UK Coronavirus Job Retention Scheme

Update on  15 March 2021

• As part of the Spring budget, the Treasury announced that it will extend the job retention scheme (CJRS) until September 2021. Under the new extension, the government will continue to pay 80% of furloughed employees' salary for hours not worked, with a new taper requiring employers to contribute 10% to wages in July and 20% in August and September.

Further updates to guidance:

• Guidance was updated to confirm that employers can furlough employees who are unable to work because of caring responsibilities resulting from coronavirus, such as caring for children who are at home as a result of school closures or for a vulnerable adult.

• Guidance has been issued on the non-publication of CJRS claim details if publishing your claim details could leave individuals at risk of violence or intimidation.

• Government guidance has now made it clear that there is no right to appeal if you're not eligible for the CJRS.

Update on 18 December 2020

• Rishi Sunak has announced that the CJRS will be extended for an additional month until the end of April 2021, with employees eligible to receive 80% of salary for hours not worked, up to £2,500.
• There are currently no plans to review the scheme in January 2021 or to introduce a taper to the support available in from February.

Updated guidance on the extended CJRS scheme was published on 10 November 2020:

• In view of the latest national restrictions, the CJRS has been extended again in its flexible form until March 2021. The Scheme has been extended on more generous terms, with employees eligible to receive 80% of salary for hours not worked, up to £2,500 until January 2021.
• The extended CJRS scheme will use the same core employee eligibility criteria.
• All employers with a UK bank account and UK PAYE schemes will be able to use the CJRS, whether or not they have previously put staff on furlough.
• All employees will be eligible for furlough, provided they are on the payroll as at 30 October 2020. Employees do not need to have been furloughed under the CJRS previously to be eligible.
• Employees who have been made redundant after 23 September 2020 can be rehired and placed on furlough (provided that they were on the employer's payroll as at 23 September 2020).
• Employers will be able to put staff on full furlough (i.e. provide them with no work) or flexible furlough (i.e. reduced hours). They will be able to claim under the scheme for hours not worked.
• There is no minimum furlough period and flexible furlough arrangements can last any amount of time. However, employers will need to report and claim for minimum periods of seven consecutive calendar days at a time.
• HMRC has added a plan to publish, from December, a list of those employers who have made claims under the extended CJRS scheme for the month of December onwards.
• The government will review the scheme in January 2021.

Update on 13 July 2020

A number of further updates to the Government’s CJRS guidance pages were made last Friday evening. The notice pay point below is of particular interest to employers, so we have provided a high-level update of this and the other important points to note:

• New wording has been added to the section on employee rights making it clear you can continue to claim for a furloughed employee who is serving a statutory notice period. However, we understand the HMRC's helpline has since confirmed this new provision was not limited to statutory minimum notice (despite the wording in the revised guidance) but instead is intended to cover the contractual notice period too. This is one to watch and we will keep you updated as clarification evolves.
• New guidance note clarifying individuals who can claim under the CJRS who are not employees.
• The 'Paying employee taxes and pension contributions' section has been adjusted for clarity:
  You must deduct and pay to HMRC income tax and employee National Insurance contributions on the full amount that you pay the employee, including any scheme grant.
• Steps to take before calculating your claim: Wording has been added to make it clear that HMRC will not decline or seek repayment of any grant based solely on the particular choice between fixed or variable approach to calculating usual hours, as long as a reasonable choice is made.

Update on 10 July 2020

On 8 July 2020 the Chancellor Rishi Sunak announced that the government plan to introduce a new Job Retention Bonus to reward and incentivise employers who retain their furloughed employees. This will consist of a one-off payment of £1,000 for every furloughed employee who remains continuously employed through to the end of January 2021. Further details about the Job Retention Bonus will be announced by the end of the month.

Update on 29 June 2020

On Friday 26 June 2020, HM Treasury issued a further Treasury Direction and Schedule (dated 25 June) (“the new Direction”) which sets out the rules that will apply under the amended Coronavirus Job Retention Scheme (“amended CJRS”) for the period from 1 July 2020 to 31 October 2020.

This puts on a legislative footing the changes to the Scheme already announced by the Chancellor on 29 May 2020 and reflected in government guidance published earlier this month.

We set out a brief summary below.

Flexible furlough

“Flexible furlough” arrangements are allowed from 1 July to 31 October i.e. an employee may be employed by their employer to work on a part-time basis, and furloughed for the remainder of the week; and the three week minimum furlough period does not apply. It remains possible to furlough employees on a full-time basis.

Financial support tapered

Financial support available to employers will be tapered from 1 August to 31 October 2020, as set out in Part 2 of the Schedule.

