06 April 2020
On Saturday 4 April 2020, the Government released much awaited updates and further guidance on the Coronavirus Job Retention Scheme (CJRS). Claims under the scheme are likely to be substantial given the closure of many ‘non-essential’ businesses and the inability for employees to continue working during the Coronavirus outbreak.
We have already reported on the headline measures, but the recent guidance is welcomed as it provides answers to some of the many questions that business owners have asked since the Chancellor made his initial announcement on 20 March.
Recap on the scheme
For a temporary period of three months from 1 March 2020, employers may claim a grant from the Government if their current workforce cannot be maintained and activities have been severely affected by COVID-19.
The basic concept is that employers can claim 80% of furloughed employees’ usual gross monthly pay, up to a maximum of £2,500. The grant will also cover the associated employer’s national insurance contributions and obligatory employer workplace pension contributions.
An employer has the option to top-up pay to 100% of the furloughed employees’ salaries but is not obliged to do so.
The retention scheme is open to all businesses, charitable organisations and not-for-profit organisations, recruitment agencies and public authorities. It also includes people employing other individuals, such as a cleaner or nanny, provided they meet the eligible claims criteria, including having been paid through PAYE. The aim is to allow employers to keep employees on the payroll, rather than making them redundant in potentially difficult financial times.
Employees may be placed on furlough in three-week blocks, as this in the minimum period permissible. If an employee returns to work after three consecutive weeks, they must be taken off furlough, although they can be furloughed multiple times for a minimum period of three consecutive weeks.
Furloughed employees will retain their employment rights, including redundancy payments, rights against unfair dismissal, statutory sick pay and maternity and other paternal rights. If an employee is already on maternity leave, adoption leave, paternity leave or shared parental leave, their rights will be protected and the employer may claim for enhanced contractual pay for those who qualify for those payments (eg. enhanced maternity pay).
Eligible claims
To qualify, the employer must have an existing online PAYE scheme as at 28 February 2020 and a UK bank account. Only furloughed employees who were on the payroll on or before 28 February 2020 can be included in the scheme. Unfortunately, any employees who joined a business after that date, and indeed before we knew the seriousness and economic impact of COVID-19, cannot be furloughed.
The Government has confirmed that any type of employment contract will be included in eligible claims, which is good news for those on zero-hour contracts and agency workers (including those employed by umbrella companies) who may otherwise be concerned about the prospect of redundancy. Fixed term contract employees may also be protected by extending their contracts during the furlough period.
Eligible employees
It is fairly well understood that furloughed employees cannot undertake any work for, or on behalf of, the employer. The cost of employees on reduced hours and reduced pay will therefore not qualify for the grant. For those with more than one job, they can be furloughed in one job and continue to work in another job, provided that those jobs are not with the same employer.
Provided that furloughed employees do not provide services to or generate revenue for, or on behalf of, the employer they can do voluntary work, even arranged by the employer, as long as it is in line with public health guidance.
If an employer receives any public funding for staff costs, whether that employer is a public sector employer or not, they will not be eligible to join the CJRS, as the public funding should be used to pay the relevant employees’ costs.
Any employees who were made redundant after 28 February 2020 can be re-employed and subsequently furloughed, in which case the employer can make a claim for their wages in the same manner as for existing employees.
Statutory Sick Pay (SSP) will be available for employees on sick leave, or for those who are self-isolating. Employers will only be able to furlough those employees after they stop receiving SSP.
It is possible to furlough vulnerable employees who are shielding in line with public guidance, or if they are required to stay home with a vulnerable member of their household. This is to protect those individuals from redundancy if they are unable to work.
Equally, people who cannot work as a result of caring responsibilities, including those that need to look after children, as a result of COVID-19, can also be furloughed.
It has also been confirmed that dependant contractors (ie. those that provide a service as part of someone else’s business), also known as ‘limb workers’, will be eligible for the scheme provided that they are paid through PAYE. For those who are self-employed, support may instead be available through the Self-Employed Income Support Scheme.
Company directors will also be eligible for the scheme, as long as they are salaried through PAYE, and they do not carry out any duties other than those reasonably judged necessary for the purposes of fulfilling their statutory duties in accordance with the Companies Act 2006. In such cases, a formal decision should be made by the board and communicated to the director in writing and noted in the company’s statutory records. This applies equally to directors operating through their own personal service company.
The same applies to salaried members of Limited Liability Partnerships (LLP) who are on the firm’s payroll and are taxed as employees. In such cases, the terms of the LLP agreement may need to be varied to reflect the fact that the member will not perform any work on behalf of the LLP for the period of furlough.
Any apprentices that are furloughed must be paid at least the Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage (AMW/NLW/NMW) as appropriate for all the time they spend training.
Calculation of claim
It’s important to appreciate that an employee’s previous salary cannot be claimed. The grant is based on 80% of the furloughed employees’ wages up to maximum of £2,500, plus employer’s NI and the minimum workplace pension employer’s contributions, from the date the employee finished work.
The calculation will depend on the employee’s contract at the time of furloughing. For employees on a fixed salary, the claim will be for 80% of the individual employee’s salary as at 28 February 2020. But, for those on variable pay, the calculation can be a bit more complicated.
If the employee has been employed for 12 months or more, an employer can claim the highest of either the same month’s earning from the previous year, or the average monthly earnings for the 2019/20 tax year.
If the employee has been employed for less than 12 months, an employer can claim 80% of their average monthly earnings since they started work.
For those claiming commission, which is often the case in sales-based jobs, the employer can claim compulsory (ie. contractual) commission payments. If a contractual commission was included in the same month’s earnings from the previous year, or average earnings for 2019/20 (whichever is higher) we believe that amount should be included in the claim for a grant.
Any discretionary bonuses and commission payments will not be included in a claim, nor will any benefits in kind, such as company cars and salary sacrifice arrangements.
The employer will continue to pay employer national insurance contributions and pension contributions. A claim can only be made for the equivalent eligible claim (80% or £2,500 gross pay, whichever is the lowest). If the employer chooses to ‘top-up’ to 100% of the furloughed employees’ salaries, any additional employer’s national insurance and pensions cost will be borne by the employer.
It is very important that you take legal advice, to ensure the appropriate changes are made to employment contracts, if you are considering furloughing staff, and also to take tax advice to fully understand your obligations and the implications of furlough.
If you would like more information on the Coronavirus Job Retention Scheme and the latest updates, you can read more in our CJRS FAQs section or, alternatively, please speak to your usual UHY adviser or contact me directly.
