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The Government has announced extraordinary measures to help keep businesses afloat during the global COVID-19 pandemic. One of these measures is the ‘Coronavirus Job Retention Scheme’ which allows employers to claim up to 80% of an employees’ wage for all employment costs up to a maximum of £2,500 per month. We are still awaiting further definitive guidance however here is a summary of what we know so far.
What is the Coronavirus Job Retention Scheme?
The scheme allows all employers in the UK regardless of size or sector to claim up to 80% of an employee’s wage per month. It has been set up to help businesses manage during the pandemic and crucially keep employees who may otherwise be made redundant or be placed on unpaid layoff, in employment. These individuals are being ‘furloughed’ and HMRC will reimburse employers 80% of furlough workers’ wage costs up to a maximum of £2,500 per month (plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage). More on what you can and can’t claim for is below.
What do employers need to do?
For the scheme to apply, employers must have had a PAYE scheme up and running on or before 19th March 2020 (except in very specific circumstances of employee transfer) and must also have a UK bank account (If a company has gone into administration the administrators can still access the scheme). Employers must keep employees on their payroll instead of making them redundant or place them on unpaid layoff.
In order to access the scheme employers must also be set up for online reporting with HMRC. If you are not yet signed up you must do so straight away as there could be a delay in this being processed.
Employers should firstly identify which employees are going to be furloughed and agree with affected employees that they are going to become furloughed workers.
The government has said that employment law rules will apply and therefore the employer should check the employment contracts to see is there are provisions which allow the employer to stop pay or reduce pay if there is reduction in work.
We understand that in most cases, if given the options of taking unpaid leave, redundancy/unpaid layoff or receiving 80% of their wage, most employees will opt for the scheme even if there is no lay off clause in their contract.
Once employees have agreed to be furloughed, the employer should insert their details on the government portal page to make a claim for the grant.
What period of time does the scheme cover?
The scheme will be backdated to 1st March 2020 and run until 30th June 2020 and may be extended if necessary.
Employees who are furloughed must be furloughed for a minimum period of 3 weeks. If your employee is taken off furlough leave before the expiry of 3 weeks the employer will no longer be able to apply for the grant.
At any time when the employee is furloughed they are not allowed to carry out any work for that employer including the provision of any services or any act that may create revenue. Directors are only allowed to carry out statutory duties to file statutory accounts.
How does the employer select which employee to furlough?
Employees, workers and apprentices who work full time, part time on agency contracts or even zero hours contracts are all eligible for the scheme, provided they were on the employer’s PAYE payroll on 19th March 2020.
If an employee is able to work from home, then clearly this should be encouraged. If an employee is unable to work from home or there is insufficient work for the employee to undertake, then the employer should adopt a fair selection process to identify its furloughed workers.
Organisations who receive public money towards their staffing costs are expected to not access the scheme as that would lead to double funding from the public funds.
Particular diligence needs to be taken with selection in order to avoid allegations of discrimination during the selection process. Furloughed workers should not be carrying out any work for the employer during the furloughed period.
Does the employer need to top-up the wage to 100% or pay more than £2,500 gross per month?
The employer can top-up pay to 100% or pay more than £2,500 gross per month however it does not have to. The employer should take a consistent approach amongst all staff. The employer should ensure it has a clear agreement from its staff to the scheme and that it is clear to the staff whether the 80% etc will be topped up. If there is no agreement to pay less than 100% and no clause in the employee’s contract to permit a deduction from their wages they should be paid 100%.
The employee will need to pay Income Tax, National Insurance and Auto Enrolment Pension Contributions on the furloughed payment in the usual way.
Which employees/workers are eligible under the scheme?
The scheme applies to PAYE staff only and therefore self-employed contractors are excluded (but may be eligible in their own right for the self-employed scheme). Those individuals who are on zero-hour contracts who are paid though the payroll system are included in the scheme.
The employee must have been on the PAYE payroll system through real time information reporting on 19th March 2020 to be eligible. Any new starters after that date are not eligible but see the note below if they are reengaged by a previous employer.
Employees of more than one employer have an entitlement with each employer.
What about employees who have already been dismissed?
The government has backdated the scheme therefore any employees who were dismissed or left the business after 28th February 2020 but before 19th March 2020 could be re-engaged by agreement.
Some employers may be in discussion about layoff, redundancy and special leave with their employees already and we would advise that these negotiations continue until the employer has established if furloughing is applicable.
Former employees who left the business after 28th February 2020 but before 19th March 2020 can also be re-employed and then furloughed. This means that even staff who resigned, or were even dismissed following a disciplinary could possibly be re-employed and furloughed – although there could be some issue with the new requirement that staff are furloughed for circumstances arising from coronavirus. You should also be mindful that re-employing someone who previously left could potentially lead to them gaining additional employment rights of that additional employment (plus any associated notice period) took them over the two year qualifying threshold or they gained an extra year of rights.
A refusal to re-employ should also be considered in the context of a possible claim for detriment if the former employee has a protected characteristic or has made a whistleblowing disclosure.
It is advisable to take legal advice on these scenarios should they arise and the Fieldings Porter Employment Team are happy to help.
What about sickness and other leave entitlement during furloughing?
