Most of us want to come out of this situation with a business and staff who can pick up the pieces and try to get back to some semblance of normality as fast as possible.
It’s going to be a challenge.
But at least the government's Covid-19 job retention scheme gives us some hope that we can keep hold of, and look after our staff as well as possible, in the circumstances.
The scheme’s designed to extend a lifeline to businesses who otherwise face no choice but to lay off on limited pay – or in many cases, make redundant altogether, the talented, much-valued staff who helped to make our nearly 6m UK small businesses the £2.2trillion contributors to the UK economy in 2019.
Put another way, 16.6 million people were employed by a small business at the start of 2019. That’s 60% of the overall UK workforce.
Heartbreakingly, those stats are unlikely to be something that we'll be able to boast about, or to boost, by the end of this year.
Still, the hope is that this new scheme should help soften the impact for many of us employers.
Different reliefs cover the self-employed, who can seek financial support under a separate scheme (called the Self-Employment Income Support Scheme – see further here.
Here’s what we know so far. We’ll keep updating this blog as more detail emerges. Huge thanks, as always, to our wonderful partner Boffix’s Head of Accounting Aaron Patrick.
So how does the scheme work, and who does it cover?
Under this emergency scheme, which is intended to be in force by the end of April 2020 (in time for businesses to run their April payroll), the government will cover 80% of the basic salary (gross) of an ‘at risk’ employee, up to a cap of £2,500 per month, per employee.
The government is calling these 'at risk' employees ‘furloughed employees’, meaning staff that employers would otherwise have to lay off or make redundant in the absence of this emergency 80% salary cover.
Many businesses are already moving to take advantage of the scheme by consulting with ‘at risk’ staff, even laying them off in the meantime (where they have the contractual right to do so), sending letters requesting employee agreement to the arrangements and preparing to apply for reimbursement via the HMRC PAYE system, which is currently being adapted to support the scheme.
Legitimate vs inflated or fraudulent claims
Although the government’s made clear that the scheme is intended to support ‘employers who have been severely affected by coronavirus’, it’s not yet clear whether when they apply for the scheme, employers will need to meet some kind of severity test criteria, to succeed, and with so many businesses affected, there may be no straightforward and fast means to verify this. In reality, it’s expected that HMRC will process claims made under the scheme now, and then audit later.
HMRC has made clear on its website that it reserves the right to clawback fraudulent or erroneous claims in the future. The general consensus among the experts is that if your business faces severe cashflow difficulties resulting in the need to lay-off or make staff redundant unless you have the benefit of the scheme, prepare to apply as soon as you can and await further details and clarifications in the coming days. (Applications can’t yet be made. The government intends that businesses will be able to apply by the end of April.)
This scheme is backdated to 1 March 2020 and will apply to the wages of affected staff for a period of 3 months (or possibly more if needed). To be eligible for cover under the scheme, those employees must have been employed by the business before 28 February 2020.
New hires since 28 February 2020
Anyone engaged after this date will not be covered by the scheme. Short term working or unpaid lay-off arrangements are the options here, if your contract permits you to take these measures. If not, you will need to discuss with your relevant employees and try to get their consent to instigating one of these measures so you can try to keep them within the business.
If lay-offs become the only option, it is possible to rotate lay-offs, e.g. 1 week on, 1 week off, so that staff could at least have the option of 50% of salary during their usual period, if this is something your cashflow can support. For some staff, this might leave them better off than under the Job Retention Scheme, so it’s worth doing the maths on this.
No work for the employer during this time
‘Furloughed workers’ won't be able to work for the employer who furloughed them during the period where they're covered by this scheme – so the scheme is essentially being treated by the government as an alternative to redundancy, not as a subsidy for those continuing to work their jobs.
If, however an employee works for more than one employer and only one of them furloughs them, the employee can continue to work for the other employer, without invalidating the furlough scheme cover.
Remaining an employee
Being put on the scheme won't disrupt the employee’s continuity of service. They'll continue to be treated as an employee unless or until they are made redundant - although the aim of the scheme is to help businesses avoid this outcome.
All staff on the payroll
The guidance from government refers to all staff on the payroll being covered by this scheme (provided they were on the payroll as of 28 February 2020), which means that workers for whom the business pays PAYE will also be covered – good news for zero hours workers who are on the payroll/PAYE and PAYE-covered agency workers who are not doing paid work anywhere else during the furlough period.
Umbrella workers and umbrella companies
It appears that workers under umbrella arrangements, who are paid under the PAYE system will also be covered, but umbrella companies won't be permitted to deduct any administration fee from the furlough payment. 100% of the JRS grant must be paid to the furloughed worker.
Staff who’ve already been laid off or made redundant
If you’ve already laid off staff, or you need to do so, ahead of being able to apply for the scheme, the government has made clear that you can bring those staff back and have them covered by the scheme too, so long as their layoff/redundancy status is converted into a ‘leave of absence’ status instead.
Employees who have been placed on short-term working or reduced hours arrangements aren't covered by the scheme as they're still working and haven't been furloughed.