• From 1 August, employers will have to pay employer national insurance contributions and employer pension contributions, with the government funding still covering 80% of wages up to a cap of £2,500.
• From 1 September, employers will also have to pay 10% of wages, with the government paying 70% (capped at £2,187.50).
• From 1 October, employers will have to pay 20% of wages, with the government scheme paying 60% (capped at £1,875).

Procedural requirements

An employer can only claim under the amended CJRS in respect of an employee who was furloughed for a minimum of three weeks beginning on or before 10 June 2020, save where the individual is a “family leave returner” or is an armed forces reservist, in which case the 10 June cut-off date does not apply.

• The family-leave exemption applies to individuals returning from maternity, paternity, adoption, shared parental or parental bereavement leave after 10 June, who were:
  • on payroll on or before 19 March 2020, and
  • on family leave on or before 10 June 2020.
• The armed forces reservist exemption applies to those returning after 10 June 2020, who were:
  • on payroll on or before 19 March 2020, and
  • called out or recalled for service in accordance with the Reserve Forces Act 1996 beginning on or before 10 June 2020.
• This reflects the changes already made to the government guidance.

Details

The new Direction provides:

• that the employer and employee are required to reach agreement on flexible furlough arrangements; that agreement should be made in writing or confirmed in writing, and retained by the employer until at least 30 June 2025;
• a claim can only be made in respect of a calendar month (July 2020, August 2020, September 2020 and October 2020) and, subject to certain exceptions, must relate to a period of 7 or more consecutive days;
• the employer cannot claim for more employees than the maximum number claimed for in any previous furlough periods prior to 1 July (the “high-watermark” number), but individuals returning from family-leave or armed forces reservists are excluded from the calculation;
• the means of calculating the amounts payable by the employer (and the costs of employment that can be claimed under the CJRS) in respect of an employee who is flexibly furloughed;
• how to calculate “reference salary”, “usual hours” and “furloughed hours” on both a fixed and variable hours basis, where an employee is flexibly furloughed, including how to deal with annual leave and non-working days pursuant to a flexible working arrangement. NB this does not look entirely straight-forward; indeed the complexity may be sufficient to deter some employers from taking advantage of the ability to furlough on a flexible basis;
• no CJRS claim may include amounts of specified statutory payments (family leave payments) during the employee’s period of furlough, and the amounts claimed back from HMRC must be reduced accordingly;
• reimbursement of national insurance contributions and pension contributions in respect of a furloughed employee can only be claimed by the employer for July 2020;
• no CJRS claim can be made during the period 1 July to 31 October 2020 where the employee is on a period of unpaid sabbatical or other period of unpaid leave;
• how the Scheme operates where TUPE applies: a new employer can be eligible to claim under the amended CJRS in respect of the employees of a previous business transferred after 10 June 2020.

Claims under previous Treasury Directions

The previous Treasury Directions made on 15 April and 20 May contain the “original CJRS rules”, and these continue to apply for claims in respect of the period 1 March to 30 June 2020.

• Any claims made in respect of that period must be made by 31 July (see Part 1 of the Schedule).
• It doesn’t matter if a person’s furlough period ends after 30 June 2020, if they were furloughed for 21 days or more in accordance with the original CJRS rules.

Update on 15 June 2020

The government guidance for employers and employees was updated on 12 June and 15 June to reflect changes announced by the Chancellor of the Exchequer on 29 May as to how the Coronavirus Job Retention Scheme (CJRS) will operate from July to October.  

Flexible furlough

From 1 July, employers can furlough employees on a part-time basis and the current minimum furlough period (three consecutive weeks) will no longer apply - "flexible furlough". This new flexibility can only be applied to employees that have already been furloughed for the minimum period of three weeks before 1 July (i.e. by 10 June).  The only exception to this is for employees returning from maternity, adoption, paternity, shared parental or parental bereavement leave, who will be eligible for the furlough scheme even if they have not been furloughed by 10 June.

Employers will be required to agree new flexible furlough arrangements with employees in writing (and keep a record of this). Employers must pay employees in full for hours worked, but the government CJRS grant will remain available for normal hours not worked.

A new taper requiring employers to start to contribute to furloughed salaries will be introduced from August. From 1 August, employers will have to pay employer national insurance contributions and employer pension contributions, with the government funding still covering 80% of wages up to a cap of £2,500.  From 1 September, employers will also have to pay 10% of wages, with the government paying 70% (capped at £2,187.50). From 1 October, employers will have to pay 20% of wages, with the government scheme paying 60% (capped at £1,875).

We set out below a summary of key updates to the scheme:

Who you can claim for under the new scheme?

• Only employees who have been furloughed for at least three weeks on or before 30 June under the old scheme can be put onto the flexible furlough scheme.

