This Q&A has been updated following the Chancellor’s Summer Statement on 8 July 2020. In particular a short section has been added to cover the Job Retention Bonus.
The two key developments (as announced by the Chancellor on 29 May) are that from 1 July ‘flexible furlough’ will be introduced; and from 1 August, an employer will be required to contribute to furlough pay.
On 12 June the Government updated a number of guidance documents and published some new ones to reflect these changes. Important areas covered in the new guidance include:
- How flexible furlough will work
- The interaction between furlough under the existing scheme and the new scheme
- How employers should calculate how much they can claim under the Scheme
- Making claims under the Scheme
The updated Q&A also covers the changes made recently in relation to furloughing employees returning from statutory parental leave.
For information on general employment law issues around the coronavirus go to our Coronavirus: Employer Q&A
For information on help for the self-employed, see: Covid-19: Help for the self-employed
The Coronavirus Job Retention Scheme (“Scheme”) enables employers to apply to HMRC for a grant to cover most of the wages of their workforce who remain on payroll but are temporarily not working during the coronavirus outbreak. As the Scheme is a new and continuously developing concept in UK employment law it is important that employers regularly review the latest guidance. The key guidance documents for employers are:
- Latest HMRC guidance for employers on the Scheme can be found here
- The Government have also produced separate guidance for employees which can be found here
- New guidance on Steps to take before calculating your claim using the CJRS
- New guidance on calculating how much you can claim using the Coronavirus Job Retention Scheme
The Government published the Treasury Direction (“Direction”) on 15 April, a further Direction on 22 May. The Directions are legal authority for the Scheme. However, HMRC have said that they do not expect employers to be familiar with the Direction, instead they should refer to the latest HMRC guidance relevant to the Scheme. However, the original Direction can be found here and the further Direction here. A further direction was published on 25 June to cover changes relating to flexible furlough.
HMRC is looking to bring in legislation to address issues around furlough fraud. For further information on the measures being taken by HMRC, see Furlough “Fraud” v “Mistake”.
This note intends to provide an overview of the Scheme and some of the most common questions our clients are asking. You should take specific legal advice if you are unsure about any aspect of the Scheme.
- Overview of the Scheme
- Furloughing an employee
- Process of applying to HMRC
- Are there any limits on the number of employees that can be furloughed?
- Calculating wages
- ‘Top-up’ of employees pay
- Calculating usual hours for the purpose of flexible furlough
- Working during furlough
- Minimum wage
- Job offers
- Annual leave
- Shielding employees
- When the employee is on other forms of leave
- Re-hiring redundant employees
- Employee does not agree to furlough
- Collective redundancy consultation
- Pension contributions
- Taxation under the Scheme
- Worked flexible furlough examples
- What happens if an employer claims incorrect amount?
- Notice and furlough pay
- Job Retention Bonus
Which employers are eligible under the Scheme?
All UK organisations with employees can apply for support under the Scheme. This includes businesses, charities, recruitment agencies (including in relation to agency workers who are required to be paid through PAYE), and public authorities.
If a company is in administration, the administrator will also be able to apply for support under the Scheme but the Government has said they would only expect this if there was a reasonable likelihood of the Administrator bringing the employee back to work after furlough. In the first case to look at the Scheme the High Court in Carluccio’s Limited (in administration)  held that administrators who apply for a grant under the Scheme are able to apply funds to the payment of wages in super-priority to all other costs and expenses of the administration.
Individuals who employ employees can also claim under the Scheme, providing they pay the employee through PAYE and the employee was on the payroll and sent HMRC an RTI submission notifying a payment in respect of the employee on or before 19 March 2020.
However, the Government guidance makes it clear that the Government does not expect many public sector employers to use the Scheme. If public sector or non-public sector employers receive public funding for staff costs they are not expected to use the Scheme, though the Government says the Scheme may be appropriate if the organisation is not primarily funded by the Government, or if its staff cannot be redeployed to assist with the coronavirus response. Public sector employers or those that receive public funding for staff costs should take bespoke legal advice if they are looking to furlough employees.
As well as looking at whether it technically qualifies for the Scheme an employer may also need to consider the public relations impact of applying for support under the Scheme. Some high profile employers have already changed their minds about applying under the Scheme after media and public criticism.
What does an employer need to do to apply for the Scheme?
To apply for support under the Scheme the employer must designate an affected employee as a “furloughed employee” and notify the employee of this change in writing. A copy of this written notification must be retained by the employer until at least 30 June 2025.