It seems that to qualify for the payment, an employee must be furloughed for a minimum of three weeks before they are brought back into the business. They can then come off furlough when and if the business can then afford to bring them back. However, the experts currently believe that employers cannot rotate staff on and off between furlough and non-furlough.
Staff on statutory pay (sick, maternity, etc)
HMRC has said that staff who are already on statutory pay, whether that’s statutory sick pay, or maternity pay, for example, should remain on those arrangements and not fall under the Job Retention Scheme until they return to work, in which case they can then be covered by the scheme, if needed. Both cannot be claimed at the same time.
Staff on enhanced sick or other pay can, however, be furloughed from the outset, where needed.
Staff who are furloughed and then ultimately made redundant retain the usual rights to redundancy pay, as it may apply to their circumstances.
If you’re planning to furlough 20 or more members of staff on your payroll, you should run a consultation process and you should consider electing employee representatives who can help you to manage the communications and consult on alternatives. This adds time to the process, but, if in any event, you foresee that even with the furlough arrangements, you may be making a large number of staff redundant in a few months, the consultation that you undertake now can count as part of the redundancy consultation process. (The redundancy process can be started even while staff are furloughed).
It’s best to take expert advice fast if you’re facing this kind of impact for this many employees, whether on furlough or as part of a subsequent redundancy process.
Owner-managed businesses (personal service company challenges)
These one-person businesses (typically self-employed contractors and freelancers running their business activity via a limited company) aren't intended to be covered by the Job Retention Scheme and the Job Retention scheme is not designed to compensate them for their loss of earnings (unless they're within the IR35 category - in which case, they might appear to be, but their ability to furlough themselves and keep going is difficult to imagine).
The government has announced an equivalent Covid-19 emergency scheme under which they may be able to claim in a similar way to employers for their employees.
This separate scheme is called the Self-Employment Income Support Scheme. Please see our separate blog on what the government's emergency Covid-19 measures mean for the self-employed.
How can I apply?
Sector doesn’t matter. Size doesn’t matter. In principle, all UK businesses are eligible to apply for this scheme, including public sector, charities and local authorities, though note the points made above about fraudulent or inflated claims.
HMRC is adapting its online portal to process applications and they've been tasked as the chief administrator of the scheme.
The scheme is expected to go live for processing applications within the next few weeks and the government’s targeting the end of April for all affected businesses to be covered by the scheme.
The new portal will identify what information is needed from you.
In the meantime, you can prepare by following the steps below:
- Set up payroll to recognise furloughed pay and help you to identify the amounts to reclaim (you may want to get your accountant to help with this). Latest guidance from HMRC is to make the claim (including any amounts backdated to 1 March) at the same time as you run your end of April payroll, or just in advance of it
- Identify your ‘at risk’ employees/already laid-off employees (fairly and with no unjustifiable discrimination), and calculate furloughed pay based on the 12 weeks up to the end of February 2020. This will enable you to establish a base pay to which you can apply the 80% furloughed grant. Do not include overtime, commission or bonuses
- Assume for now that PAYE tax will be due. HMRC has, however, confirmed now that in addition to 80% of the basic salary (as capped), employers can also claim for the associated employer National Insurance Contributions and minimum automatic pension contributions on that wage
- The maximum that an employee can be paid under this scheme is £2,500 gross. So for employees where this cap is relevant, and if you intend to top them up, calculate the additional pay needed to get them to their ‘normal’ pay level
- Notify and agree these new working and pay arrangements with all affected employees in writing (in most cases, you'll need to put these changes in writing to your affected employees and have them sign the notification to accept them as the alternative to being laid off unpaid/made redundant)
- You may need to notify trade unions too (if relevant to your business)
- Apply to HMRC as soon as their portal goes live
It’s intended that the scheme will work by reimbursing employers for what they pay employees under the scheme and that employers should rely on other emergency business support measures, e.g. the Coronavirus Business Interruption Loan, to fund and support payroll meanwhile.
You do not need to furlough for the full 3-month period
There is a minimum 3-week furlough period that employees must complete if employers include them under the scheme. However, it’s not required that employees be furloughed for the full period, and it has now been confirmed that an employee can be furloughed more than once, provided each period lasts for at least 3 months.
What’s the definition of ‘salary’ under the scheme?
Salary is apparently to be defined as ‘gross’ basic salary. It will not include other additional payments that an employee would ordinarily have been able to build up, e.g. overtime, commission and/or bonuses. This is going to hit employees whose regular income is substantially reliant on these latter elements.
The government has also now confirmed that the 80% grant will apply even where it takes an individual below the national minimum wage/national living wage. Employees affected in this way will need to rely on other reliefs offered by the government during this period.
Government guidance does say that employers can choose to ‘top-up’ a payment to individuals who they furloughed, without invalidating the entitlement. Few small businesses are expected to be able to do so, however. Most will be conserving every penny they can to protect cashflow and to keep the business going, so that furloughed employees can look forward to a return to work as soon as possible.
