News update - 31 July 2020
Under new laws that came into force on Friday 31 July, furloughed employees who are being made redundant will receive statutory redundancy pay based on their normal amount of pay and not their reduced furlough pay.
This legislation also applies to other employment rights, such as statutory notice pay and awards for unfair dismissal, which are calculated on the basis of an individual’s average weekly pay.
Read the full announcement from the government by following this link.
News update – 8 July 2020
Once again, the job retention scheme is changing…
Announced on the 8th July 2020, the government have promised a one-off payment of £1,000 for employers, payable for each member of staff they bring back from furlough – known as the Job Retention Bonus.
To be eligible, staff must be paid at least £520 a month (on average) and remain continuously employed until the end of January 2021. Payments will then be made from February 2021.
The Job Retention Bonus is just one part of the government’s Plan for Jobs 2020 announced in the mini-budget on 8th July 2020.
NEWS UPDATE 29 May 2020:
The Job Retention Scheme has now been confirmed as extended by a further 4 months to the end of October, and with employers being required to contribute to the costs from the end of July onwards.
Employees who are furloughed will continue to be entitled to the same amount: up to 80% salary subject to a maximum £2,500 cap.
The government provided more detail on how the extended scheme will operate on 29 May.
The key changes to note:
During June and July 2020: the scheme will remain as before in terms of caps and conditions: 80% of salary for employees, up to a £2,500 cap.
However, from 1 July, the government has now introduced the concept of 'flexible furlough' meaning that furloughed staff will be able to work for their employers part-time from this date, and the remainder of that time when they are not working, they can continue to be furloughed under the furlough scheme. The flexible furlough arrangement will continue from this date until the scheme expires.
Employers will be given 'maximum flexibility to decide on the right arrangements for their business, so for example, currently furloughed staff could, from 1 July, be brought back from furlough for 1 day a week, or more (as each employer chooses). For those working days, they should be paid normally and fully by their employer. For any other days that they are not working for their employer and during which they remain on furlough, the government scheme will pick up the tab, subject to the caps and conditions set by the government (and these will adjust over the months - see more on that below).
Crucially, to benefit from the job retention scheme in the future, staff must have been furloughed by June 10th, as no new entrants to the scheme will be permitted after 30th June.
From 1 August, the government/tax payer will continue to pick up the 80% tab for all furlough days. BUT, employers will need to pick up National Insurance and pension contributions from their own budgets.
From 1 September, the 80% contribution to the salary for all furlough days is reduced. The government/taxpayer will cover 70% of salary and employers will be required to contribute 10% of that figure, (so that employees remain unaffected and still get 80% up to £2,500 limit) but employers start to share the burden.
And from 1 October, the contribution for all furlough days will reduce further to 60% of salary, up to a cap of £1,875 ; employers will contribute 20% and make up the cap to £2,500 and 80% in total.
The government has also made clear that they intend the scheme to finish at the end of October and that they do not wish to see it being further extended.
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.
Huge thanks, as always, to our wonderful partner Boffix’s Head of Accounting Aaron Patrick for collaborating on this content.
So how does the scheme work, and who does it cover?
Under this emergency scheme, which went live on 20 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 calls these ‘at risk’ employees ‘furloughed employees’, meaning staff that employers might otherwise have to lay off or make redundant, in the absence of this emergency 80% salary cover. There is, however, no requirement on businesses to demonstrate that furloughed employees must have first been identified for redundancy.
Many businesses have already applied for support under the scheme, having consulted with ‘at risk’ staff, sent letters requesting employee agreement to the arrangements and completed the online form on HMRC’s dedicated portal.
Businesses claiming under the scheme must have been registered as an employer with HMRC (on HMRC’s Real Time Information (RTI) system, and have had PAYE arrangements in place, before 19 March 2020.
The scheme will now run until the end of October (note the further extension, announced on 12 May, from its previous intended expiry date of 30 June).
Legitimate vs inflated or fraudulent claims
HMRC has made clear on its website that it reserves the right to claw-back fraudulent or erroneous claims in the future.
How this will be audited was set out in the consultation announced on 29 May 2020.