If the employee’s contract of employment does not permit a change in status, the employer will need to agree the change with the employee. Although in view of the alternatives it seems likely that most employees would agree to this change in status.
Whilst is was always preferable to have the employee agree to a contractual variation such as furlough in writing, it is not always reasonably practicable to obtain written agreement. In such circumstances it may – in accordance with general employment law principles – be possible to imply the employee’s consent. For example, informing the employee that they will be deemed to have consented if they do not object to the change within a specified period. This position has always been reflected in the guidance.
In view of the latest guidance our advice is to obtain the employees written agreement to furlough if possible but if that is not possible it will not, by itself, prevent a successful claim under the Scheme.
It should be noted that the employer is still subject to all of its usual contractual and statutory obligations towards its employees.
Does a flexible furlough agreement need to be in place by 1 July in order to be valid?
Some commentators have suggested this may be the case but we are satisfied that the requirement is that any agreement be in place before the period of furlough being claimed for. There is no requirement that the agreement be in place by the 1 July.
During a period of flexible furlough, if the terms of furlough change, these changes should also be confirmed in writing.
Which individuals are covered by the Scheme?
Individuals must be on the employer’s PAYE payroll on or before 19 March 2020 and have been notified to HMRC on an RTI submission on or before 19 March 2020.This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 19 March 2020. Until the updated guidance on 15 April the Scheme had only been open to employees on the PAYE system as at 28 February.
An employee can be engaged on any type of contract including full-time, part-time, employees on agency contracts, and employees on flexible or zero hours contracts.
Those who are not employees but “workers” under the Employment Rights Act 1996 (“ERA”) are also covered by the Scheme. Referred to as “limb (b) workers” in the guidance, these workers are defined in the ERA as individuals that work under:
“(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual”.
Office holders (including statutory directors), salaried members of a Limited Liability Partnership (LLP), and agency workers (including those employed by umbrella companies) are also eligible for the Scheme.
The guidance sets out further considerations in relation to those categories that are not employees but may still qualify for the Scheme.
Foreign nationals are eligible for the Scheme and those an all categories of visa can be furloughed.
From 1 July only employees that have completed a full three weeks of furlough between 1 March and 30 June can be placed on furlough except those employees who are returning from statutory parental leave. This means that, in most cases, to enter the Scheme for any period up to the end of October an employee must have been furloughed for the first time by 10 June at the latest.
For an explanation as to how this works with employees that TUPE after 10 June, see here.
Does an employee need to be placed on furlough on 10 June if they have been furloughed previously but since returned to work?
No. If an employee has already completed a minimum three week furlough period – at any point since 1 March – they can continue to be furloughed (or rotated on and off furlough) until the end of October 2020. The fact they have since returned to work following their original furlough does not change this.
For an employee to be furloughed at any point from 1 July they must already be in the Scheme. To ‘be in the Scheme’ means they have completed at least three weeks (21 days) of furlough leave by the end of June. The importance of the 10 June date is that it would be the last day an employee who has never previously been furloughed, can be furloughed and complete the minimum three weeks before the Scheme changes.
As already mentioned the rules are different for those employees returning from statutory parental leave.
How long is the Scheme going to be in place for?
The Scheme is in place until the end October 2020. It will then be closed.
However, from 1 July flexible furlough will be introduced and no new entrants can be admitted to the Scheme (except in limited circumstances related to those returning from statutory parental leave) after that date.
From 1 August, employers will be required to start contributing to furlough pay.
Until the end of July the Scheme will allow an employer to apply for re-imbursement of 80% of a furloughed employee’s wage costs (see further below), up to a cap of £2,500 per month or £576.92 per week, per employee. If an employee is not paid monthly or weekly the amount that can be reclaimed under the Scheme will be based on 80% of the employee’s wage costs up to a maximum daily amount. In addition, the Government has said it will pay the associated Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions.
Guidance was published on 17 April to assist employers to work out how to calculate 80% of their employees’ wages to claim through the Scheme
New guidance was published on 12 June to assist employers calculate how much they can claim from 1 July.
From the 1 August the employer will be expected to contribute to a furloughed employees pay. The employee will still be entitled to receive the same amount of furlough pay (the lower of 80% or the cap) as set out above. However, from 1 August 2020:
- Employers will be expected to pay the Employer NICs and minimum auto-enrolment contributions on all furlough pay and will continue to do so until the Scheme ends. The Government will continue to pay 80% of the employee’s wages up to the relevant financial cap.