At the moment, PAYE and NIC are both still payable, by employees.
(Employers may be able to delay or to defer their PAYE obligations under HMRC’s Time to Pay scheme, although again, these payments are technically still due from employers at the usual times and in the usual way, for now. These arrangements are agreed on a case-by-case basis and are tailored to the individual circumstances of each business. You’ll be eligible if your business pays tax to HMRC and is going to struggle to meet the next payments and keep going. Call HMRC’s dedicated helpline to agree arrangements with HMRC: 0800 0159 559 or to find out more about the scheme, check [here](https://www.gov.uk/government/news/tax-helpline-to-support-businesses-affected-by-coronavirus-covid-19) ).
Will I need employee consent to put them on the scheme?
Yes, possibly – depending on whether your employment terms already cover the ability to lay people off in circumstances like these and what the pay implications will be.
While most employees would likely be relieved to know that, instead of redundancy, they'll retain their jobs, have some time out and be paid at least something during while their employers battle to keep their businesses going, this arrangement does result in a change to an employee’s normal working status and their contractual pay expectations.
But even here, since these are quite extraordinary circumstances, and most contracts will not cover a furlough arrangement since it’s so novel, we'd advise that you put something in writing between you and the employee to confirm:
- what's happening: you’ve identified them as an employee who's already (under lay-off arrangements), or will be, furloughed under the government’s emergency Covid-29 job retention scheme
- why it's happening: the business doesn't have sufficient cashflow to pay staff their salaries and all available funds are needed to keep it going so that staff have a job to come back to in a few months’ time
- what the impact will be: salaries will be affected but, while a reduced salary is unavoidable, the arrangements are preventing the need for unpaid lay-offs and/or immediate redundancies. The government arrangements are also more generous for employees than statutory redundancy pay. Pay, benefits, overtime, commission etc. will be altered under these arrangements as follows: [you’ll need to complete this] and the employee won't be able to do any work for the business during this furloughed period without risking the invalidation of their entitlement to be covered by the scheme
- that PAYE and NIC is likely to still be payable by the employee on the money that they receive under the scheme, deductible at source in the usual way; (the government hasn’t announced any intention to defer or suspend this, as yet)
- the timeframe that the arrangements will be in place; (the job retention scheme is backdated to 1 March 2020 and will run for 3 months, possibly longer). You can use our letter confirming changes to an employment contract template to do this quickly and simply, and
- what you consider will happen after that – which is likely to be a holding position: keeping the situation under review depending on what both the government decides to do and the business can support at that time.
If my business goes under despite all my efforts, will I have to pay the government any money back?
No. This is not a loan, the government is giving the support in the form of a grant, essentially.
If employees want to work for someone else during this time, will this invalidate their ‘furloughed status’?
The current assumption by the experts is that this will not be permitted.
It would be best for employees to wait, if they can, before doing some work for anyone else, until the government’s position is clear. We will update this blog as soon as we have confirmation of the position.
Employees working for more than one employer can continue to work for their other employer, however, if they have not been furloughed by both.
Selecting employees for furlough treatment
As with any other employment process, it’s just as vital to ensure that employees selected for furloughing are fairly treated, according to rational business criteria that do not discriminate against any individual member of staff. Your equal opportunities and diversity policy is just as applicable here, as ever.
If employees want to volunteer to support the NHS and care services
Separate to the furlough arrangements, HMRC has now confirmed that employees will be able to apply for ‘statutory volunteer leave’ to support the NHS call-out for emergency voluntary help during this Covid-19 period.
This means that eligible employees of businesses who have 10 or more employees (and no fewer), who want to volunteer to help the NHS, may ask their employers for a block of two, three or four consecutive weeks of unpaid volunteering leave.
While this leave will be unpaid, the government has said that it intends to compensate workers who take this volunteering leave for their loss of earnings and it will provide a travel and subsistence (e.g. money for meals) allowance. Details of how this will happen haven't yet been released, but we'll update this blog when they are.
The volunteering period is currently set to run for 16 weeks beginning on the day the provisions come into force (we’re still waiting for the key regulations that will make this happen), though the government has said that the period may be extended.
To apply for this special leave, employees must give their employers 3 working days’ notice and they must give their employer a certificate from the relevant health/other authority, confirming their emergency volunteer status and the dates when their service will start and end.
Employees working for employers with fewer than 10 employees aren't eligible for this special leave.
Employers of eligible workers aren't permitted to say no to this request on operational grounds. The current advice, however, is that a request by an employee to volunteer under this special leave entitlement shouldn't prevent the employer from furloughing that employee if it needs to do so.
With the exception of their pay entitlement, while they're taking this special leave, employees are entitled to all their usual contractual benefits and they may not be dismissed or selected for redundancy because they have requested and taken this leave. They are fully entitled to return to their job once the period of volunteering has ended.
Employers should take advice in relation to any action, whether disciplinary, redundancy or other, taken in relation to an employee who volunteered.