at disciplinary or grievance hearings, or at an individual redundancy consultation meeting, without breaching the terms of the CJRS.
Work for other unconnected employers
The updated Guidance now expressly notes that employers can allow furloughed employees to take on work for other entities. Employers will want to maintain a prohibition on employees working for competitors but may be prepared to expressly permit other work, at least where this is in support of the national effort, in social or health care or other essential services. The Employee Guidance notes that employees who do take on other employment while on furlough will need to be able to return to work for the original employer if they decide to end the furlough and must also be able to undertake any training they require while on furlough.
Where employees work for more than one employer, they can be furloughed for each job and the 80% cap applies to each employer separately. However, if an employee has had multiple employers over the past year and only worked for one at a time, and is being furloughed by their current employer, none of the former employers should re-hire, furlough and claim for them under the CJRS.
Employees currently on leave/absent from work
- The Schedule provides that employees who were on unpaid leave on 28 February 2020 can only be furloughed after the expiry of the period of unpaid leave as agreed or contemplated in advance. The Schedule also states that claims cannot be made under the CJRS in respect of any period of unpaid leave beginning before or after 19 March. The intention behind this second provision is unclear, particularly given the overlap in dates. It may mean that there is broader potential for claims where employees started unpaid leave after 28 February, as they can be made for periods after the employee has agreed to end that leave (including ending it early) and has formally been put on furlough. Alternatively, it may have been intended to provide that claims cannot be made under the CJRS for unpaid leave starting on or after 19 March, as by that point details of the CJRS were available and the employer could have formally furloughed the employee had it wished to do so; this would mean that claims are possible where employees started unpaid leave between 1 and 18 March (but not later) and their leave was then ended early and/or re-designated as furlough. If the latter was the intention, the Schedule would need to be amended accordingly.
- The Guidance states that employers can decide to furlough employees who are already on sick leave by moving them off statutory sick pay (SSP) and onto furlough wages (in respect of which a claim to reimbursement can be made). This does not reflect the Schedule, which provides that the furlough period for which a claim can be made will only start once the employee's eligibility for SSP (whether due to COVID-19 absence or otherwise) has ended. That is the case whether or not a claim to SSP is made (and whether or not the employer is a small employer able to recoup SSP). The discrepancy will be particularly relevant where an employer is proposing to place on furlough an extremely vulnerable employee who has been advised to shield for 12 weeks, as pursuant to amending regulations in force from 16 April, these individuals are now deemed to be sick and therefore eligible for SSP if they are unable to work as a result of shielding. The Schedule means that these individuals cannot now be furloughed until the end of their shielding period (currently the end of June). This consequence of the Schedule provisions is probably unintended: it is notable that the Explanatory Memorandum to the amending regulations assumes that these individuals can still be furloughed, as it states that the extension of SSP entitlement "is intended as a safety net for individuals, in cases where their employer chooses not to furlough them under the Coronavirus Job Retention Scheme and does not have other suitable policies in place (e.g. the ability to work from home, or the provision of special leave)". The Guidance still states that employers can claim for furloughed employees who are shielding in line with public health advice.
- The Guidance has been revised a number of times in relation to whether it is possible to furlough other individuals who could be unable to work for reasons related to COVID-19. Recent versions of the Guidance have now made clear that the CJRS is available if employers furlough individuals who are unable to work because they need to stay home with someone who is shielding or because they have caring responsibilities resulting from COVID-19 (such as needing to look after children). Where an employee's role cannot be done from home, parents needing to provide childcare will clearly qualify; there may be more scope for argument where parents can theoretically perform their tasks from home, but find this challenging whilst also providing childcare. (Previous iterations of the Guidance suggested that the CJRS would only cover those shielding or staying home with someone shielding if the employer would otherwise have had to make the individual redundant, but the Schedule has confirmed that this is not a condition of eligibility for the CJRS and it has been omitted from the latest versions of the Guidance.)