- In September the employee will still be entitled to 80% with the employer contributing 10% in addition to the Employer NICs and minimum auto-enrolment contributions on all furlough pay. The Government will pay 70%.
- In October the employer will also be required to pay 20% of the furlough pay in addition to the Employer NICs and minimum auto-enrolment contributions on all furlough pay. The Government will pay 60% of the employee’s wages.
What is a “furloughed employee”?
“Furloughed” is not a term normally used in UK employment law. The Direction now sets out the definition of “furloughed employee” in paragraph 6.1 of the Direction:
“An employee is a furloughed employee if:-
(a) the employee has been instructed by the employer to cease all work in relation to their employment,
(b) the period of which the employee has ceased (or will have ceased) all work for the employer is 21 calendar days or more, and
(c) the instruction is given by reason of circumstances arising as a result of coronavirus or coronavirus disease.”
A furloughed employee will remain on the employer’s pay-roll if they are furloughed but they should not undertake any work for the employer during this time.
From 1 July 2020 flexible furlough will be introduced. This means that a furloughed employee is not required to be furloughed for a continuous period of three weeks. The employer can bring the employee back to work for any amount of time and any work pattern, whilst being able to claim under the Scheme for the employees usual hours not worked. However, it should be noted that for any period during which the employee is furloughed, they must not (as under the existing scheme) carry out any work for the employer.
What practical steps should an employer take if an employee agrees to furlough?
Any agreement to furlough should be in writing. ACAS have produced guidance for employers and recommend that any agreement to furlough includes:
- the date the furlough starts
- details of any variation to the employee’s contract of employment e.g. a reduction in pay
- when it will be reviewed
- how to keep in contact during the furlough
If an employee is to be placed on flexible furlough from 1 July the terms of the flexible furlough will need to be set out in writing as above.
Any changes to the employee’s terms and conditions should be properly incorporated into the employee’s contract. If an employer is unsure how to do this it should take legal advice. The employer is required to keep the agreement until at least 30 June 2025.
How long must an employee be furloughed under the Scheme?
For an period of furlough that starts between 1 March – 30 June 2020 the employee must be furloughed for three weeks (21 calendar days) in order for the employer to claim furlough pay under the Scheme. If a period of furlough has started at any point on or before 30 June, the full three weeks must be completed before the employee can be moved on to flexible furlough.
From 1 July there is no minimum period of furlough required. Employers can bring furloughed employees back to work for any amount of time and any work pattern, whilst being able to claim under the Scheme for the employee’s usual hours not worked. This means, for example, that an employer could bring an employee back part-time and furlough for the time the employee does not work. Whilst there is no minimum period of furlough from 1 July, any claim must cover a minimum period of 7 calendar days.
Subject to the employee’s ongoing agreement a period of furlough can be extended during furlough. It is not necessary for one period of furlough to end before renewing it.
It should also be noted that an employer can bring an employee back to work at any time during furlough (subject to the terms of furlough that have been agreed with the employee). However, for any period of furlough that starts on or before 30 June, if it brings the employee back earlier than the minimum furlough period under the Scheme (3 weeks) it will not be able to reclaim (or will need to repay) wage costs under the Scheme.
The Direction states (para 6.1(c)) that furlough must be “by reason of circumstances arising as a result of coronavirus or coronavirus disease”. So, whilst the reason for furlough must be related to coronavirus it is not necessary that the employee would otherwise be redundant as some commentators have previously speculated (and which earlier guidance seemed to suggest).
Nonetheless, when making their decision to furlough, employers are advised to objectively consider what adverse impact (if any) Coronavirus has had (or may reasonably be expected to have) on their business by reference by the information/data reasonably available. Even if there is no strict legal requirement to show that they have been “severely affected” by Coronavirus, employers should nonetheless consider the wider scrutiny they may receive from a decision to furlough employees where their business has not been adversely affected by Coronavirus.
What process should be followed by an employer who wants to bring an employee back to work from furlough?
In order to be eligible under the Scheme a period of furlough that starts on or before 30 June must last at least three weeks (21 calendar days). However, from an employment law point of view the employer can ask the employee to return to work at any time (providing it has not agreed anything different with the employee at the time of furlough).
Although no specific period of notice is required to ask the employee to return to work, it is advisable to give the employee a reasonable period of notice. It is also advisable to confirm the request in writing.