• The only exception to this is parents returning from family leave.

How long can new furlough arrangements last?

• From 1 July, flexible furlough agreements can last any length of time.

• Employees can enter a flexible furlough agreement more than once.

• Please note though that where a previously furloughed employee starts a new furlough period before 1 July this furlough period must be for a minimum of 3 consecutive weeks and this is the case regardless of whether the 3 consecutive week minimum period ends before or after 1 July.

How many employees can you claim for under the new scheme?

• From 1 July, the number of employees that can be claimed for in any claim period cannot exceed the maximum number of employees claimed for under the scheme up to 30 June.

• For example, if an employer had previously submitted three claims between 1 March 2020 and 30 June, in which the total number employees furloughed in each respective claim was 30, 20 and 50 employees, then the maximum number of employees that employer could furlough in any single claim starting on or after 1 July would be 50.

What are the minimum claim periods?

• Although flexible furlough arrangements can last any amount of time, the claim period must be for a minimum of 7 calendar days (other than claims in respect of the first few days or the last few days in a month).

How do I work out pay under the new scheme?

• For flexible furlough, the employer must calculate "usual hours".  The 80% grant available and the monthly cap are reduced to reflect the proportion of "usual hours" that will be furloughed. An employee working 50% of usual hours, will be eligible for a grant of half of 80% of usual wages subject to a monthly cap of £1,250. There are worked examples for those on variable hours.

• There are two different calculations which can be used to work out an employee's usual hours. Please see further guidance here for employees who work variable hours or here for employees who are contracted for a fixed number of hours.

What records should I keep?

• Records must be kept of:

  • the amount claimed and the claim period for each employee

  • the claim reference number

  • the grant calculations in respect of each employee

  • usual hours worked, including any calculations that were required, for employees flexibly furloughed

  • actual hours worked for employees flexibly furloughed

In addition, please note the following updates in the guidance:

Volunteering and other work

If contractually allowed, furloughed employees can work for another employer and can take part in volunteer work during furloughed hours as long as this is for another employer or organisation.

Furlough and TUPE

A new employer is eligible to claim under the scheme in respect of employees transferred after 28 February 2020 if the TUPE or PAYE business succession rules apply to the change in ownership and the employees being claimed for have previously been furloughed in accordance with the CJRS criteria.

To calculate the maximum number of employees you can claim for in the case of a TUPE transfer or on a change in ownership after 10 June, you must total:

• the maximum number of employees the new employer claimed for in any one claim ending on or before 30 June; and

• the number of employees that are being transferred to the new employer who have had a claim submitted for them in relation to a furlough period of at least 3 consecutive weeks taking place any time between 1 March 2020 and 30 June.

If your employee's health has been affected by COVID-19

• Furloughed employees who become ill, due to Coronavirus or any other cause, must be paid at least Statutory Sick Pay (SSP).

• This includes those self-isolating or shielding because of COVID-19 (subject to eligibility).

• If a furloughed employee who becomes sick is moved onto SSP, employers can no longer claim for the furloughed salary. Employers may qualify for a rebate for up to 2 weeks of SSP, but only is the sickness is related to coronavirus.

Please see the following guidance pages in relation to the updated CJRS scheme:

• Changes to the Coronavirus Job Retention Scheme

• Find examples to help you calculate your employees' wages

• Claim for wages through the Coronavirus Job Retention Scheme

• Calculate how much you can claim using the Coronavirus Job Retention Scheme

• Steps to take before calculating your claim using the Coronavirus Job Retention Scheme.

Update on 29 May 2020

On 29 May 2020 the Chancellor Rishi Sunak announced a number of key changes to the Coronavirus Job Retention Scheme (the “Scheme”). From July, employers will have more flexibility over their furlough arrangements and a new taper requiring employers to start to contribute to furloughed salaries will be introduced from August.

The key provisions are summarised below:

Scheme costs

• From 1 August, employers can no longer reclaim employer NICs or employer pension contributions from the Scheme, and will need to meet these costs themselves (for the average employee, this represents 5% of the gross employment costs).
• From 1 September, the Scheme cap will be lowered to 70% of wages. Employers will be expected to pay at least the additional 10%, so that employees continue to receive the minimum 80%. For the average claim, this represents 14% of the gross employment costs.
• From 1 October, the Scheme cap will be lowered to 60% of wages. Employers will be expected to pay at least the additional 20%, so that employees continue to receive the minimum 80%. For the average claim, this represents 23% of the gross employment costs.

New flexibility

• From 1 July (one month earlier than previously indicated), a new flexible form of furlough will be introduced.
• Workers will be allowed to return to work part-time. The Chancellor gave the example of an employee working two days a week (during which time the employer would pay their wages as normal) and then being furloughed for three days a week.
• Further guidance on flexible furloughing and how employers should calculate claims will be published on 12 June.