- There is no specific reference in the Guidance to furloughing employees in vulnerable groups (but not extremely vulnerable and therefore not shielding) who are "strongly advised" to follow the social distancing measures. However, the Schedule now makes clear that the decision to furlough must be causally connected with circumstances arising due to the pandemic, but it need not be the case that furloughed employees would otherwise have been made redundant. This should therefore mean that, where work cannot be done from home, vulnerable employees and other employees who refuse to attend work due to health and safety fears can be furloughed, even if there is work available for them to do.
Employees starting statutory leave after being placed on furlough
The Guidance states that employees still have the same rights at work, including to SSP, parental rights, and the right to claim unfair dismissal or redundancy pay. The 4 April update made clear that this includes during furlough.
The Schedule seems to envisage that, for those who become 'sick' after being placed on furlough, they could remain on furlough and sick leave simultaneously. It states that any SSP entitlement starting after being furloughed is to be "disregarded" when assessing whether the furlough will last for at least 21 days (which, although not entirely clear, presumably is intended to mean sickness would not stop the days counting as furlough). The Schedule goes on to provide that a claim under the CJRS for reimbursement of wages for any furlough period must be net of the amount of any entitlement to SSP during that period (whether or not the entitlement is actually claimed). Unfortunately, the Guidance has not been updated to reflect this. It currently states that it is up to employers to decide whether to move these employees onto SSP (which cannot be reclaimed through the CJRS) or to keep them on furlough and reclaim the full furloughed rate without deduction of the SSP rate. HMRC has also updated its Statutory Payments Manual to provide that employees do not qualify for SSP if they are on furlough.
Of course in reality, employees who have been furloughed may see no benefit in declaring their actual or deemed sickness if there is no incentive to do so (ie, there is no entitlement to contractual enhanced sick pay during furlough). Employers may want to agree as a condition of furlough that they disapply any contractual sick pay scheme which provides remuneration greater than the furlough entitlement.
Likewise, the Schedule and Guidance envisage that employees can start family-related leave having already been put on furlough and simultaneously with furlough. The Employee Guidance as at 23 April noted that, if earnings have reduced because an employee is put on furlough leave before maternity leave started, that might affect statutory maternity pay, presumably recognising that the rate for the first 6 weeks could be based on the 80% salary under the rules for calculating that rate.However, relevant regulations have since been amended to provide that, for furloughed workers starting family-related leave on or after 25 April 2020, their statutory family-related leave pay rate will be based on their usual earnings rather than the furloughed pay rate. The Guidance now notes that the statutory pay entitlement may need to be calculated differently for these furloughed employees and refers employers to updated webpages on SMP here.
The Guidance states that employers can claim through the CJRS for enhanced contractual pay paid to employees on maternity, adoption, paternity, shared parental or parental bereavement leave ("family leave").This seems to suggest that it is not necessary to bring the family leave to an end nor is a furlough period broken by these types of leave.An employer can reclaim (probably 80% of) the cost of contractual enhancement (up to the cap). Employers could then reclaim 92% of the statutory pay as usual, but would not be able to claim the 8% balance through the CJRS.The Schedule expressly provides that a claim under the CJRS for reimbursement of wages for any furlough period must be net of the amount of any entitlement to statutory pay for family leave during that period (whether or not the entitlement is actually claimed).
Annual leave and continuity of service
The Schedule does not address the issue of annual leave and continuity of service for furloughed employees. Given that the contract of employment continues during furlough, it seems clear that holiday will continue to accrue and continuity of service be preserved (meaning that employees could acquire two years' service and therefore entitlement to statutory redundancy pay and unfair dismissal protection) during furlough. The 17 April version of the Guidance confirmed HMRC's view that annual leave does continue during furlough, including any contractual enhancement on top of the statutory entitlement (unless there is agreement to vary the contract to remove this enhancement during furlough).