When flexible furlough is introduced from 1 July an employer has much more freedom. Although practically, there are a couple of points it should bear in mind:
- It still has an obligation to act reasonably and in accordance with the contract of employment. It should not manage flexible furlough in such a way so as to undermine that.
- In order to ensure it claims the correct amounts under the Scheme and does not have to repay anything to HMRC it needs to ensure there is some structure so it knows the employees exact hours, particularly if it intends to make claims in advance.
What should an employer do once it has furloughed an employee?
It will be required to submit information about the employee and the employee’s earnings to HMRC via an online portal, which went live on 20 April.
A step-by-step guide has now been published which employers should read before making a claim under the Scheme.
What information will I need to make a claim?
An employer should not make a claim until it is sure of the exact hours an employee will work, otherwise there is a risk it will need to repay some of the grant if the employee works more hours.
What periods can an employee claim for?
From 1 July claims will no longer be able to overlap calendar months. This change is being introduced because from 1 July the contributions made by the Government and employer will change in each calendar month until the Scheme closes. As a result each individual claim will need to relate to the same calendar month, if a period of furlough runs over different calendar months it will be necessary to make separate claims.
The first date an employer can make a claim relating to July will be 1 July.
The last date for making a claim for the period ending 30 June is 31 July.
For furlough periods starting on or after 1 July, whilst there is no minimum period of furlough, claims will need to relate to a minimum period of 7 calendar days*, although they can be made for longer periods providing they relate to the same calendar month. Periods of furlough starting on or before 30 June will still need to be for the minimum period of three weeks but if the furlough period covers June and July, separate claims will need to be made for each calendar month.
It should be noted that an employer can only make one claim for each period and claim periods cannot overlap.
New Government guidance, Steps to take before calculating your claim sets out a detailed illustration of the time frames for making a claim.
* An employer can only claim for a period of fewer than 7 days if the period it is claiming for includes either the first or last day of the calendar month, and it has already claimed for the period ending immediately before it.
When will HMRC make the first grants under the Scheme?
Employers have already received grants under the Scheme since it went live on 20 April. HMRC have said it will aim to make payments within 4 – 6 days of the claim being made.
The number of employees for any single claim from 1 July cannot exceed the maximum number of employees that the employer has furloughed in any claim up to the 30 June.
For example, 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.
There are two exceptions to the above limit:
- If the employer is furloughing for the first time employees who have been on statutory parental leave such as maternity leave, they would not count towards the above limit.
- If a TUPE has taken place prior to 1 July the TUPE’d employees would not count towards the above limit. However, the number of TUPE’d employees that can be furloughed would be limited to employees who would otherwise qualify for furlough and, is subject to the previous employers maximum cap (calculated in the same way as for the new employer).
How will “wage costs” be computed?
From the 1 July, if the employer intends to ‘fully furlough’ an employee then it will need to work out the employee’s maximum wage as at present. However, if the employer intends to flexibly furlough an employee the employer will also need to work out the employee’s usual hours in order to make a claim. For more information on how to work out the employee’s usual working hours.
The Scheme will pay a grant to employers to cover the lower of 80% of an employee’s regular wage (even for employee’s on National Minimum Wage) or £2,500 per month, £576.92 per week, or (if the employee is not paid monthly or weekly) a maximum daily amount which can be found in the guidance produced to help employers calculate wage costs.
In addition to the above sums the employer can claim the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage.
The sums that an employer can claim under the Scheme will change from 1 August. See What support can an employer receive under the Scheme? for more detail.
Grants will be pro-rated if an employee is only furloughed for part of a pay period. Claims should be started from the date that the employee finishes work and starts furlough, not when the decision is made, or when they are written to confirming their furloughed status.
For full details on calculating the amounts that can be reclaimed under the Scheme an employer should review the above guidance first.
In summary the employer should calculate ‘regular wages’ as follows:
The employee’s actual salary in the latest pay period on or before 19 March 2020 should be used to calculate the 80%. This will be based on their salary for the employee’s relevant pay period (e.g. monthly, weekly etc).
If prior to the Direction being published on 15 April the employer has calculated the employee’s rate of pay using 28 February, the Direction permits the employee to make its first claim on this basis. Rather than having to recalculate it using 19 March date.
Those on variable pay
For those who have been engaged for 12 months the employer should take higher of the same month’s earnings from the previous year or average monthly (or daily or other appropriate pro-rata) earnings for the 2019-20 tax year.
If the employee has been engaged for less than 12 months the employer should take the average monthly earnings for the time they have worked before being furloughed.
