On 20 March 2020, Chancellor Rishi Sunak announced an unprecedented package of measures, including a Coronavirus Job Retention Scheme (CJRS). This note summarises the grant which is available to all UK employers and is based on detailed guidance that was published on 26 March and updated up to and including 1 May 2020.
The note has also been updated to take into account the Treasury’s direction to HMRC on 15 April 2020, the Chancellor’s announcement on the future of the CJRS on 12 May 2020, and the Government’s separate guidance on taking holidays during a furlough period.
Eligibility: UK employees (1) paid by a UK employer, (2) who were on the payroll as at 19 March 2020, (3) who have a HMRC online RTI PAYE record submitted for them on or before 19 March 2020, and (4) who have been asked to stop working but who remain in employment. See Q10 below for special rules for employees who left employment and have been reinstated, including those who were on payroll as at the previous eligibility date of 28 February 2020, but left after then.
Amount: HMRC will reimburse (1) 80%* of wages up to £2,500 per month; plus (2) associated employers’ national insurance and minimum automatic enrolment employer pension contributions. This means that the grant maxes out for employees with a base salary of £37,500.
*Note: the 80% figure is likely to change when the rules are updated for the CJRS extension between July and October. Our FAQs will refer to 80% until we have a clear understanding of how this will change.
Period: The original scheme runs from 1 March to the end of June 2020, for a minimum furlough period of 3 weeks at a time. On 12 May 2020 it was announced that the scheme would be extended to the end of October, with slightly different payment rules (not yet updated).
Process: To claim the grant employers will need to:
Top up: Employers do not have to top up payments to 100% of wages to qualify for the grant.
Consent: To qualify for the scheme, there must be “written agreement” between the employer and the employee for the employee to be furloughed. What constitutes “written agreement” for the purposes of the scheme, is broader than one might ordinarily expect (see Q28 below). Where furlough is an alternative to redundancy, we expect that consent will readily be provided.
A word of warning. The situation is fast moving and the guidance has changed on a number of occasions. The take up of the scheme has been more extensive than envisaged by the Treasury and the guidance may change with little or no notice. This note summarises the scheme based on the guidance issued up to 1 May 2020, including the Treasury Direction to HMRC.
We set out on the following pages answers to some frequently asked questions. We highlight *IN BOLD* where the answers have substantively changed since our last FAQs. We can provide a specimen furlough letter on request.
No, with very limited exceptions. The guidance states that employees cannot do any work that makes money for your organisation or provides services for your organisation (or for any linked organisation).
The government guidance states that a furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of your business. The latest government guidance also says that employee representatives (union or non-union) can also undertake duties in relation to a collective consultation exercise if relevant.
The guidance also says that if workers are required to complete online training courses whilst they are furloughed, then they must be paid at least the minimum wage for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
Although the guidance does not expressly deal with it, we do not see any likely issue with an employee logging-on to check HR emails or attending calls with HR by way of “keeping in touch” with the business whilst they are on furlough but employees should not perform any substantive work. Similarly, there should be no objection to taking the occasional short call from colleagues to ensure continuity of work being undertaken by others. Employers should make this clear when placing employees on furlough.
Yes, provided the other employer is not related to the furloughed employer. If the employee gets a new job, the employee can start work for the new employer (again, provided the new employer is unrelated to the “furlough” employer).
There is now dedicated guidance on how to calculate the monthly wage of a furloughed employee, including a calculation tool – see here.
For salaried employees (full-time or part-time), the government’s employer guidance is that the monthly wage is calculated by reference to the employee’s “salary” for the last pay period prior to 19 March 2020 (note: previously as at 28 February 2020) and the payments addressed in Q4 below.
For salaried employees who are returning from a period of statutory absence (such as family-related leave) and are furloughed, the general principle is that you use their salary, before tax, and not the pay they received whilst on statutory absence. Although the guidance does not provide a specific date against which to measure salary, presumably it would be the employee’s salary as at the date they returned.
There is also a saving provision in the latest rules which states that if an employer relied on the earlier rules and used 28 February 2020 instead of 19 March 2020, the employer can still use the salary as at that date instead for its first furlough reimbursement claim.
For employees with variable incomes, including “zero-hour” employees, the position is more complicated. For employees with variable incomes who have been employed for a full year, employers will be able to claim the higher of either:
For employees with variable incomes who have been employed for less than a year, employers will be able to claim for an average of the regular monthly wages since they started work and until they are furloughed.
For employees with variable incomes who only started work in February 2020, the wages will need to be pro-rated from that month.
As referred to above, there is now dedicated guidance on how to calculate the monthly wage of a furloughed employee, including a calculation tool – see here.