The Guidance also now states that employees can take holiday (including bank holidays) during furlough, and that the Working Time Regulations require holiday pay to be paid at the normal rate of pay or, where pay varies, the rate calculated by averaging over the previous 52 working weeks. Although there may be scope for argument in some cases, HMRC's view is that this means the employer should pay the employee's "usual holiday pay in accordance with the Working Time Regulations" (which would normally be 100% pre-furlough pay) for days of annual leave. The employer will only able to reclaim 80%, subject to the cap, under the CJRS, and the Guidance notes that employers will be obliged to pay additional amounts over the grant, but comments that employers will have the flexibility to restrict when leave can be taken if there is a business need, both during furlough and afterwards. HMRC also notes that "during this unprecedented time, we are keeping the policy on holiday pay during furlough under review". From 14 May, the guidance also links to a new web page published by BEIS on 13 May setting out (non-legally binding) guidance on holiday entitlement and pay during COVID-19.
Employers may wish to avoid employees returning from furlough with large holiday balances at a time when they want to maximise productivity. The Guidance and Schedule do not expressly address whether an employer could require an employee to take their accrued holiday entitlement during a period of furlough, provided they give the required period of notice. If not, periods of holiday (including bank holidays) designated by the employer could break the furlough and mean that the employer falls foul of the required minimum 3 week period for furlough. This question was addressed for the first time in the BEIS guidance published on 13 May, which clearly envisages that employers can require furloughed individuals to take holiday subject to the usual notice requirements and suggests that employers should engage with their workforce and explain reasons for wanting them to take leave before requiring them to do so. However, it also goes on to comment that "the employer should consider whether any restrictions the worker is under, such as the need to socially distance or self-isolate, would prevent the worker from resting, relaxing and enjoying leisure time, which is the fundamental purpose of holiday". This perhaps reflects the suggestion by some commentators that tribunals might view enforced use of annual leave during furlough as an abuse of the employer's statutory right to require holiday. Of course the same limitations on 'enjoyment' would apply in respect of requiring employees who are not furloughed to take holiday during lockdown. However, further on in the guidance, BEIS states that "in most cases" furloughed employees will be able to take holiday during the furlough period. Perhaps BEIS' view is that designating holiday during lockdown will generally be effective except for vulnerable individuals who are following the stronger social distancing guidance, extremely vulnerable individuals who are 'shielding', or individuals who are self-isolating due to their or their household having symptoms. Given that social distancing is likely to be the 'new normal' for some time, it would perhaps be surprising if the social-distancing restrictions on society as a whole were to be treated as sufficient to prevent 'enjoyment' of holiday. However, there is clearly scope for argument, at least until lockdown restrictions are further relaxed. Claims are perhaps more likely where an employer seeks to require furloughed employees to use up their entire year's entitlement while on furlough. In practice, furloughed employees may accept that a requirement to take a pro rata amount reflecting the expired portion of the leave year is not an unreasonable request.
Also note that the Government has amended the Working Time Regulations to allow workers to carry over up to four weeks of unused statutory leave into the next two leave years where it was not reasonably practicable for the worker to take some or all of it due to the effects of coronavirus (on the worker, employer or generally. The BEIS guidance suggests that one example of it not being reasonably practicable would be where, due to the impact of coronavirus on operations, the employer is financially unable to top up the 80% covered by the CJRS to full holiday pay. See our general briefing on COVID-19 issues for employers for further details.
Putting an employee on furlough
An employee can be furloughed for a minimum period of 3 consecutive weeks. The 4 April Guidance expressly confirmed that an employer can furlough employees multiple times, meaning they can rotate staff between furlough and work subject to each furlough period being at least 3 weeks (the Guidance does not provide for a minimum period of work in between furlough periods).
Although not noted in the Guidance, some employees will have a contract permitting an employer to 'lay them off', ie, provide no work or pay, but keep them on payroll. However, this is rare and in most cases the employer will not have this contractual right. Therefore placing an employee on 'furlough' at a reduced salary will be a change to their terms of employment requiring the employee's agreement. (Employers will also need to provide the employee with a written statement of changes to the "section 1 statement" of terms and conditions, at the earliest opportunity and in any event not later than one month after the change.)