For those who have been employed less than a month, the employer should use a pro-rata of their earnings so far.
Benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should not be included in the reference salary. However, the Government has confirmed that it accepts that Coronavirus counts as a “life event” that could warrant changes (including switching freely out of a salary sacrifice scheme) to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.
Is it a requirement that the employer actually pay 80% (or £2,500)?
Yes. The Direction states (para 7.1(b)(ii)) that if the employee is being paid less than £2,500 they must be paid “an amount equal to at least 80% of the employee’s reference salary”.
Paragraph 7.12 of the Direction goes on to provide that if between the 1 March and 18 April the employer has paid the employee less than 80% of their regular wages as required under the Direction (for those on less than £2,500) then the employer can pay the difference and it will satisfy the requirement of the Scheme.
Is the employer required to actually pay the employee before it recovers the money from HMRC?
The employer can claim under the Scheme before it has actually paid the wages to the employee.
Can payments received through a tronc be included in the calculation of wage costs?
No. Although the hospitality industry has urged the Government to reconsider this.
As stated above, tips are not included in the calculation of wage costs. HMRC have subsequently confirmed that tronc payments are not eligible for payment under the Scheme. A tronc is a separate pay arrangement sometimes used to distribute tips, gratuities and service charges.
Is the employer required to ‘top-up’ the employee’s wages so that they receive 100% of their normal pay?
The Scheme does not require the employer to pay the balance of the employee’s wage costs, although it can choose to do so if it wishes. If it tops up the employee’s pay the employer will be responsible for all related employment costs (such as Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions) of any ‘top up’ element.
If the employer does not have an existing contractual right to pay the employee less than their full pay it should agree a wage reduction with the employee if it does not intend to top-up furlough pay.
It should be noted that (as employers must continue to operate PAYE on amounts paid to employees) if an employee agrees to a significant wage reduction it may be advisable for the employee to apply to HMRC for a new PAYE coding notice to reflect the reduction in income. From the 1 August the employer will be required to make contributions to the employee’s furlough pay as set out above.
How are ‘usual hours’ calculated for the purpose of flexible furlough?
In short, to calculate the normal working hours for those with fixed hours/pay, the employer takes the number of hours worked in the pay period before 19 March 2020. To calculate the normal working hours for those with variable pay, the employer takes the higher of (a) the average number of hours worked in the tax year 2019 to 2020 or (b) the corresponding calendar period in the tax year 2019 to 2020.
As with calculating pay for the purpose of making a claim it is advisable for the employer to strictly follow the Government guidance so as to avoid a claim being rejected or challenged at a later date.
Can the employee carry out voluntary work or training during a period of furlough?
From 1 July flexible furlough is introduced and there will be no minimum period of furlough as there is for any period starting on or before 30 June. However, for any period an employee is on furlough, no matter how short the period, they must not carry out any work for the employer. As such, the answer to this question remains applicable for those employees on flexible furlough.
A furloughed employee may undertake voluntary work and training but they must not provide any services or generate revenue on behalf of the employer organisation during the period of furlough.
Further detail on what training is permitted was set out in paragraph 6.8 of the Further Direction. The Direction states that the study or training should be to improve (i) an employee’s effectiveness in the employer’s business, or (ii) the performance of the employer’s business. There is no requirement that the employee be the recipient of the training, meaning it should be possible for the employee to actually be the trainer (subject to the further requirements set out below).
Other than to the extent set out above the study or training should not directly (i) provide a service to the employer or the business activities of the employer, or (ii) contribute to the business activities of the employer or anything generating income or profit to the employer. In addition the study or training should not directly contribute to any significant degree to the production of goods or provisions of services for consideration to another person.
It is hoped that HMRC will take a common sense approach to whether an employee has been working or training. In most cases there will be little doubt. However, if an employer is unsure it should take legal advice before asking the employee to do any training.
If the employee carries out training (e.g. online training), they must be paid the National Minimum (NMW) or National Living Wage (NLW) by the employer, even if this exceeds the 80% being subsidised. The employer will be required to top up the wages in this situation.
There is nothing to prevent a furloughed employee working for a different employer. On that basis, the Scheme itself does not prevent an employee working for a second employer or taking up new employment during a period of furlough.
Separately, it should be noted that any restrictions in the employee’s contract of employment on working elsewhere during their employment will remain in force during furlough. Although in the circumstances many employers may be willing to relax such restrictions.
Is the employee ‘working’ if they undertake trade-union duties or other representation duties?