An employer can claim for any “regular” payments it is obliged to pay its employees. This includes wages, past overtime, compulsory fees and compulsory commission payments. However, any discretionary bonus (including tips) and commission payments, any “irregular” or conditional payments, and any non-cash payments or benefits-in-kind should be excluded.
Employers have a statutory obligation to automatically enrol employees in a workplace pension and there are no powers in place to vary that obligation. Employers will continue to have to make these payments.
The government has said that its scheme will cover the minimum pension contribution under the auto-enrolment rules. In other words, this will be 3% of the employee’s qualifying earnings based on their furlough payment of up to £2,500 per calendar month.
The scheme rules state that any pension payment to a business must be paid into the employee’s pension account in full (i.e. without any deductions at all). The UK Pensions Regulator has also issued new guidance on auto-enrolment compliance during furlough (see here).
Employees continue to be entitled to all their other benefit rights under their employment contracts unless they are varied – so employees will be entitled to bonus, commission, healthcare etc.
Varying these rights may or may not require consent depending on the terms of the employment contract. Employees who are furloughed may agree to forgo these benefits.
There are various related questions here. Below, we set out the current position as we best understand it, however ultimately the relationship between furlough (which is governed by the Treasury/HMRC scheme rules) and holiday entitlement (which is governed by the Working Time Regulations 1999) would need to be dealt with by the courts/tribunals (i.e. it is not just a matter for HMRC to provide guidance on). On 13 May 2020 the Government issued some guidelines on taking holiday during furlough, which are separate from the CJRS rules. These guidelines are likely to be followed by everyone, though they do not have the force of law.
Employees will continue to accrue continuous service whilst on furlough. This means that some employees who do not yet have the two years’ service required to claim a statutory redundancy payment and to bring an unfair dismissal claim may acquire these rights whilst on furlough.
Payments made by the employer will be subject to the usual deductions for income tax and national insurance. Employers are also able to reclaim the employer’s national insurance (subject to the financial limits discussed above).
Payments are also subject to other deductions such as employee pension contributions and Student Loan repayments.
Yes, whilst employers probably have the right to send employees home and/or to not require performance in these exceptional times, employees have the right to be paid provided that they are ready, willing and able to work.
The only exception would be if the employment contract expressly permitted lay off without pay or if the employee agreed to any pay reduction as part of a furlough arrangement.
Eligibility. The general rule now seems to be that an employer can claim for any employee (including a fixed-term employee) who was “on your payroll” as at 19 March 2020.
“On your payroll” for these purposes means that the employer had made a HMRC online RTI PAYE submission notifying payment for that employee on or before the relevant date (here: 19 March 2020).
Special rules apply to employees who stopped working before 19 March 2020, provided they were “on your payroll” as at 28 February 2020.
Employees who first started working for an employer after 28 February 2020 and who stopped working for that employer before 19 March 2020, appear not to be covered (however, this is complicated so please discuss it further with your adviser in the unlikely case that this applies to your business).
Employees who stopped working. The rules are now as follows:
Fixed-term employees. HMRC is now saying that a fixed-term employee whose contract has expired can be re-employed and placed on furlough if:
The guidance says that fixed-term employees who started and ended the same contract between 28 February 2020 and 19 March 2020 will not qualify for the scheme.
Employees with serial employers. The rule here is straightforward, and we reproduce it in full:
“If an employee has had multiple employers over the past year, has only worked for one of them at any one time, and is being furloughed by their current employer, their former employer/s should not re-employ them, put them on furlough and claim for their wages through the scheme.”
The guidance states that employees who remain working but with reduced hours/pay, will not be eligible for the scheme. There would seem to be no objection to subsequently furloughing those employees.
There is no objection for an employer to rescind those notices, to furlough and to reassess their position when the scheme ends.
The scheme only covers employees who were “on the payroll” on 19 March 2020 (note: previously 28 February 2020). This means that a payroll record has been set up and submitted under HMRC’s real time information (RTI) system for that employee.
Yes, although there appears to be a minimum furlough period of 3 consecutive weeks. Also, special rules apply to some employees depending on the timing (see above, Q10).
Executive directors (i.e. those with an employment contract) are eligible. Non-executive directors are also eligible if they are remunerated by PAYE.
The guidance was updated on 1 May 2020 to make it clear that directors who are paid annually, not just periodically during a year, are also eligible (provided they meet the other criteria).
Furloughed directors can carry out duties to fulfil statutory obligations so long as they do no more than would be judged reasonably necessary for those purposes. Directors should be careful not to overstep this limit or this could prejudice a grant application. The new Treasury rules, which will now bind the HMRC, state that statutory obligations for these purposes mean work undertaken by a director to fulfil a duty or other obligation arising by or under legislation relating to (1) the filing of company accounts, or (2) the provision of other information relating to the administration of the company.