Closure to new entrants

• The Scheme will close to new entrants on 30 June (the Chancellor indicated that in practice this means that an individual must be placed on furlough by 10 June to have completed a 3 week minimum furlough period by the Scheme closure date).
• The Scheme will close in its entirety on 31 October 2020.

Update on 22 May 2020

On 22 May 2020, the Treasury published a new Treasury Direction amending the Coronavirus Job Retention Scheme (CJRS). This Direction contains a revised Schedule (dated 20 May 2020) modifying the Schedule contained in the Treasury Direction of 15 April 2020.

Any claims for payments under the CJRS made after 22 May 2020, must comply with the amended Schedule in the new Direction.

The key provisions are summarised below.

• The CJRS is currently in place to 30 June 2020; a further Treasury Direction is expected this week to extend the Scheme on the same terms to 31 July 2020, with new terms to apply from August 2020 NB we expect the Scheme to operate differently between August and October, with employees allowed to work part-time and an expectation that employers will contribute to salary, in line with the 12 May 2020 announcement.
• Importantly, the form of agreement required to place an employee on furlough no longer needs to be in writing. The explicit requirement for the agreement to be made in writing contained in the previous Treasury Direction has been removed; it is permissible for the agreement to be “confirmed in writing” (ie retrospectively). The agreement between employer and employee must specify:
  • ‘the main terms and conditions upon which the employee will cease all work in relation to their employment’ (this can be done by a collective agreement between the employer and trade union) NB presumably this should include any variation of terms, including benefits, and what has been agreed regarding the employee’s ability to work for other employers, to train, study or volunteer;
  • be incorporated (expressly or impliedly) into the employee’s contract; and
  • be made in writing ‘or confirmed in writing’ by the employer, as mentioned above (NB helpfully, writing includes in electronic form).

The employer must retain the agreement or confirmation until at least 30 June 2025.

• Where SSP is being paid, or due to be paid, at the time the employee is instructed to cease all work to be furloughed, the furlough cannot begin until immediately after the end of the ‘period of incapacity for work’ for which the SSP is being paid or due to be paid. The amended Schedule now states: “provided that the time of the end of that period of incapacity for work is determined by an agreement between the employer and employee”. NB it seems that the employer and employee can now agree to end a period of SSP in order to start furlough (notwithstanding continuing SSP eligibility), but this is not absolutely clear.
• There is detailed guidance on the kinds of study and training that an employee can do while on furlough without breaching the requirement that a furloughed employee do no work for the employer. Furloughed employees can now study or do training in a broader range of circumstances, including to improve an employee’s effectiveness in the employer’s business, more generally, or to improve the performance of the employer’s business, provided it does not contribute to business activities, generate income or profit, or significantly contribute to the production of goods or services for sale.
• Where a period of unpaid leave or unpaid sabbatical started before 1 March, and the employer and employee reached an agreement before 20 March 2020 to end it earlier than originally planned, the employee can be put on furlough after the revised end-date.
• The Schedule expands the permitted activities of a director who is furloughed beyond duties in relation to filing company accounts and provision of information relation to the administration of the company, to include making a CJRS claim in respect of an employee of the director’s company, or paying wages or salary to an employee of the company.
• There are new provisions to permit pension scheme trustees to continue to do work for the sole purpose of fulfilling their duties. NB save where the employer’s business is the provision of occupational pension scheme independent trustee services.
• The revised Schedule clarifies that when calculating an employee’s reference salary for the purpose of calculating furlough monies, (a) benefits in kind, (b) anything provided in lieu of a cash payment (including salary sacrifice schemes) and (c) anything which is not regular salary or wages is excluded from the calculation. NB The revised Schedule sets out more detailed provisions on what constitutes “regular pay” and how to deal with discretionary payments. It is now clear that when calculating the reference salary, benefits provided through salary sacrifice are not included. A new provision clarifies that variable payments for overtime, fees, commission or a piece-rate, or in recognition of the employee undertaking additional duties, will be included in the calculation, provided that there is no discretion about how the amount is calculated. There are special provisions for calculating reference pay for those furloughed following a period of unpaid leave, paid statutory family-related or sick leave, or other reduced rate paid leave.

The relevant date for TUPE transfers has been changed to 28 February (from 19 March) in line with the current Guidance. The transferee can make a CJRS claim as if it had a qualifying PAYE scheme for the transferred employee and it made a payment of earnings on or before 19 March 2020. A new provision extends the CJRS coverage to TUPE business transfers from an insolvent transferor (where the automatic transfer of employment contracts does not apply). Transferors may also be able to claim for employees whose furlough periods do not last 21 days because of TUPE transfer taking place.