The latest guidance states that employees who are trade union or non-union representatives may undertake duties and activities for the purpose of individual or collective representation of employees and other workers. Examples of what this includes are:
- Trade union representatives taking part in collective bargaining with the employer.
- Trade union and employee representatives representing employees in collective redundancy consultations and TUPE consultations.
- Individuals attending disciplinary meetings as an employee’s companion.
If the employer decided to only pay 80% of the employee’s wages will it need to top this up if it falls below the NMW or NLW?
The NMW and NLW are only payable if the individual is actually working. Furloughed workers are not working and are therefore not entitled to the NMW/NLW (except when training as mentioned above).
Can a director/shareholder/owner-manager of an organisation self-furlough?
Yes, if they are paid via PAYE and were on the payroll on 19 March (see above). They will also be able to carry out their statutory duties relating to the filing of company accounts or provision of other information relating to the administration of the director’s company.
Can apprentices be furloughed?
However, they must be paid the Apprenticeship Minimum Wage, NLW, or NMW as appropriate for any period during which they are training. The employer will be required to top-up an apprentices pay in these circumstances if furlough pay was less than the appropriate minimum wage.
Does the Scheme cover employees who have received a job offer but not yet started work?
An employee must be on the employer’s PAYE payroll on or before 19 March 2020 and have been notified to HMRC on an RTI submission on or before 19 March 2020. The guidance makes it clear that employees who do not satisfy these requirements cannot be furloughed or be covered by the Scheme.
The changes to the Scheme published on the 15 April now means that many new hires who had previously been excluded from the Scheme can be furloughed by a new employer.
If an employer made an employee redundant, or they stopped working for the employer on or after 28 February 2020, the employer can re-employ them, put them on furlough and claim for their wages through the scheme. This applies to employees that were made redundant or stopped working for the employer after 28 February, even if the employer does not re-employ them until after 19 March. This applies as long as the employee was on the payroll as at 28 February and had been notified to HMRC on an RTI submission on or before 28 February 2020. This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 28 February 2020. This may be attractive to employers that have reluctantly made redundancies already because of the current crisis, although it is otherwise unlikely to be taken up by many employers.
If an employer plans to re-hire an employee they should obtain specific legal advice before doing so.
Can employees take annual leave during a period of furlough?
On 13 May 2020 the Government published guidance specifically looking at annual leave during the coronavirus pandemic.
Any holiday pay for statutory annual leave under the Working Time Regulations should be paid at the employee’s normal rate of pay. This means that an employer will need to “top-up” furlough pay if it is otherwise less than what the employee is entitled to under the WTR.
Does annual leave continue to accrue during furlough?
If the employer has already placed an employee on paid annual leave can that leave now be redefined as a period of furlough?
The Treasury initially indicated this would not be possible but the guidance published since does not make it clear if this is still the case. An employer is advised to check with HMRC if it is looking to do this.
Can those who cannot work because they are caring for others be furloughed?
Those who cannot work because they have caring responsibilities (e.g. childcare) can be furloughed.
What if an employee is ‘shielding’?
“Shielding” refers to those individuals who are extremely vulnerable to serious illness from coronavirus. Individuals in this category (and those who live with them) should follow strict social distancing rules. For more information on self-isolation and social distancing see our Coronavirus: FAQs for Employers.
Employees who are shielding (or staying at home with someone who is shielding) in line with public health guidance can be placed on furlough.
What happens if an employee is already on unpaid leave?
Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.
What if an employee is sick,self-isolating or shielding?
The latest guidance makes it clear that short-term sickness or self-isolation should not be a consideration in deciding to furlough an employee. Furlough must last for at least three weeks so this would not be suitable if an employee was still needed by the employer but self-isolating or sick with coronavirus related symptoms. In most cases such employees will be able to return to work before the end of the three week furlough period.
However, an employer can place a sick, self-isolating or shielding employee on furlough for business reasons. Although, if an employee is furloughed the guidance states that they should be paid furlough pay.
An employer cannot claim under the Scheme and SSP rebate scheme at the same time. If an employer places a sick employee on SSP they can no longer claim furlough pay under the Scheme. If they keep the employee on furlough pay whilst sick they can reclaim it under the Scheme.
An employee cannot be furloughed until a current period of SSP has ended but it can be ended by agreement between the employer and employee, with them agreeing to end SSP and put the employee on furlough (which fits in with the requirements of the Scheme anyway). A period of SSP during furlough (when the employer decides it will only pay the employee SSP) will not break the furlough period.