Finally, it is worth noting that the scheme rules state that any furlough arrangements applying to directors must be adopted formally as a decision of the company (presumably, by a board resolution).
Most partners and LLP members are self-employed and so will be outside the scope of the scheme.
However, members of LLPs who are designated as employees for tax purposes (“salaried members”) are eligible to be furloughed although amendment of the LLP agreement may be required.
The government announced on 26 March 2020 a scheme for the self-employed, but this only applies to those with profits of less than £50,000. We are not covering the detail of this scheme in our FAQs, but more information can be found here.
Finally, it is worth noting that the scheme rules state that any furlough arrangements applying to LLP members must be adopted formally as a decision of the LLP (presumably, by a resolution).
Yes (assuming that they are paid through PAYE).
It is not clear as different government sources are contradictory. In the current guidance, the government has said that employees can move between sick leave and furlough leave, provided employers are not doing so to abuse the system. The Treasury Direction, however, seems to suggest that an employee cannot be furloughed until they cease to be eligible for SSP – potentially meaning an employee cannot be furloughed until they are fit for work. We expect this contradiction to be resolved when guidance is updated.
Remember that the SSP has been modified so that with effect from 13 March 2020 employees can claim from their first day of incapacity and with effect from 14 March 2020 employers with less than 250 employees can reclaim SSP paid in respect of the first 14 days of COVID-19-related sickness absence.
There is no mandatory process. Employers will wish to ensure there is a clear business rationale for decisions about who to furlough in order to avoid allegations of discrimination and further arguments around the unfairness of any subsequent redundancies. This is especially important where there are a number of employees carrying out a similar role and only some of those employees are to be furloughed.
Informal consultation in a manner appropriate to the business in question is always good practice.
The scheme rules state that “you can furlough employees on all categories of visa”.
The Home Office has now confirmed (in a separate statement) that the scheme can be used for sponsored migrants. They have to meet the same payroll date eligibility requirements as other employees (see above Q10). Some sponsored workers – especially some Tier 2 (Intra-company Transfer) migrants – will not qualify because they are not on PAYE.
It has also been clarified that sponsors can temporarily reduce the salaries of sponsored migrant workers to 80% of their salary or £2,500 per month, whichever is the lower. Any reductions must be part of a company-wide policy to avoid redundancies and in which all workers are treated the same. Pay must be returned to normal once these arrangements have ended. Sponsors must report on the SMS that a worker has been furloughed and report the reduction in salary.
Specific advice should be taken and our immigration lawyer can help answer any specific questions.
No, not in relation to the decision to furlough but collective consultation may still be required if redundancies are proposed, even if they will not take effect until the end of the furlough period.
Where an employer goes beyond contemplating the possibility of redundancies, to making a proposal to dismiss as redundant 20 or more employees at any establishment within a 90-day period then collective consultation obligations are triggered. Such consultation must begin in good time and for a minimum period of 30 days (45 if more than 100 redundancies are contemplated). This requires consultation with any recognised trade union or, if no other appropriate representatives, employee representatives who are elected for this purpose.
For these purposes, proposing to “dismiss” an employee is deemed to include a situation where the employee proposes to dismiss them under their current contract of employment and offer them new employment on a different (less costly) contract.
Many employers who do not wish to top up salary to 100% of pay will require employee consent to agree to the reduction in pay. They will use the risk of redundancy as the negotiating hook with which to seek consent. Here it will be important to be careful not to inadvertently trigger the collective consultation obligations by suggesting that there is a firm proposal to make redundancies.
Even if collective consultation obligations are triggered failure to consult awards can only be made to those who are actually dismissed. If the expectation is that every employee will consent to be furloughed now rather than to be made redundant after a minimum 30/45-day consultation period, then there will be no person able to bring a claim.
In many cases it will be sensible for employers to start collective consultation. This is so that they can be in a position to implement any necessary redundancies once the scheme comes to a close and so they do not need to wait a further 30/45 days.
This part of employment law can be tricky, so it is one area to check with an adviser if you are considering how to deal with a workforce of 20 or more potentially affected individuals.
This is not explicitly addressed by the guidance. In our view being consulted is not “work” and there some support for that view in the guidance so this should be permitted. However, there is a risk that HMRC adopts a different position after the fact.
This is significant because employers may want to get into a position where they can implement redundancies if things don’t improve once the government grant comes to an end.