Update on 13 May 2020

The Chancellor announced on 12 May 2020 that the Coronavirus Job Retention Scheme (“the Scheme”) will remain open until the end of October. The Scheme will continue in its current form until the end of July, after which some changes will be made to allow for more flexibility. More specific details and information around the extension of the Scheme are expected by the end of this month.

Update on 24 April 2020

The Scheme went live on 20 April 2020 to allow employers to claim for 80% of their employees’ wages plus any employer National Insurance and pension contributions, where they have been on furlough because of coronavirus (COVID-19). There have been a few updates to HMRC and Acas guidance since we published our detailed briefing below as set out here.

HMRC Guidance on the Scheme

• Redrafting Eligibility section for clarity.
• Adding sections on employees made redundant post-19 March 2020 and employees on fixed term contracts.
• Clarifying that a collective agreement with a trade union counts as an agreement to go on furlough for the purposes of the Scheme.

ACAS Guidance

• Clarifying that guidance on shielding applies to employees or workers.
• Adding that employees can ask to be put on furlough if they are shielding and unable to work from home (the HMRC guidance already said this)

Check if your employer can use the Scheme

• Clarifying that a collective agreement with a trade union counts as an agreement to go on furlough for the purposes of the Scheme.

How to claim through the Scheme

• Clarifying that employers are the ones to make a claim under the Scheme.
• Adding language about how employers can use a PAYE agent to submit claims.
• Adding language stressing that claims need to be submitted in one session / sessions will time out after 15 mins.

NB Daniel Barnett has published an exchange with HMRC in relation to furlough which highlights the issue we discuss below regarding the inconsistency between the Treasury Direction and current HMRC guidance on the requirement for agreement between employers and employees to commence furlough. In the letter HMRC seeks to align the Treasury Direction and HMRC guidance by saying that “there must be an agreement” but that does not require a written confirmation from the employee. In any event, the hope therefore is that HMRC will not challenge employers who do not have written agreement from staff, although the tension remains between the wording of the Treasury Direction and the HMRC guidance.

21 April 2020

The Coronavirus Job Retention Scheme (“the Scheme”) went live on 20 April 2020 to allow employers to claim for 80% of their employees’ wages plus any employer National Insurance and pension contributions, where they have been on furlough because of coronavirus (COVID-19).

The Scheme applied initially to the period beginning on 1 March 2020 and ending on 31 May 2020, but the Chancellor announced on Friday 17 April 2020 that the Scheme would be extended until the end of June 2020.

The Scheme was given formal legal effect by a direction issued by the Treasury on 15 April 2020, using its power under section 76 of the Coronavirus Act 2020 to give HMRC ‘such functions as the Treasury may direct in relation to coronavirus or coronavirus disease’:

> The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction

This Direction will be read alongside HMRC guidance (which was published on 26 March and has been updated regularly since):

> Guidance for employers: Claim for your employees’ wages through the Coronavirus Job Retention Scheme

> Guidance for employees: Check if your employer can use the Coronavirus Job Retention Scheme

The following has also been published:

• A new step by step guide for employers, including detailed example calculations and information required to make a claim – employers with more than 100 employees will need to provide additional detail when making a claim. Applications need to be completed in one session as there is no save and return option.

• New guidance on making a claim - with details on the process and a link to the portal.

• Separately, ACAS has also updated its guidance.

Summary

• HMRC will reimburse 80% of furloughed employees’ gross wage costs, up to a cap of £2,500 per month, per employee. Employers will also be able to claim for the associated employer national insurance contributions and pension contributions (up to the minimum automatic enrolment employment pension contributions) on that subsidised furlough pay. Employers will also be able to claim for other regular payments they are obliged to make to employees (e.g. wages, past overtime, fees and compulsory commission payments) (in accordance with HMRC guidance updated 4 and 15 April 2020).

• Any entity with a UK payroll can apply, including businesses, charities, recruitment agencies and public authorities. The guidance confirms that the Scheme can be accessed by administrators (although administrators would only be expected to access the Scheme “if there is a likelihood of re-hiring workers”). The HMRC guidance does not set any conditions in relation to the financial position of the employer but employers should be mindful of the purpose of the Scheme in making a claim (see comments below).

• For employees whose wage varies, claims should be based on the higher of: (i) the same month’s earnings in the previous year; or (ii) average monthly earnings in the 2019/2020 tax year. For employees with less than a year’s service, the claim should be based on average monthly earnings.