There is nothing to suggest that the CJRS is not available where employers already have a contractual right to 'lay off' employees, nor indeed where they have already exercised this right. Given the choice between 'lay off' on no pay and 'furlough', it would be prudent for employers to 'furlough' staff. An employer's failure to take the necessary steps to 'furlough' these employees could arguably amount to a breach of trust and confidence, while leaving employees laid-off also enables them to bring claims for statutory redundancy payments after four weeks.
The Guidance recommends that employers discuss furloughing with their staff and make any changes to the employment contract by agreement. Prior to 17 April, the Guidance also stated that employers should then write to their employees confirming that they have been furloughed and keep a record of this communication for five years. However, the Schedule specifies that an employee will be treated as having been instructed by the employer to cease all work in relation to their employment (which is a condition of reimbursement) "only if the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment". Possibly in response to concerns about this apparently new requirement for a written agreement, the Guidance was updated on 17 April to state: "To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. If this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming the CJRS. There needs to be a written record, but the employee does not have to provide a written response." On 23 April this was amended to provide that a collective agreement reached between an employer and a trade union is acceptable for the purpose of a claim. Neither amendment seems to accord strictly with the requirement in the Schedule for written agreement between employer and employee to cease work.
The issue of agreement to furlough has also been the subject of published correspondence from HMRC on 23 April. In response to a request for clarification on HMRC's interpretation of the requirement in the Schedule, the correspondence states that:
- HMRC will act at all times in accordance with the Direction
- its interpretation of the Direction is as set out in the HMRC Guidance
- it expects employers to consider the Guidance in the first instance when seeking to understand the operation of the scheme and the HMRC's interpretation of the Direction
- it considers that the Guidance is consistent with the Direction
- "put simply", this means that the employer and the employee must reach an agreement and an auditable written record of this agreement must be retained. It does not necessarily follow that the employee will have provided written confirmation that such an agreement was reached in all cases.
This has not yet been added to the Guidance but, on this basis, the HMRC position appears to be that a written agreement from by the employee is not needed for the CJRS if:
- placing the employee on furlough was not a variation of the employment contract (perhaps where the furlough was on 100% salary and benefits, or where the employer is exercising a pre-existing contractual right not to provide the employee with work and pay) – here a written confirmation from the employer that the employee is being placed on furlough and is to cease all work would be sufficient for employment law and for claims under the Scheme. (For the purposes of the Schedule, it might also be that in these cases the original employment contract can be viewed as the required written agreement from the employee to cease all work if so instructed.)
- where a variation of the employment contract is being made, the employee has agreed orally to this and the employer makes a written record of this agreement. It is not entirely clear whether HMRC think an oral agreement to cease all work specifically is needed, in addition to an agreement to a reduction to 80% salary for example. It also remains unclear whether HMRC consider that agreement could be given retrospectively or indeed whether it could be implied, for example where employees acknowledge receipt of unilateral notification of furlough and accept furlough wages without protest, provided that implied agreement is then recorded in writing.
Given the uncertainty on this issue, there remains a risk that the HMRC could require repayment of grants made for employees where written furlough agreements have not been obtained from the employees. Commentators have suggested that employers may have a credible judicial review claim against the Treasury and/or HMRC on the basis that they should be entitled to rely on the earlier versions of the Guidance, at least in relation to those already put on furlough and up to the point of the Schedule being released. It would, however, seem prudent now to put in place furlough agreements as soon as reasonably practicable given the revised Guidance, certainly for newly furloughed employees and preferably also for those already furloughed.
The 30 April update to the Guidance confirms that employers can extend a period of furlough by any amount of time whilst the employee remains in furlough. This clarifies that there is no need to allow furlough to end and then re-start it, although in some cases extension might require further employee agreement and it would be prudent to get this in writing if feasible. Obviously furlough can only be claimed for days up until the date the CJRS ends.