What if an employee is already on Statutory Sick Pay?
Employees on sick leave,self-isolating, or shielding should get Statutory Sick Pay, but can be furloughed when this ends. As set out above, the period of SSP can be brought to an end by agreement, with the parties agreeing that the employee will go on furlough. So essentially, there is nothing to prevent an employer putting an employee who is already sick, self-isolating, or shielding on furlough providing it does so in accordance with the other requirements of the Scheme. However, as set out above an employer cannot claim under the Scheme and SSP rebate scheme for the same period.
The normal rules for Statutory Parental Leave and pay will continue to apply in the usual way. Most employers can reclaim most of any statutory pay for these types of leave from the Government anyway.
However, employees on Statutory Parental Leave can be furloughed. Any enhanced (earnings related) contractual pay for maternity, adoption, paternity, and shared parental pay can be reclaimed under the Scheme.
It was not possible to furlough an employee on Statutory Parental Leave for the first time by 10 June 2020. Does this mean they cannot be furloughed at all if they return before the end of October?
No, it may still be possible to furlough theses employees even though they have not started a period of furlough for the first time by 10 June 2020 (meaning they cannot complete a three week period of furlough before 30 June). The Government have announced that these employees can still be furloughed providing:
- The employer has previously submitted a claim for employees who have completed a three week period of furlough between the 1 March – 30 June.
- The individual started a period of Statutory Parental Leave before 10 June and returned after 10 June.
- The employee on Statutory Parental Leave was on the PAYE payroll and had had a RTI submission made in respect of them on or before 19 March 2020.
Can an employer re-hire an employee that has been made redundant and put them on furlough?
Yes it is possible under the Scheme to re-hire employees that have been made redundant since 28 February and put them on furlough (providing they otherwise meet the qualifying criteria under the Scheme). The guidance also makes it clear that any employee who has left their employment since 28 February could be re-hired and subsequently furloughed.
If an employer plans to re-hire an employee they should obtain specific legal advice before doing so.
What would an employer do if an employee did not accept the offer of being furloughed?
If there is no contractual right to change an employee’s status an employer should clearly explain the reality of the employee not accepting the ‘furloughed’ status (basically unpaid leave, lay off or redundancy) under which an employee would be worse off. If the employee still refuses, then one of the aforementioned procedures will need to be followed (i.e. unpaid leave, lay off or redundancy).
An employee must have agreed to furlough in line with ordinary employment law principles. If the employee does not agree it would appear that the employer has to consider other alternatives such as lay-off or possibly redundancy.
Is there a right for employees to appeal against being designated as furloughed where this is a change to their terms and conditions?
If an employee accepts the designation you do not need to offer the opportunity to appeal. However, it is likely that if the alternative is (unpaid) lay-off or redundancy that most employees will accept being furloughed.
When is it necessary to collectively consult with employees?
If an employer proposes to dismiss 20 or more employees the obligation to collectively consult with employee representatives will be triggered. ‘Dismissal’ for these purposes means situations when the current contract is brought to an end, which is not necessarily limited to dismissal in the ordinary sense. As such, if you intend to furlough 20 or more employees within a 90 day period it is advisable to take specific legal advice before doing so. As stated already, an employer remains subject to its usual contractual and statutory obligations when furloughing employees.
Does collective (or individual) consultation during furlough, in relation to potential redundancies, constitute “work” that would be prohibited under the Scheme?
The guidance specifically says that an employer can make redundancies during furlough. It is therefore our view that collective or individual consultation will not in most cases amount to work that would breach the furlough rules.
However, if an employee or trade union representative is paid by the employer to undertake these duties we would suggest you take specific legal advice before asking them to undertake their duties.
What is the position with pension contributions if an employee is furloughed?
As you would expect, issues around pensions are not necessarily as straight forward as they may appear when first reading the guidance. Freeths Pensions team have produced a series of articles looking at the pensions issues around the Scheme that can be found under the Employment, Health & Safety and Pensions section of our Coronavirus Hub, including Coronavirus and Auto-Enrolment, Coronavirus and Salary Sacrifice, and others. The team have also looked at final salary schemes and issue for employers during the coronavirus crisis and Furlough of an Employee on Parental Leave and Potential Impact on Pensions Contributions.
How will employees be taxed?
Employees will still be subject to normal payroll taxes. This includes pension contributions (both employer contributions and automatic contributions from the employee), unless the employee has opted out or stopped saving into their pension. Accordingly employers should operate PAYE in the usual way.