• Furloughed employees must have been on their employer’s PAYE system on 19 March 2020 (previously the cut-off date was 28 February). Employees who were employed and on payroll on 28 February and then made redundant or stopped working prior to 19 March 2020 can also qualify if they are re-employed and put on furlough. For an employer to be entitled to make a claim under the CJRS in respect of its employees, it must have had a pay as you earn (“PAYE”) scheme registered on HMRC’s real time information system for PAYE on 19 March 2020 (or 28 February, as applicable.) This extends the ambit of the scheme.

• The Scheme applies to employees on any type of contract. This includes full-time employees, part-time employees, employees on agency contracts and employees on flexible or zero-hour contracts. As HMRC uses “employees” to cover any individual who is paid through the payroll subject to PAYE deductions, it will also cover “limb b” workers who are on the payroll.

• To be eligible for this subsidy, an employee cannot undertake any work for their employer, or any linked or associated employer when on furlough.

• Three weeks is the minimum length of time for which an employer can furlough an employee. Employers can only submit one claim at least every 3 weeks.

• The Treasury Direction on the operation of the Scheme notes that to claim furlough, the employer and employee must have agreed in writing that the employee will cease all work. This agreement may be in electronic form (e.g. email). This goes further than the HMRC guidance had until 15 April, which means that some employers may have already furloughed employees without complying with the (now updated) requirements of the Scheme. The position has been somewhat clarified by updated HMRC guidance, as discussed below, but there remains some uncertainty given that the Direction is likely to take precedence over the guidance.

• In furloughing employees, employers should also have regard to the application of existing collective consultation obligations.

• Employers should keep a record of agreements on furlough for five years.

• The employer is required to submit information to HMRC through a new online portal. To claim employers will need to provide to HMRC: (i) PAYE reference number; (ii) number of employees being furloughed; (iii) claim period (start and end date); (iv) amount claimed; (v) bank account and sort code; (vi) contact name); and (vii) phone number.

• Employers are required to make an online declaration when submitting a claim 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”.

• The grant received will constitute a furloughed employee’s gross pay. This will be subject to income tax and national insurance as usual.

• The Scheme will run from 1 March 2020 to 30 June 2020.

Comments

Notwithstanding the additional clarification provided by the Treasury Direction and the updated guidance of 15 and 20 April, there remain a few key areas of uncertainty:

• Scope of the Scheme – there is a potential conflict between the expansive comments made by the Treasury initially about the broad application of the scheme and the “purpose” of the Scheme set out in the Treasury Direction.

  • The Chancellor responded to questions on Twitter on 2 April 2020 that if an employee left his employer after 28 February “for any reason”, then the employer could re-employ him after that date to furlough him.

  • It seems that the Scheme is not limited to those employees who would otherwise be made redundant. It applies to any who are furloughed "by reason of circumstances as a result of coronavirus or coronavirus disease" (para 6.1(c) Treasury Direction).

  • But the Direction states the purpose of the Scheme is to: "provide for payments to be made to employers ... 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.” (para 2.1 Treasury Direction)

  • Further, the Direction states: “No CJRS claim may be made in respect of an employee if it is abusive or is otherwise contrary to the exceptional purpose of CJRS.” (para 2.5 Treasury Direction)

  • The HMRC guidance (introduced into its 4 April update) the following: “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.” It is not yet clear what evidence, if any, would be required to demonstrate that the employer could not maintain its current workforce, nor what happens to employers who took action before this clarification was published on the basis of the broad statements made by the Treasury at the end of March/early April.

  • Accordingly, from a governance, financial and reputational risk perspective, employers must consider carefully any rationale for taking advantage of the government funding available through the Scheme. A cautious approach would be to document the social, economic and health impact on the company of coronavirus and the reasons for making a claim under the Scheme, to ensure there is a paper trail. This will be important if HMRC subsequently investigate; the guidance requires employers to keep copies of written furlough agreements for five years. Senior executives should also be mindful of the purpose of the scheme from a governance perspective, when making any decisions about dividends, or distribution of profits in professional services firms, or when determining pay and bonus awards.

  • The latest HMRC guidance states that payment may be withold or must be repaid in full if the claim is based on dishonest or inaccurate information or fraud. Members of the public, as well as employees, are encouraged to report suspected fraud through an online portal.

• Procedural requirements

  • Prior to 17 April, HMRC guidance stated that the employer should discuss furloughing with their staff and make any changes to the employment contract by agreement. It also said employers should write to their employees confirming that they have been furloughed and keep a record of this for five years. HMRC guidance stated that the Scheme did not impact contractual arrangements which may require employee consent to furlough, as a variation of contractual terms.

  • However, the Treasury Direction is more prescriptive. To claim furlough, the employer and employee must have agreed in writing that the employee will cease all work (para 6.7). This includes ceasing work for any person connected with the employer. The agreement may be in an electronic form such as an email. This a very significant change to the provisions of the earlier HMRC guidance and caused concern that employees who have already been furloughed may not fall within the meaning of the Scheme.