The Guidance notes that, if sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to be placed on furlough.
Collective redundancy consultation is required where 20 or more dismissals (for redundancy or for some other reason unconnected with the individual) are proposed within a 90 day period at one establishment. The process involves providing specified information and consulting with unions or employee representatives about ways of avoiding or reducing the number of dismissals and mitigating the consequences. The process must start at least 30 days before the first dismissal, and 45 days before if 100 or more dismissals are proposed.
While there is a 'special circumstances' provision which might apply given the 'exceptional' nature of the pandemic, the availability of furlough grants may make this less applicable and in any event an employer must still comply with the process so far as is reasonably practicable. There are significant financial penalties for non-compliance (potentially 90 days' pay per affected employee).
The employer must also notify the Department for Business, Energy and Industrial Strategy of the proposed redundancies by letter or on form HR1 (copied to the union/employee representatives), at least 30 days (or 45 days if 100 or more dismissals) before the first dismissal. Failure to do so can lead to criminal prosecution and a fine (with no upper limit), on summary conviction, for the company and/or officers of the company, although only a few prosecutions have been brought to date.
Case law suggests that the collective consultation obligation would apply where an employer's proposal is to try and agree furlough with 20 or more employees but, if unsuccessful, to dismiss them as redundant. In many cases this may well be the employer's plan. The same would apply where the employer's proposal is to seek employee agreement with 20 or more employees and, if unsuccessful, to dismiss and re-engage the employees on the new terms (including the furlough provision). Further, there is EU case law suggesting that the obligation would apply where an employer proposes unilaterally imposing on 20 or more employees a substantial change to terms sufficient to amount to a constructive dismissal; imposing a new furlough term could be sufficient depending on the scope of and any limitations on the particular furlough term.
In any event, if trade unions are recognised, the employer will likely be required to consult with them on the extent to which the CJRS will be applied, to whom, for how long and whether there will be any top-ups. Similarly, if an employee forum is in place, consultation may be advisable Where there are no existing employee representatives, it should be made clear to employees that if they do not agree the furlough, redundancies will be proposed and the information and consultation process will be followed. It would also be prudent to file the HR1 at the start, accompanied by an explanation that the proposal is to seek agreement to furlough rather than compel redundancies.
Selecting employees for furlough
It is possible to furlough only part of the workforce. Employees could request furlough, but an employer is not obliged to agree.
When deciding to whom to offer furlough, the employer will have some discretion, subject to discrimination law (as noted in the Guidance), the prohibition on detriment for whistleblowing/exercising certain other statutory rights and general duties of trust and confidence.
Employees in businesses which have been ordered to close workplaces and who cannot perform their roles from home will be obvious candidates for furlough. For others, although the process may not need to be quite as rigorous as is required for fair redundancy selection, it would be prudent to set out and apply rational criteria; equally, it would be prudent to consult on the selection with individuals and any trade union or workplace forum.
Giving preference to placing those aged over 70 on furlough would be direct age discrimination but would probably be justified to achieve the legitimate aim of protecting vulnerable employees as identified by Government public health advice. Given the potential for employees to have widely differing situations (given individual health concerns and family responsibilities, and dependent on whether work is capable of being done remotely), it would seem sensible to invite volunteers for furlough as a first step.
If the employer decides to make redundancies later on, it will of course need to apply a fair selection process at that point. The CJRS does not prevent an employer making redundancies during or at the end of a period of furlough.
It may be possible for employees to argue that an employer's failure to use furlough rather than make redundancies renders any redundancies unfair. (This may be less likely where a small employer was unable to obtain a loan to continue paying wages pending the CJRS becoming operational, was unable to agree payment deferral with the employees, and its financial position gave it no choice but to make redundancies before the CJRS opened.)