Will grants under the Scheme be taxed in the hands of the employer?
Payments received by businesses under the Scheme are intended to offset a fall in revenue. They must therefore be included as income in the business’s calculation of its taxable profits for income tax and corporation tax purposes, in accordance with normal principles.
As businesses will be able to deduct employment costs as normal when calculating taxable profits for income tax and corporation tax purposes, we would expect the grant to be broadly income tax/corporation tax neutral for businesses unless it results in a windfall (for example because there is no associated fall in revenue).
If an employee TUPE transferred to a new employer after 19 March 2020, can they be furloughed?
A new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 28 February 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.
If a TUPE takes place after 10 June it is still possible for the new employer to claim for employees under the Scheme providing the TUPE/PAYE succession rules do apply and the TUPE’d employees have completed a three week period of furlough between the 1 March and 30 June.
If you require further advice on this Freeths employment team can assist.
What happens if an employer claims incorrect amount?
If there is an error in a claim the employer should tell HMRC as soon as possible.
If an employer over claims but intends to make further claims, there will be a facility to notify HMRC when making future claims. This will mean future claims will be adjusted accordingly. If the employer does not intend to make any further claims they will need to inform HMRC and arrange to make a repayment directly.
If an employer has under claimed they will also be able to claim the shortfall by notifying HMRC.
Can the furlough grant be claimed for redundancy consultation and notice periods?
Our understanding has always been that the furlough grant cannot be used for statutory redundancy or PILON payments but that it can be used to pay employees during redundancy consultations and notice periods. Our position has not changed, with the caveat that the guidance has never expressly stated this (although neither has it prohibited it either). However, employers should note that the latest amendments to the Treasury Direction on 25th June 2020 have created some confusion with regards to this.
The government guidance first published in March stated (and continues to state) that employees can be made redundant while on furlough or afterwards. It also specifically states that the grant cannot be used for the statutory redundancy payment, but it does not exclude notice pay. It is estimated that 1000’s of redundancies will have already taken place where employers have claimed for the grant for employees who are on notice, and in fact the government actively encouraged employers to re-engage employees who had already been made redundant shortly before the commencement of furlough on the 23 March so they could benefit under the scheme.
However, the third version of the HMRC Direction (which is different from the government guidance referred to above) was amended on 25 June to say that “integral to the purpose” of the job retention scheme is that the grant is to be used by the employer “to continue the employment of employees…”. Although employers are “continuing the employment” of their employees during redundancy consultation and notice periods, one possible interpretation of the new wording is that employers should only use the scheme for as long as they are trying to keep jobs open and should stop using the scheme once they intend to make redundancies.
HMRC are being lobbied for further clarification on the intention of the new wording. However, in the absence of any further guidance as yet, we believe the most likely position is that employers can continue to use the scheme during both redundancy consultation and notice periods. We refer to the long established position that during a fair redundancy process, the duty to continues for the employer to look for alternative roles and ways to avoid redundancies, we recommend this is clearly communicated clearly during the consultation period and in the notice of redundancy, so if work picks up or alternative roles become vacant you should be offering these to the employees on notice, therefore this sits within the purpose of the scheme in bold above. We do believe there is a risk HMRC may consider it not to be in the spirit of the scheme to only place employees on furlough once redundancies are imminent but again we are seeking clarification on this point.
HMRC are able to review employers use of the job retention scheme and can recoup grants they believe have been made outside the rules of the scheme, and have made it a requirement that records are kept for 5 years. Although the recent communication has left some confusion and concerns regarding the risk, in the absence of clearer guidance we believe the position is that notice can be claimed under the Scheme but urge you to take specific legal advice if in doubt, we will of course update you as soon as there is any clearer guidance.
In his Summer Statement on 8 July 2020 the Chancellor announced that the government will introduce a one-off payment of £1,000 to UK employers for every furloughed employee who remains continuously employed through to the end of January 2021.
Employees must earn above the Lower Earnings Limit (£520 per month) on average between the end of the Scheme and the end of January 2021. Payments will be made from February 2021.
The intention of the bonus is to help avoid redundancies once the Scheme finishes at the end of October. The unfortunate reality is that in itself the bonus will not in most cases be sufficient reason for an employer to retain employees. However, based on the limited information we have to date it appears that the bonus could prove to be a windfall for those employers that have furloughed employees but have no need to subsequently make redundancies.
Further detail about the bonus scheme will be announced by the end of July.
The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.