  • Updated HMRC guidance (published on 17 April) states that: “To be eligible for the grant employers must confirm in writing to their employees that they are furloughed. If that 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.”

There remains some uncertainty about the practical implications of this. Some commentators have suggested potential grounds for judicial review should an employer relying on an earlier version of the guidance be found subsequently to fall outside the scope of the Scheme, because of the provisions in the Treasury Direction that were published subsequently. The revised HMRC guidance goes some way to address this issue. But there are other areas of uncertainty including how taking statutory sick pay or holiday interacts with periods of furlough, as discussed in more detail below. The Direction and Guidance are not absolutely aligned; we may see further clarification as, no doubt, further revisions are made to the Guidance.

This briefing sets out a summary of the scheme together with some answers to frequently asked questions, by reference to the HMRC guidance updated on 20 April 2020.

Frequently Asked Questions

Does the scheme only extend to employees or could it also cover workers?

The Scheme applies to any individual who is considered an employee for tax purposes by HMRC. In practice this means any individual who is paid through an employer’s PAYE payroll. The HMRC has set out detailed guidance to follow in the case of office holders (e.g. company directors and LLP members), salaried LLP members, agency workers and limb(b) workers.

Will workers on zero hours contracts be entitled to any pay?

Yes, the guidance makes clear that employers can claim in respect of employees on flexible or zero hours contracts. The amount claimed should be the higher of: (i) the same month’s earnings in the previous year; or (ii) average monthly earnings in the 2019/2020 tax year.

What happens if an employee has more than one job?

If an employee has more than one employer they can be furloughed for each job. They can also be furloughed in one job and receive a furloughed payment but continue working for another employer (which is not connected with the first employer) and receive their normal wages. The cap applies to each employer individually.

What about employees with multiple employers over the past year?

If an employee with multiple consecutive employers (at different times) has been furloughed by their current employer, they should not be re-employed by a previous employer.

What happens to employees on fixed term contracts?

Employees on fixed term contracts can be furloughed. Their contracts can be renewed or extended during the furlough period without breaking the terms of the Scheme. Where a fixed term employee’s contract ends because it is not extended or renewed you will no longer be able claim for them under the Scheme.

What happens if the employee does not agree to be furloughed?

Employers have a number of options: they can consider whether they need to implement redundancies instead, dismiss and offer re-engagement on terms which permit furlough or seek to agree other cost-cutting measures instead. To claim furlough, the employer and employee must have agreed in writing that the employee will cease all work (para 6.7).

Does the Scheme prevent employers from laying off staff (ie putting them on unpaid leave) or imposing short time working?

The Scheme does not prevent an employer from laying-off staff without pay (in the traditional English law sense). Many employers will not have a contractual right to lay off staff such that placing them on unpaid leave without consent could be a constructive dismissal. It is likely that any employee who is laid off without pay (who would otherwise have been eligible for the Scheme) will challenge that decision.

The Scheme only applies to employees who are not required to do any work for their employer. Employees who are required to do some work (ie those on short-time working) are not eligible. Accordingly, it remains open to employers to ask workers to agree to short-time work. Imposing short-time working without agreement could also be a breach of contract and employers may find it preferable to rely on the Scheme.

Do I have to collectively consult with employees before making the decision to furlough them?

The latest HMRC guidance suggests that it may be necessary to engage collective consultation processes to procure changes to terms of employment. Employers will want to speak to their workforce on a collective basis given the likely need to furlough quickly. Whether or not there is a formal obligation to consult collectively from a redundancy perspective will depend on the employer’s intentions/alternatives. Employers should also consider their obligations to submit HR1 and think about whether (and when) they need to start collective consultation in relation to possible redundancies following the end of a furlough period. It is widely considered that the announcement of the extension of the scheme was intended to dissuade employers from starting redundancy consultation in relation to possible redundancies at the beginning of June.

Do we have to use the Scheme or can we still make staff redundant?

There is no prohibition on making staff redundant – the normal principles apply (and staff have the same rights). However, furloughed employees will involve minimal costs (accrued holiday and benefits, unless otherwise agreed) for as long as the scheme is running (employers can choose to top-up employee salaries, but do not have to). In those circumstances, for unfair dismissal purposes, there is a risk that Employment Tribunals could consider that an employer had not acted reasonably in proceeding to make redundancies at this stage (depending on the circumstances of your firm). Grants from the Scheme cannot be used to cover redundancy payments.

What if we have already made staff redundant?