Employees will continue to accrue statutory and contractual annual leave during a furlough period. The usual rules regarding maternity and paternity leave should remain unchanged. The scheme can be used for enhanced maternity/paternity pay if the employer usually pays this in their policy.
An employee cannot be furloughed whilst eligible for statutory sick pay and as such would need to wait for the sick pay period to elapse before being placed on furlough.
If an employee was to report sick (or needs to self isolate) during the furloughing period, then the usual statutory sick pay rules should apply. The rate of statutory sick pay may be lower than what is otherwise payable under the scheme. Employers should also check sick pay entitlement under the employment contract.
If employers choose to pay sick pay rather than keeping on furlough it could lead to problems if the three week minimum period for furlough is broken meaning the employer may no longer be able to claim so this should be managed appropriately.
How to calculate what can be claimed for the employee?
For full time and part time employees the employer can claim 80% of the employee’s actual salary before tax as of 19th March 2020 (If you have previously furloughed and calculated this to 28th March 2020 you can use this calculation for your first claim). This figure includes past overtime, fees and compulsory contractual commission which does not vary due to performance, is not conditional on any matter, nor is a benefit of any kind. Any discretionary bonuses, non-contractual commission or tips are excluded from the calculation and the payment is capped at 80% or £2,500 whichever is the lower (plus employer national insurance and auto enrolment pension payments).
You must have some form of legally binding agreement for the employee’s salary, which may be from the contract of employment.
Any payments for benefits in kind or salary sacrifice schemes are excluded from the calculations. The government is treating COVID-19 as a life event for if an employee wants to opt out of a salary sacrifice scheme at this time.
If the employee has been employed for at least full twelve months prior to the claim and their pay fluctuates from time to time, their claim can be calculated as the higher of the same month’s earnings the previous year or an average taken from the 2019-20 tax year.
If an employee’s pay fluctuates but has not been working for 12 months the average for the time they have been employed can be used.
If the employee only started in February or March 2020, use a pro-rata calculation for their earnings so far to claim.
All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees. Therefore, employers can also claim the payments for employer national insurance and minimum automatic enrollment due on the grant payment on top. The scheme will not fund the contributions above the minimum or the funded (80%) contribution. Any shortfall must be met by the employer.
Even if the furloughed rate of pay would normally take an employee under the minimum or living wage the furloughed rate would still be payable as the employee is not actually working. One exception would be if they were completing online training course whilst furloughed. In that case the employee would need to be paid the national or living wage for the time spent training.
Is the grant payment under the scheme taxable?
The grant payment forms income and as such is taxable income under the Income Tax or Corporation Tax regime.
Can furloughed staff work for anyone else during furlough leave?
The latest guidance from the government does permit the claiming of payments under the furlough scheme whilst the staff member is working or volunteering for someone else in a new job. However, if you impose a contractual requirement on the employee not to work for anyone else during furlough they would be in breach of their contract with you if they did so.
Can we rotate furlough leave and place a staff member on furlough leave more than once?
You are permitted to place an employee on furlough leave more than once, provided they are placed on furlough leave in periods of at least 3 weeks at a time. This does mean that you can plan a rotational approach to furlough leave within your organisation provided you adhere to the minimum requirements.
How to claim under the scheme
The HMRC online portal to make claims opened on 20th April 2020. The process includes making your claim using the amounts in your payroll - either shortly before or during running payroll. Claims will be able to be backdated until the 1 March where employees have already been furloughed.
You will need to provide your PAYE Employer Reference Number, the number of employees furloughed, National Insurance numbers of all furloughed employees, claim period start and end dates, amount to be claimed, bank details and contact details. If you are claiming for more than 100 staff this information will be input in a separate spreadsheet to be uploaded.
Once you have submitted a claim HMRC will check it, and providing you are eligible HMRC will pay this as a BACS transfer to a UK bank account – they claim it will be 6 days later.
Employers must pay the employee all the grant you receive from HMRC for their gross pay. Employers are not allowed to charge fees to staff.
What paperwork must be completed with the staff member?
To be eligible for the grant employers must have an agreement between the employee and employer that the employee will not carry out any work for the employer during a period of furlough. That agreement must be in writing but can be via e-mail.
If you have previously placed an employee on furlough without obtaining this agreement which was not known as a requirement until 15th April 2020 we believe you should still be covered given the latest guidance to be produced. However, we would suggest that you obtain this specific agreement on any new decisions to furlough.
A record of the documents confirming the furlough leave must be kept for a minimum of five years and be available for inspection by HMRC. It is likely that more detailed checks of claims will happen in the future after the help has got out to those who need it now.
You should keep records of all the agreements with the staff, printouts of the HMRC calculator when you submitted your claim, copies of your claim and of the various payment records in case you are audited at a later date.
Employers should discuss furlough leave with their staff before implementation and may need to make changes to their employment contract by agreement.
If sufficient numbers of staff are involved in a furloughing decision it may be necessary to engage in collective consultation processes similar to a redundancy or any other mass change to contracts. Employers may therefore need to seek individual legal advice on the process.
The furlough scheme is very complicated and introduces several areas of employment law. As such it may be prudent to seek legal advice on the process and certainly if you have any quirky scenarios which do not fit into the guidance. At Fieldings Porter our Employment Team will be more than happy to assist you with this and would be happy to review your paperwork for furlough should you have any concerns as to its compliance with the rules.
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