In these proposals, the government confirmed that furlough grants would be taxable - meaning that for businesses who benefitted from the scheme – these could be subject to income tax at 100% if they are found to have misused or been ineligible for the support.
It's important to note that HMRC won’t only be targeting those who have deliberately misused the scheme, but businesses that may have made honest errors while applying for and operating the scheme will also be expected to pay back what they were not entitled to.
By treating the grant as a taxable sum HMRC will be able to use their extensive powers to investigate, impose and enforce penalties and even prosecute individuals in the course of trying to claw this money back.
However, the government has previously made clear on its website that HMRC has already put in place a means by which employees and/or members of the public can essentially whistle-blow on businesses that they suspect are fraudulently making job retention scheme applications.
If you know your business has received a payment to which it was not entitled, you must notify HMRC.
As a director, you may be personally liable if your business is unable to pay back the grants to which it was not entitled. The burden will be on you to prove that you did not know your business was not eligible for support.
This scheme is back-dated 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 19 March 2020. (Note the extension of the time-frame, which was previously 28 February, to 19 March).
Employers can only claim under the scheme where they can show that:
- they paid the employee during the tax year 2019/20
- they have made a real time information (RTI) return for that employee on or before 19 March; and
- the employee remains employed, i.e. the employer hasn’t reported to HMRC that the employee’s contract of employment is ceasing.
In practice, what this means is that although the date for eligibility has shifted from 28 February to 19 March, a number of newly joined staff will still not be eligible to be furloughed under the scheme; this affects those for whom the employer hasn’t yet processed a payroll salary/submitted a real time information return to HMRC for that processing to take place.
For example, a new joiner on 4th March, who would not be paid until 28th March, in line with a business’ normal payroll arrangements, would not be eligible for furlough. New joiners paid on a weekly basis, and who would have been paid following the submission of an RTI to HMRC, would, however, fall within the scheme.
Eligibility of staff before 19 March therefore seems to be contingent on RTI submission dates.
New hires since 19 March 2020
Recent updates from HMRC confirm that employers can now furlough and claim for employees provided that they were on the payroll before 19 March 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. This means that furloughed employees can’t do anything that generates money or provides services on behalf of their employer while they’re on furlough leave.
The government’s Treasury Direction, issued on 15 April 2020, also makes clear that employees must consent in writing to this restriction on their ability to carry out work for their employer during this period.
Employers may assign critical duties of furloughed employees to non-furloughed employees during the furlough period.
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.
The government has also clarified that if the employee’s employment contract allows them to work for someone else in the normal course, then they are not prevented by the scheme from taking up work for another employer during this period.
This is one of the areas of the scheme that will change, in light of the government’s decision to extend the scheme until the end of October 2020, and set out in the announcement of the next furlough steps on 29th May 2020
From 1 July, employers will be able to take advantage of improved flexibility to the furlough scheme. The 'flexible furlough' means that staff will be able to work part-time in any of the months ahead within the scheme as employers choose to bring them back, and the remainder of the time, they can be furloughed.
For example, currently furloughed staff could, from 1 July, be brought back from furlough for 1 day a week, or 2 (as the employer chooses), and for those working days, be paid normally and fully entirely by their employer.
N.B. the employer must enter into a new agreement with their employee in order to bring them back to work while they are on furlough.
Employees should be paid in full for the hours they work. For any other days that they are not working for their employer - during which they remain on furlough - the employer will need to claim a percentage of their employee’s wages from the government, subject to the caps and conditions set by the government (and these will adjust over the months).
Employers should keep detailed records of hours worked as these will be needed to submit an accurate claim to the scheme.
The government has now confirmed that employees can undertake training during their furlough period, provided that the act of training ‘does not provide services to, or generate revenue for, or on behalf of their organisation’. The government’s clarified position is that furloughed staff should be encouraged to carry out training.
However, where staff are doing training because their employer has required them to do so, they should be paid at least their appropriate National Minimum Wage for that training period. The expectation is that the 80% grant under the scheme would cover these costs, but employers need to keep an eye on this, as they may be required to top up the money paid to the employee if their training activities exceed the value of the job retention grant.
Again, this is a position that we expect to see changing from the end of July onwards, to permit training to also cover services that may generate revenue for the business. We will update once the position is confirmed.