Employees who were made redundant (or who stopped working for the employer for another reason) after 28 February 2020 can be re-employed and then classified as furloughed employees under the Scheme. This includes if they are not re-employed until after 19 March 2020, as long as they were on your payroll on 28 February and you made an RTI submission to HMRC on or before 28 February 2020.

Does furloughing an employee affect their continuity of service?

No

Will HMRC pay employees directly?

No, employers will need to continue to pay their employees and reclaim this wage cost from HMRC. Once HMRC have received and processed an employer’s claim it will be paid by BACS payment.

Payments received by an employer under the Scheme must be included as income for the calculation of taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal
principles. Employers can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.

Will all benefits continue to accrue during furlough?

Yes, unless otherwise agreed with employees.

Can you furlough an employee on unpaid leave?

No, unless they were placed on unpaid leave after 28 February 2020. Please seek advice if this is relevant to your workforce; the Treasury Direction contains complex provisions and the position is not absolutely clear.

Can you furlough an employee on sick leave?

Employees who are on sick leave or self-isolating should be receiving Statutory Sick Pay (SSP). Short-term illness should not be a consideration in deciding when to furlough an employee , but if employers want to furlough an employee for business reasons and they are currently off sick, they can do so by moving them off SSP and onto furlough wages (according to HMRC guidance).

The Direction states that the furlough period should only start once the employee’s eligibility for SSP has ended ie even if the employee does not take SSP, the implication is that they cannot be furloughed if eligible for SSP.

HMRC guidance states that employees who are “shielding in line with public health guidance” can be placed on furlough. Again the Direction and the Guidance are not absolutely aligned on this point, and we await further clarification.

Employers can claim under the Scheme and SSP for the same employee but not for the same period of time.

Does a furloughed employee have access to Statutory Sick Pay?

Furloughed employees retain their statutory rights, including to SSP.

NB Regulations amending SSP entitlement came into force on 16 April to provide that individuals are deemed to be sick and therefore eligible for SSP, if they are unable to work as a result of shielding.

The Guidance and the Direction currently give slightly conflicting views on this issue; please seek separate legal advice on this point.

What about employees on maternity leave?

If an employee is eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance.

If an employer offers enhanced maternity pay then these employees can be classified as furloughed and this wage cost can be claimed through the Scheme. The same is true for any other types of family leave. An employer can reclaim up to 80% of the contractual enhancement up to the cap but any reimbursement under the Scheme should be net of the statutory pay for family leave (irrespective of whether the statutory amount is actually claimed from the government).

What about employees returning from statutory leave?

Employees who are returning from statutory leave (e.g. maternity leave, paternity leave, shared parental leave, adoption leave, sick leave and parental bereavement leave) can be furloughed, and employers should claim against their salary, not the pay they received whilst on statutory leave.

What about employees with caring responsibilities resulting from COVID-19?

Employees who are unable to work because they have caring responsibilities resulting from COVID-19 (e.g. employees that need to look after children) can be furloughed.

Can I furlough foreign nationals?

Foreign nationals are eligible to be furloughed. Grants under the Scheme are not counted as “access to public funds”, and you can furlough employees on all categories of visa.

Can I require a furloughed employee to do any training?

A furloughed employee can take part in volunteer work or training, as long as the employee does not provide services to or generate revenue for their employer.

If an employee is required to complete online training courses whilst they are furloughed by their employer, then they must be paid at least national living wage/national minimum wage for the time spent training, even if this is more than the 80% of their wage that can be reclaimed under the Scheme.

Apprentices can be furloughed, but must be paid at least the Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage for all time spent training.

Can a furloughed employee volunteer?

A furloughed employee can do volunteer work, as long as the employee does not provide services to or generate revenue for their employer.

Can a furloughed employee take annual leave?

A furloughed employee can still request and take their holiday in the usual way whilst furloughed. This includes Bank Holidays. Employees and workers must get their usual pay in full, for any holiday they take.

Where employees are furloughed but cannot take paid holiday due to COVID-19, they can carry over up to 4 weeks’ holiday over a two-year period.

What if we decide to top-up an employee’s salary?

Employers can decide to top-up an employee’s salary. It is worth noting that employer national insurance contributions and automatic enrolment contribution on any top-up salary will not be funded through the Scheme. Any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income is also excluded.

What happens with pension contributions?

All employers remain liable for minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.

What about new employees?

Employees hired after 18 March 2020 cannot be furloughed and are not covered by the Scheme (this excludes employees on the payroll before 28 February who are then re-employed).

What about employees transferring under TUPE and on a change in ownership?

A new employer is eligible to claim under the Scheme for the employees of a previous business transferred to it after 28th February 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership. Please seek separate advice if this is applicable as there are various complex provisions applicable to furlough following a TUPE transfer.

See our coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.