Coronavirus Job Retention Scheme – Update following Lock Down Announcement
Following the Prime Minister’s announcement that the UK will be on a form of “lock down” for at least 3 weeks is clear that many employers will have a significant interest in the Coronavirus Job Retention Scheme/Furlough Scheme announced by Government.
On Monday 23rd March, Boris Johnson stepped up measures to prevent the spread of Coronavirus and implemented drastic action, including the closure of all non-essential businesses for up to 3 weeks and increased social distancing measures. Police have been issued with new enforcement powers to ensure that the public adhere to the new restrictions.
Although the Prime Minister’s instructions in this regard are clear, it is unfortunately still the case that too much remains unclear about the Job Retention Scheme and how it will work in practice. Some further information has however been released which sheds some more light on the matter and as it stands, we can confirm that the key provisions of the Job Retention Scheme are:
- The Scheme is intended to avoid redundancies and protect jobs.
- Any UK employer who “cannot cover staff costs due to COVID-19” will be eligible to participate in the Scheme
- Employers can apply to HMRC for a grant to pay up to 80% of the wages costs, up to a cap of £2,500 per month, of those workers who have been “furloughed”.
- A “furloughed worker” is someone who is temporarily not required to work but who is kept on the payroll rather than being made redundant
- Employees will need to agree to being designated as a furloughed worker
- Workers can retain jobs even if the employer cannot afford to pay them
- Employers will continue to pay furloughed workers, but at the reduced scheme rate. HMRC will reimburse the employer
- Payments will be backdated to 1 March 2020 and will be available for at least 3 months
- Employers can choose to top salaries up further
The Government has said that the first grants will be made available in “weeks” but we have no definite timescale as yet. HMRC is administering the Scheme which is not live yet.
How will the Job Retention Scheme operate?
As above, much remains unclear at this stage but it is understood that certain workers will become “furloughed workers”. Furloughed workers must carry out no work for their employer. It is understood that only those paid through PAYE can be designated as furloughed.
Workers must be designated as furloughed and told of this change. If an employer has a lay off/short time working clause, it is understood that an employer can exercise this clause and simply notify the employee that instead of laying them off, they are on furlough leave. If there is no clause in the contract an employer will need to negotiate the decision to declare an employee as furloughed with the employee.
As it stands, normal employment legislation will apply in this regard and employers must follow the correct consultation procedures to furlough an employee.
If employers have collective bargaining arrangements in place they must agree this change with the union in the usual way. In the absence of collective bargaining arrangements and contractual rights to make changes to employment status, employers must individually consult with employees to change employment status.
Following consultation, employers would be advised to document the variation to employment status by written correspondence however we do not yet know what the form of this correspondence needs to look like.
The scheme is being administered by HMRC and when applying for grants employers must submit information to HMRC about workers who have been furloughed, together with their earnings. A new online portal is being set up for this. We will let you know when this is live.
Who will the Scheme cover?
It is understood that the Scheme will cover workers who have already been laid off or dismissed. It is not yet clear whether employers will need to re-engage workers who have been dismissed / laid off to give them the protection of this scheme. It is not clear exactly how the Scheme will affect agency workers, casual workers or zero hours workers.
Are furloughed workers still employed?
Yes. Although a furloughed worker cannot undertake any work during the furlough leave, workers remain employed/engaged during this period which means most normal terms and conditions apply.
Workers who are furloughed are not being dismissed or made redundant. This means furloughed employees are not entitled to redundancy payments. However, unless and until changes to the lay-off scheme are made, employees laid off may be entitled to redundancy payments in certain circumstances, therefore it is important to take advice on employment status.
What about redundancies?
Where employers are still considering implementing redundancies please speak with the Advisory Team. We expect there will be a requirement to show why you are making redundancies rather than operating this scheme and retaining employees. Employers will still need to show that they have a genuine business need to make redundancies.
Can an employee choose to be furloughed?
No. This is an employer decision.
Can an employer choose not to top an employee’s pay up?
Employers need to be mindful of the wording of their employment contracts. Very few contracts will have an option to decrease salary but without such a clause, employers must ensure that employees are happy to accept the option of accepting the furlough and the income associated with it (i.e. 80%) or requesting redundancy.
What DON’T we know yet?
There are still lots of unanswered questions when it comes to the Job Retention Scheme including:
- Whether workers on sick leave can be furloughed in the same way as workers who are well.
- How being furloughed affects workers in receipt of SSP (for Coronavirus reasons or otherwise).
- How being furloughed affects other contractual entitlements such as pension contributions
- How it affects holiday pay and the relevant calculations
- Whether there will be any negative implications or consequences for employers and/or employees if they exercise furlough leave
- On what basis HMRC can reject an employer’s application for a grant
- Whether employers will need to provide any evidence to show that employees would have otherwise been laid off/made redundant and if so, what this evidence will need to comprise
- What other pre-conditions will need to apply, e.g. will there have to be a commitment not to make any other redundancies or, will an employer have to commit to increased tax payments in the future
- What will the consultation process required to designate an employee a furloughed worker need to look like
- What does the correspondence to employees need to say in respect of consultation and/or variation of employment status
- What is actually included in the 80% wage costs that the government will cover. Is this limited to National Minimum Wage? Does it include pension contributions? What about NICs? etc.
- Do the normal lay off rules apply during a period of furlough leave? For example, can an employee claim a redundancy payment after 4 consecutive/6 non-consecutive weeks of lay off?
- Can an employee be retrospectively furloughed?
- What about redundancies made since 1 March 2020? Can these be reversed so that the employees can be furloughed instead?
- How does an employer select for furlough leave?
- Can an employee do jobs for other employers when on furlough leave?
- Is £2,500 the maximum salary or the maximum payment?
- If a director is furloughed and they take additional dividend payments how will these be treated?
- Can employees on other forms of statutory leave (e.g. maternity leave) be furloughed? What happens to their pay?
- What happens if a furloughed employee gets Coronavirus or needs to self-isolate?
Although there are still many areas of clarity required, we are keeping a very close eye on all developments and will update you as soon as we can with all relevant information.