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"Working closely with businesses and trade unions, we have put together a coherent, coordinated and comprehensive economic plan" Rishi Sunak
The Government has published more detailed guidance on the new Coronavirus Job Retention Scheme, first announced on 20 March 2020, in which the government committed to cover 80% of the wages of employees who would otherwise be laid-off as a result of Coronavirus (subject to a cap of £2,500 per calendar month). Key new announcements
Employer eligibility
The Scheme is designed to support employers whose operations have been severely affected by coronavirus (COVID-19).
The Scheme is open to all UK businesses (regardless of size or corporate structure) provided they created or started a PAYE payroll scheme on or before 28 February 2020. What is meant by 'UK business' is ambiguous, however, our initial view is that this is also open to international businesses which operate a PAYE payroll scheme to employ employees in the UK.
Organisations in the public sector or who are private but receive public funding for staff costs should maintain their employees on full pay. Nevertheless, the scheme remains open to organisations in the public sector or that are publically funded where they do not receive their primary funding from the Government. The Guidance suggests that only a minority of such organisations will be able to take advantage of the Scheme.
Employee eligibility
The Scheme covers both full-time and part-time employees (including those employed through agencies and those on zero hour contracts) provided that they were on their employer's PAYE payroll on 28 February 2020. Employees hired after 28 February will not be eligible to be furloughed.
If an, otherwise eligible, employee has been made redundant since 28 February 2020, their employer may choose to re-hire them and take advantage of the Scheme.
It appears from the guidance that employees engaged through agencies (i.e. employment businesses which employ their staff and supply them to clients) should be furloughed by the agency that employed them rather than the end client they work for.
An employee who is working on reduced hours or for reduced pay is not eligible to be furloughed. Since HMRC will be auditing the Scheme is due course, employers should consider how they will ensure that employees do not continue to work and be able to demonstrate that they have not done so during furlough.
Interaction with other types of leave and pay
Employees on unpaid leave will only be eligible if they were placed on unpaid leave on or after 28 February 2020.
Employees who are displaying the coronavirus symptoms or who are self-isolating in line with NHS England advice are entitled to Statutory Sick Pay (SSP), but may be furloughed after their entitlement to SSP ends.
Employees who are taking 'shielding' steps in line with NHS England advice can be furloughed. The government guidance on 'shielding' (accessible here) suggests that this applies to those employees who are categorised as 'extremely vulnerable people' as defined in the same guidance. However, it does not appear to extend to employees who co-habit with an extremely vulnerable person who is shielding.
The Guidance suggests that employees who are on Maternity Leave and in receipt of Statutory Maternity Pay (SMP) are not covered by the Scheme and should be paid SMP in the usual way. However, there is ambiguity in the case of enhanced contractual rights to maternity, paternity, adoption or shared parental pay. In such cases, it may be open to the employer to apply for a grant under the Scheme up to 80% of the enhancement or £2,500 per calendar month, whichever is the lower.
Ongoing conditions
In order to take advantage of the Scheme, employees are not permitted to provide any work for their employer, including providing services or generating revenue. However, employees placed on furlough by one employer can provide work for a different employer if they choose and subject to the terms of their employment contracts.
Employees may volunteer or complete training whilst furloughed, provided they do not provide a service or generate revenue for their employer. If an employee is required to complete training, they must be paid at least the National Minimum Wage, which may require the employer to top up their wage if the grant is not sufficient. It seems unlikely that employers would be vicariously liable for their employees whilst volunteering but the point may need to be made expressly to relevant employees.
Employees' rights, including Statutory Sick Pay, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments, continue during the period of furlough.
Employees can be furloughed for a minimum of three weeks.
Calculating pay
The Employer is entitled to claim the lower of 80% of their employees' wages or £2,500 per calendar month.
For full- and part-time salaried employees, the 80% grant will be calculated by reference to those employees' salary as of 28 February 2020 (excluding any fees, commission and bonuses to which they may be entitled).
For employees with variable wages the grant will be calculated by reference to:
- if the employee has been employed for 12 months prior to the claim, the greater of their earnings in the same month in 2019 or their average earnings over the 2019-20 tax year;
- if the employee has been employed for less than 12 months prior to the claim, their average monthly earnings for the period they have been employed; or
- if the employee was employed in February 2020, their pro-rata pay to the date the grant is claimed.
Employers who claim the grant will be entitled to a further amount to cover Employer's National Insurance Contributions on the grant. If the Employer chooses to top-up their employees' wages, it will be the employer's obligation to pay the relevant National Insurance Contributions on that top-up.
Employees will still pay Income Tax, Employee National Insurance Contributions and any other necessary deductions from the grant (and any employer top-up) in the usual way.
Pensions
Employers can claim from HMRC the employer's minimum pensions automatic enrolment contributions in addition to 80% of the wage costs for the furloughed employees. The employer would have to meet the cost of any promised pension contributions and benefits above that level.
Employers must deduct the employee's minimum pensions automatic enrolment contributions from the 80% wage paid to the furloughed employees.
The above is subject to each employee's statutory right to opt out of continued active membership of the pension scheme, which an employee may readily exercise. The employer is statutorily prohibited from inducing any employee to opt out.
There is, however, no statutory right for employees to opt back in to continued active membership of a pension scheme, having opted out. Opted out employees could have to wait 3 years before being automatically re-enrolled back into the pension scheme. Employers are statutorily obliged automatically to re-enrol opted out employees (who are eligible jobholders with earnings above the threshold) back into the auto enrolment pension scheme every 3 years. This is subject, again, to each employee's statutory right to opt out.
If the employer makes top up payments to furloughed employees above the 80% level, the employer would be statutorily obliged to deduct the minimum employee auto enrolment pension contributions from the top up payments and to pay the minimum employer auto enrolment pension contributions on the top up payments. The employer would also have to meet the cost of any promised pension contributions and benefits above that level on the top up payments.
National Minimum Wage
Subject to the rules on training above, as employees are not working during a period of furlough leave, they are not entitled to the National Minimum Wage.
Obtaining the grant
In order to furlough employees and obtain the grant, the employer must have the agreement of the employees where there is no pre-existing right to layoff. When making decisions on furlough, employers remain subject to equality and discrimination laws.
In the absence of a contractual right to lay-off your employees, where 20 employees or more are being furloughed, employers may need to collectively consult with employee representatives to procure employee agreement. The consultation period in such circumstances would be 30 or 45 days depending on numbers although there is a special circumstances defence which may be relevant to defend a shorter period.
Once agreement has been obtained, the employer should provide each designated employee with a letter confirming that they are on furlough leave. The employer should then apply to HMRC for the grant. In order to make the claim the employer will need to provide:
- their ePAYE reference number;
- the number of employees being furloughed;
- the claim period (start and end date);
- amount claimed (per the minimum length of furloughing of 3 weeks);
- your bank account number and sort code;
- their contact name; and
- their phone number.
How we can help
Although the new Guidance provides substantially more detail than previous official messaging, there remain ambiguities and most businesses will face unique challenges requiring expert support. We are working with many businesses, across various sectors, impacted by the Government's recent measures, who are looking closely at whether or not they can take advantage of the new Scheme as part of a series of measures to protect their businesses. Please do call or email any member of the team for more information on the Scheme and for advice as to how best your business can take advantage of it.
We are all navigating uncharted waters as business and society faces up to the impact of COVID-19. We very much hope you and your loved ones remain in good health.
Please be assured that Fieldfisher is continuing to work with clients to navigate COVID-19 related issues and on business as usual needs. Do get in touch with us if you would like to chat anything through.