Just to recap:
Union representatives and employee representatives have the right to paid time off for carrying out their duties and it may be necessary to “top up” their salaries for those days that they are carrying out their duties. There is also a greater risk that performing these duties is considered to be “work” and so that a claim for furlough payments in respect of any such employees might be rejected by HMRC.
Taking each in turn:
When seeking consent to reduce salary levels employers may wish to give comfort to employees that they will not be disadvantaged as a result of accepting a reduced salary although doing so may impact the tax treatment of any “top up” payments.
The original policy intent of the scheme is to avoid redundancies and based upon the guidance which was published up to 26 March 2020 it was a requirement of the scheme that the furloughed worker would otherwise have been made redundant. However, nothing in the guidance published on and after 26 March 2020 would appear to specifically prohibit an employee being given notice of termination and then furloughed during their notice period.
The current guidance states that the scheme was “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…”
The updated guidance issued on 9 April states :
“Grants cannot be used to substitute redundancy payments. HMRC will continue to monitor business after the scheme as closed”.
It is not clear what the term “redundancy payments” in this statement is intended to mean. The ordinary meaning of those words would be a statutory or contractual redundancy payment but would not extend to a period of employment whilst an employee is on notice.
Of course, in a sense, giving notice of termination, furloughing employees and obtaining a grant does have the effect of reducing overall termination costs. For that reason employers who choose to do this should: (a) keep the guidance under close review with a view to making a claim in due course; but (b) accept the risk they may not be able to recover payments to employees who are serving out notice.
Employers who have already changed their position on the basis of previous iterations of the guidance may be able to rely on the guidance as it is existed but should take specific advice.
Employers should ensure that they keep their decision to make redundancies under review for the duration of the furlough period and take specific advice on the risks.
We expect that the grant will be applied for with a simple “check box” declaration. It is expected thought that HMRC will have extensive enforcement powers to audit applications after the fact in order to prevent fraud and abuse. Successive iterations of the guidance and the Treasury Direction have placed increasing emphasis on the intention to police perceived abuse of the scheme.
In recent days, there has also been a growing public criticism of profit-making businesses (especially larger businesses) using the CJRS to short up their own profits, at the expense of the taxpayer.
Payments to employers have started being made. Employers will need to pay and therefore fund salary costs in the meantime and may be eligible for a Coronavirus Business Interruption Loan.
An employer could reach agreement with employees so that furlough payments are instead made on receipt of the payment by HMRC.
Paperwork. Ideally, a written letter or agreement (including by email) showing the agreement of each relevant employee to be furloughed.
In a Treasury Direction to HMRC, the Treasury has stated that in order to be eligible for a grant, an employer has to show that the employer and the employee have a “written agreement” (including email) that the employee will cease all work for the employer.
In response to the Treasury Direction, the HMRC guidelines now state that to be eligible for a 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.”
Previously the HMRC only required a written “notification” from the employer, not an “agreement”. It updated its position to reflect the new Treasury direction.
The HMRC requirement still seems slightly more relaxed than what the Treasury originally had intended, and it is not clear yet whether the Treasury will accept the HMRC’s position on this.
A collective agreement with a recognised trade union would suffice for these purposes.
It is advisable for all employers to obtain their employees’ (or their union’s) specific agreement in writing (including by email) prior to placing the on furlough. If this was not done previously by an employer, then further advice should be taken about the situation.
The furlough letter/agreement. This letter/agreement/email should be retained on file. Topics to consider include:
Employers may also wish to encourage employees to undertake training and to consider undertaking volunteer work in support of the wider community.
Yes. Furlough records including the furlough letters (i.e. designating employees as furloughed) must be kept for at least 5 years.
Note that the furlough period starts form the date that employees ceased working rather than date of the furlough letter and so if furlough letters have not yet been issued then they should be issued as soon as possible.
We understand that the scheme will only pay out to businesses that have a UK bank account and were registered with HMRC’s online RTI PAYE system in respect of a furloughed employee, on or before 19 March 2020. The CJRS online portal commenced operation on 20 April 2020. We understand that the portal is now working and payments have started to be made.
Employers should be prepared to complete declarations that furloughed workers have not been working. This will be easy for some employers but less easy for employees who can operate remotely. Employers will wish to ensure that the “no work” rules are understood by line management and appropriately policed.
A number of (well resourced) football clubs have been criticised for furloughing staff and have subsequently decided to reserve those decisions are a result of adverse coverage. Organizations that furlough and claim government subsidy should expect their operations to be open to public/press/parliamentary scrutiny.
An issue has arisen in respect of furlough periods that last for longer than 3 weeks, in terms of when the employer is allowed to seek payment from the government under the scheme. It is now clear that an initial furlough period can be extended by the employer even if the extension in itself is not for 3 weeks or more. However, the question is how this relates to the mechanism for claiming a payment for the government.