Timing and process for claims
The CJRS was originally put in place for at least three months from 1 March to 31 May 2020. The CBI urged the Treasury to commit by 18 April to extend it beyond 31 May 2020 (given that employers would need to start consultation on 18 April if making 100 or more redundancies on 31 May). On 17 April the Chancellor extended the CJRS to the end of June and committed to keep it under review. On 12 May a further announcement was made extending the CJRS in its current form to the end of July. Thereafter, it will remain in place and available to all sectors through to the end of October, but from August there will be greater flexibility. Employers currently using the scheme will be able to bring furloughed employees back part-time. Employees will continue to receive at least 80% of their wages subject to the £2,500 per month cap, but employers will be asked to 'start sharing the cost' of the scheme. Full details will be available by the end of May. There are calls to permit partial furloughing earlier than August, but the Treasury has indicated that this date is likely to be the earliest the necessarily complex arrangements can be put in place.
Employers can upload claims through the HMRC online portal and grants are expected to arrive in employer bank accounts within six working days. The aim was for employers to be able to 'self-serve' when uploading claims, and employers were also asked to help HMRC cope with demand by keeping employees informed and asking them not to contact HMRC.
Where there is more than one claim period, claim periods should follow one after another, with no gaps in between, where employees have been continuously furloughed. A claim period cannot start any earlier than the date the first employee was furloughed and grants for an employee can only cover the time they were furloughed. The claim end date must be no more than 14 days in the future from the date the claim is made and any claim period must contain all the furloughed days that the claim amount relates to.
Employers could put employees on furlough before the CJRS is operational and where appropriate employers can backdate the claim to 1 March. Businesses may have been able to obtain loans to cover wages in the meantime, or to agree with the employees that payments will be deferred until the CJRS grant is received. (Note that it has been suggested that the Schedule can be construed as excluding claims where employers have deferred paying employees until they receive the CJRS grant, but we consider that an alternative construction is to be preferred given this is unlikely to have been the intention and there is no prohibition of deferral in the Guidance.)
Employers must provide details of:
- the employer's PAYE reference number, unique taxpayer reference/company registration number, bank account details and billing address, and contact details
- the number of employees furloughed, their names, and NI numbers (and if an employee does not have an NI number, the employer should make a verification request or contact HMRC), and can optionally also provide their payroll/employee number
- claim period (start and end date) and amount claimed.
Employers with fewer than 100 furloughed employees will need to enter details of each employee directly into the system; those with 100 or more furloughed employees will need to upload a file (.xls, .xssx, .csv or .ods) with the information in a specified form. Agents authorised to act for an employer for PAYE purposes can upload the claim on their behalf, but file-only agents cannot.
Employers must claim for all employees in each claim period at one time – currently they cannot make changes to the claim once submitted (although "HMRC are looking to develop a process to allow for amendments to be made"). The claim can be saved in draft but must be completed within 7 days of starting it. Records must be kept for 6 years, including records of the amount claimed for each furloughed employee and the period for which each employee is furloughed and a claim made under the CJRS. The claim should reflect the actual payroll amounts at the point at which payroll is run or in advance of an imminent payroll. The grant will be paid via BACS payment and must be paid in full to the employee and claimed employer NICs and pension contributions must also be paid, otherwise the money has to be repaid to the HMRC. No administration charges, fees or other costs can be charged from the money granted.
The online portal requires the employer to confirm that:
- the claim is for the costs of employing furloughed employees arising from the health, social and economic emergency resulting from coronavirus
- the claim is in accordance with HMRC's "published guidance"
- the information provided is correct, to the best of the employer's knowledge
- all employees have been paid their wages before the claim is submitted or will be paid in the next payroll
- they will contact HMRC to amend the claim if any of the information changes.
There is no requirement to provide any other evidence to support the claim at this stage. Of course, as mentioned earlier, HMRC has made clear that it retains the right to retrospectively audit all aspects of a claim.
The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2020