23 April 2020
Clarification has been provided in updated guidance issued for education, early years and children’s social care providers. This answers one recurring query we have received in recent weeks: whether schools, nurseries and other entities primarily funded by public money can access the Coronavirus Job Retention Scheme (CJRS). It appears that some will now be able to.
The guidance to date has been fairly clear, as covered by another of our recent blogs here. No organisation should profit from the exceptional financial support available, and should therefore only access the support required. Organisations which are ‘primarily funded’ by government and continue to receive that funding are not expected to access the CJRS. There is, however, an interesting sentence in the new guidance which says
“Organisations which continue to receive government funding should not furlough staff whose salaries that funding could typically be considered to fund”.
This means that if the salaries are funded from other sources, for example self-generated income, then furloughing is an option.
The full guidance goes on to say that “due to the variety of organisations in the education, early years and children’s social care sectors and the different types of support on offer, it may be appropriate for organisations to access a mixture of different support.”
There is an expectation that organisations would first attempt to reduce operating costs and secure commercial loans (including the special Covid-19 interruption loans) before seeking to use schemes like the CJRS. The CJRS is therefore very much seen as a last resort.
The guidance now recognises that some public sector organisations generate private income in addition to their government funding and this may have reduced significantly or even ceased altogether during the current Covid-19 crisis, and says it may be appropriate to furlough staff who would typically be paid from that private income.
Importantly there are 5 conditions to meet before furloughing can be considered:
- the employee works in an area of business where services are temporarily not required and where their salary is not covered by public funding;
- the employee would otherwise be made redundant or laid off;
- the employee is not involved in delivering provision that has already been funded;
- (where appropriate) the employee is not required to deliver provision for a child of a critical worker and/or vulnerable child;
- the grant from the CJRS would not lead to financial reserves being created.
The guidance includes specific sections on the following plus some other scenarios:
State-funded schools (including academies)
The new guidance reiterates the expectation that the government does not, in general, expect state–funded schools to furlough staff.
There is now, however, a recognition that many academies generate substantial private income through catering, lettings, boarding etc. and much of this income has been reduced or lost during the Covid-19 outbreak. If staff are typically paid from those private income streams furloughing might be appropriate as long as the five conditions above are met.
Deciding whether staff are paid from the private income streams might not be straight forward in all cases. Many academies run breakfast and after school clubs which can, in some cases, generate significant income. The CJRS might be available for those staff employed purely to run these clubs if they cannot reasonable be redeployed but it would be different if the staff are also employed for other functions.
Any grant from the CJRS would need to be in line with the proportion of the payroll which could be considered to have been funded by private income. The example given in the guidance uses private income at a relatively low percentage of 4% of overall income but this would, in theory, allow the academy to furlough staff whose usual salary or combined salaries are linked to the lost income up to 4% of the paybill. For an academy with an annual paybill of £3 million this could mean a claim of up to £120,000 is possible even at the low 4%.
The guidance does not clarify how it applies to multi-academy trusts, where the income streams and proportions may vary significantly between academies in the trust. Should the calculations be at trust or individual school level? The CJRS is applied for via the new HM Revenue & Customs portal so it could be that academies within a trust that are on one payroll may need to be considered together, whereas academies on separate payrolls might be able to claim on their own using their proportions. This may be clarified in time.
The guidance is very clear that the CJRS should only be used where all other options have been exhausted, including meeting costs from existing budgets and redeployment of staff. Of course academies are not permitted to borrow without first gaining Secretary of State approval so the interruption loans are not really a feasible option. Any academy intending to make a claim under the CJRS should ensure records are maintained showing what other options were explored, as well as how the proportion of income calculations were approached. Will we see lots of academy trusts making claims under the CJRS? Time will tell but if there are a large number of applications one imagines the claims will be looked very closely.
Do remember the additional funding that may be available if your academy is incurring exceptional costs during the outbreak.
Early years providers (not in a school setting)
Early years providers (nurseries) often receive a mix of public income and private income in the form of fees paid by parents beyond the free entitlements.
Many early years settings have remained open and the government is continuing to pay for free early years entitlement places for 2, 3 and 4 year olds.
The CJRS seems to be available to private providers, if deemed appropriate, as long as the five conditions listed above are met. It may be difficult, in some cases, to clearly distinguish how staff are funding and in such cases the CJRS can be used to cover up to the proportion of its paybill that would be considered to have been paid from private income. The proportion calculation should be based on the month of February 2020 and the guidance includes a helpful example based on 60% private income explaining how CJRS support could be used for up to 60% of the paybill and how, practically, the employer might come to the 60%.
The guidance does go on to explain when proportions should be adjusted in subsequent furloughing applications if income changes.
The full guidance released by the DfE is available here. Please talk to your usual advisor or local UHY office if you have any questions on the above article.