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.
Employees under fixed-term contracts are just as eligible for furlough as those with indefinite terms. If an employee’s fixed-term contract concludes during the furlough period, the government has confirmed that those employees won’t lose their eligibility to continue as furloughed employees, where the employer extends or renews the fixed-term contract. Conversely, if the contract isn’t renewed or extended, the employee is no longer employed and the furlough eligibility ceases on the date the contract ends.
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 19 March 2020), which means that workers the business pays PAYE for will also be covered, including 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.
Apprentices can be furloughed under the scheme in the same way as other employees who are covered. Unlike employees, they’re permitted to carry on training, where this is feasible. They must be paid at least the Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage during the time they’re working and training as an apprentice. This may well mean that employers will need to top up the 80% basic salary that the Job Retention Scheme covers for these individuals. The government’s provided more information on any changes to apprenticeship training arrangements that employers are forced to make because of Covid-19.
PAYE-salaried directors can furlough themselves. During that period, they may only carry out their statutory duties as directors, and according to the requirements of the scheme, they must ‘do no more than reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company’.
The government has also made clear that contractors/freelancers who are owner-directors of their own personal service companies, and take a salary from it, are equally bound by these same rules. They must also not carry out commercial work during the period if they wish to furlough themselves under the scheme. (This is an area currently being queried by a number of organisations, including the ICAEW, who feel that the £575pcm to which this equates, places these individuals in a hugely difficult position.)
Any decision to furlough a salaried director must be formally decided and recorded as a board decision, and the decision must be set down in writing to that director.
Non-executive directors may not qualify depending on the terms on which they have been engaged and are paid.
Salaried members of limited liability partnerships (LLPs) may also be furloughed. Like directors, a formal decision must be taken by the LLP management in respect of each furloughed member and they may not do any work for the LLP during that period. The arrangements here are quite complicated and it would be sensible to take expert advice – not least to help calculate the impact to the member’s remuneration and profit allocations of any period of furlough.
Nannies, housekeepers, drivers and other personal/family staff
Family or household staff can also be furloughed by individuals who employ them, provided that they pay them via PAYE and, like all other eligible employees, these individuals were on the payroll on or before 19 March 2020.
Umbrella workers and umbrella companies
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.
The furlough terms must be agreed between the umbrella company (who’s essentially in the role of employer in these circumstances) and the PAYE agency worker. And as with all other payroll staff, the worker mustn’t carry out work for the agency/its clients during this furlough period.
Staff who’ve already been laid off or made redundant since 28 February, but before 19 March 2020
- you’ve had to make staff redundant since 28 February but before 19 March, or
- employees left your employment on another basis between 28 February and 19 March,
- and, in either case, you are willing to re-engage them,
the government has made clear that you can bring those staff back, even now, and furlough them under the Job Retention scheme too.
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.
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. It has now been confirmed that it is acceptable to furlough an employee more than once, provided that a minimum of 3 weeks is taken in each instance.
The government has now confirmed that employers may continue to claim from the scheme for furloughed employees who are serving out their notice period (either contractual or statutory).
N.B. As employees are not allowed do any work for their employer while furloughed, you may need to end their furlough so that a proper handover can take place.
Staff on statutory pay (sick, maternity, etc.)
HMRC originally 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.
The government has now clarified that:
employers can furlough staff on maternity or family-related leave. Where they do so, employers’ claims under the Job retention scheme for wage costs relating to these staff while they are still on this leave must be limited to any enhancements to these individuals’ statutory pay entitlements during their family leave period, and those enhancements will also be subject to the 80% cap under the scheme
it remains the case that an employee who is already sick and who is being paid statutory sick pay (SSP), cannot be furloughed until their period of SSP ends, at which point, they can be furloughed
an employee who is self-isolating/shielding in compliance with public health guidance (e.g. they’re in a risk category group or they have been exposed to a Covid-19 case, or they need to stay home with someone who has to be shielded), can be furloughed if they are unable to do their duties from home and the employer considers there are good business reasons to furlough them. (For more guidance on shielding and public health guidance, see here), and
if a member of staff falls sick while furloughed, it is for the employer to decide whether to move the employee on to statutory sick pay, or to keep them on their furlough salary. There is no obligation on the employer to move them to statutory sick pay instead of the (often more substantial) furlough salary. (However, if the employer does decide to move the employee on to SSP, the employer must cease claiming the furlough salary during the sickness period, although a rebate of up to 2 weeks of SSP may be claimed.)
workers who have been furloughed and who then take paid family-related leave on or after 25 April 2020, are entitled to their statutory maternity pay, paternity pay, shared parental pay, parental bereavement pay or adoption pay based on their pre-furlough normal weekly earnings during the eight week reference period used for calculating the statutory pay. This is the case even if some or all of this reference period falls during a time they were on furlough.