For example, if an employee is furloughed for 5 weeks, does the employer have to wait and claim for the full 5 weeks in one submission, or can the claim be split into two submissions of, for example, 3 weeks and 2 weeks? The guidance is not clear on this; it just says each furlough period has to be at least 3 weeks long.
We checked with an adviser at HMRC who has told us in a webchat that two submissions can be made, even though the second submission in our example would only be for 2 weeks, instead of 3 weeks, provided the overall furlough period itself is longer than 3 weeks. We are unable to verify this further ourselves, but passing on the information we have received from the HMRC adviser. It may be desirable to make one submission per furlough period but if you do need to split the submission then make sure you raise this with your payroll provider who may want to clear it with HMRC first.
Yes, provided that they are paid through PAYE.
The latest scheme rules specifically state that these employees will be covered (although the rules do not say it expressly, we assume this only applies to employees who were on the previous employer’s payroll as at 19 March 2020 (previously 28 February 2020)).
If an employee was on unpaid leave before 28 February 2020, the employer needs to wait for them to come back to work according to their previously-agreed schedule, before furloughing them. The relevant salary for furlough reasons will be 80% of their salary had they been on paid leave instead of unpaid leave.
If an employee was placed on unpaid leave after 28 February 2020, they can be furloughed instead.
This is not covered in the government’s furlough scheme at all, but we have included a FAQ as we are being asked this by clients.
EMI options are the most tax-advantaged – and therefore the most popular – of all UK employee share incentives but the favourable tax treatment ceases if a “disqualifying event” occurs in relation to an EMI option. One such event is if the holder of the option ceases to be required to work for his employer for at least 25 hours per week or, if less, 75 per cent of his total working time. If option holders are furloughed, they will obviously fail to meet this requirement during the furlough period.
There can be no real doubt that the government will not want the tax status of furloughed employees to be tarnished as a result of having been furloughed. HMRC are aware of the problem and are promising to issue “guidance” in the very near future. While this guidance will no doubt be intended to be helpful to taxpayers, until we have read it we will not know what solution to the problem is to be adopted and whether that solution will be completely comprehensive.
We also understand that valuations agreed with HMRC for the grant of EMI options which until now have been valid for 90 days (increased last year from 60 days) will now be valid for 120 days. This is subject to the usual caveat if there are material developments affecting the company’s value.
There should be no significant implications for share plans other than EMI.
An employee who has reduced his or her base salary as part of a salary-sacrifice arrangement, will have their furlough payments calculated by reference to 80% of their new base salary, not their “notional” or “reference” salary (up to the monthly cap of £2,500).
The HMRC guidance states that HMRC will consider Covid-19 as a “life event” allowing an existing salary-sacrifice arrangement to be changed, without upsetting the tax treatment of a prior arrangement.
However, employees who have a salary sacrifice arrangement “reversed” and whose base salary increases as a result of this, should still have their CJRS grant amount determined by reference to the normal timing rules (see above, Q3).
There is nothing in the guidance or any law that would require an employer to reinstate someone in this situation, if the employer did not want to do so.
However, it may be possible for an employee who is let go to bring an unfair dismissal claim against their ex-employer (assuming they have enough service to bring such a claim) and in the process of doing that argue that the dismissal was “unfair” because the employer could have furloughed them instead.
We do not yet know what an Employment Tribunal judge would say about this type of argument. Our current view is that it is not an attractive argument for an employee to make, but it is impossible to know at this stage.
HMRC data as at 30 April 2020, which you can see here, suggests that between 60% and 80% of businesses have accessed the furlough scheme to date (the percentage depends on whether the business is continuing to trade, has paused trading, or is doing both).
On any view, there has been a significant uptake of the scheme.
One issue to be aware of is the potential public relations aspect of accessing the scheme. A number of (well resourced) football clubs have been were criticised for furloughing staff and have subsequently decided to reserve reverse those decisions, are as a result of adverse coverage. In other markets, some journalists are also now questioning whether large businesses with well-paid executives, should be accessing public funds to pay furloughed staff. Organizations Businesses that furlough and claim government subsidy payment should therefore expect their operations to be open to public/press/parliamentary scrutiny.
If you have any queries about this briefing note please contact your usual GQ|Littler contact or email firstname.lastname@example.org.
This information provided by GQ|Littler is for general information purposes only. The information presented is not legal advice and should not be used as a substitute for taking legal advice in any specific situation. Although this information summarises some major recent developments, it is not all inclusive and it may be subject to change as circumstances develop.