Staff who are furloughed and then ultimately made redundant retain the usual rights to redundancy pay, as it may apply to their circumstances.
Employees looking after children can be furloughed
The government has also clarified that employees can be furloughed if they can’t work because they need to look after children or have caring responsibilities for other dependents. There’s no obligation on an employee to furlough these, or any, employees. The decision is entirely for the employer to determine – although most employers are expected to take a considerate and pragmatic approach to the situational challenges faced by many working parents because of Covid-19.
It’s finally been clearly confirmed by the government that:
- employees can take holiday leave during a furlough period and that
- they are entitled to be paid at their normal pay rate while on holiday and
- taking holiday during a furlough period does not disrupt their furlough leave.
This will likely reduce savings to employers, since it is also now clear that employers will be expected to top up the furlough grant to ensure the employee hits their usual salary level, during their holiday period. And that top-up cannot be claimed for under the job retention scheme.
The government also introduced a temporary change to the Working Time Regulations 1998, allowing workers to carry over up to 4 weeks of holiday and to be permitted to take it over a period of up to 2 years, if the impact of Covid-19 has prevented them from being able to take their holiday.
In normal times, most workers have a statutory right by law to take 5.6 weeks of paid holiday each year. Usually, it is not permitted by law for that holiday to be carried over except in exceptional and limited circumstances. Employers are expected to persuade their staff to take this leave, as it is important for health, safety and general staff wellbeing reasons.
The government intends for this temporary measure to relieve pressure being felt, especially by essential services sectors and key workers, where every member of staff is pitching in to help manage the circumstances.
However, all workers are entitled to request this carry over right, provided that it’s clear it wasn’t ‘reasonably practicable’ for them to take some or all of their leave because of Covid-19’s impact on the business they work for - and this will need to be shown for them to be eligible for it.
By law, employers can require employees to take holiday too – provided that they have given the relevant employee(s) the required legal period of notice of the holiday start date. The length of notice must be at least twice the period that the employee has requested to take as leave, though some contracts of employment go further than that length of notice period, so employers should check contract wording before taking this approach. The government's guidance also makes clear that before requiring employees; to take holiday, employers should:
- explain their reason for wanting the employee to take holiday, and
- consider the employee's circumstances, particularly regarding social distancing, self-shielding, Covid-19-caused care responsibilities, to see whether these would in fact prevent the employee from being able to rest and enjoy leisure time - the fundamental objective of holidays. If they would, there appears to be the expectation that the employer should no require the employee to take time off as holiday leave.
During the holiday period, while on furlough leave, the employer is expected to pay the full amount of holiday pay that would be due to the employee in normal times. However, the employer will still be entitled to claim the 80% grant for that employee, under the Job Retention Scheme.
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.
Businesses in administration
Employees of businesses who are now under the management control of an administrator may benefit from the administrator deciding to furlough them under the scheme. It’s anticipated that this would only happen where the administrator considers that the business can be saved by either sale or restructuring and, as a result, those employees would likely be hired under the new regime.
Owner-managed businesses (personal service company challenges)
These one-person businesses (typically self-employed contractors and freelancers running their business activity via a sole trader model) aren't intended to be covered by the Job Retention Scheme.
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?
If you have not already made a claim, you will not be able to do so now. Likewise, employees must have already been furloughed for a minimum 3-week period before 01 July to be eligible for further support.
You do not need to furlough for the full Job Retention Scheme coverage period (1 March - 31 October 2020)
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 weeks.
N.B. From 01 July, this minimum furlough period will be removed, allowing employers to furlough employees for any length of time.
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.
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