Partner Sue Dowling, head of our Employment Law team, explains the updated Coronavirus Job Retention Scheme (“the Scheme”) and the process of furloughing staff.
This blog article was updated on 13 May 2020.
About the Scheme
Under the Scheme (now due to run until at least 31 October 2020, albeit in different terms as from 1 August 2020) and operated by HMRC, employers can place designated workers (with their consent) on furlough leave (a period of paid temporary leave) for a minimum of three consecutive weeks. Employers can, subject to certain criteria being fulfilled and procedural aspects being followed, then claim a grant from HMRC for 80% of the furloughed employee’s salary (capped at £2,500). he Government’s aim is to protect jobs by helping employers to fund the retention of staff who otherwise may be laid off as a result of the COVID-19 pandemic.
Which employers can claim?
Any employer can apply under the Scheme, including businesses, charities and partnerships, providing that certain criteria are fulfilled. More information can be obtained from the Government’s step by step guide.
Since the Scheme was first introduced in late March, there has been around 10 reiterations of the guidance issued by the Government to explain the scope and criteria of the Scheme. Before taking any steps to apply for a grant for the first time, employers should review the latest guidance at www.Gov.uk in case it has changed since last published.
Which staff can be placed on furlough leave?
To be able to claim the furlough leave grant for a particular employee’s salary, the employee (or worker) must have been on their employer’s PAYE payroll on a certain date and other criteria need to be met.
It is also unlikely that an individual’s employment contract will contain a specific right for their employer to furlough them. As a result, employees cannot be made to take furlough leave and must agree to do so, in discussion with their employer. This is particularly important when the employer wishes to reduce the employee’s salary to 80% to match the grant to be paid by HMRC. When considering whether to furlough staff, we would strongly advise seeking legal advice to safeguard against any potential claims against the employer for example for breach of contract/wrongful dismissal.
A separate scheme (the Self-Employed Income Support Scheme) exists for self-employed individuals who meet the eligibility criteria set out. The Government will pay a grant for 80% of an individual’s normal monthly profits, up to £2,500. The next self-assessment payments will also be deferred until January 2021.
Making a Claim for a grant:
For the period of 1 March to 31 July 2020, under the Scheme employers can claim for:
- 80% of employees’ wages, up to a cap of £2,500 (gross) per month
- any regular payments they are contractually obliged to pay an employee in addition to their normal pay, including past overtime, fees and compulsory commission payments (but not for discretionary bonuses, tips, benefits in kind or non-compulsory commission payments)
- minimum automatic enrolment employer pension contributions on the subsidised wage
- statutory National Insurance Contributions (NICs) (excluding the difference if an employer has opted to top up an employee’s salary)
Payments made by employers to furloughed staff remain liable to income tax and employee NICs in the normal way.
Claims should be made from the date that an employee stops working and starts furlough leave, not at the point a decision is made or when they are written to confirming their furloughed status.
For the period 1 August 2020 to 31 August 2020, the current Scheme is expected to be changed. The Chancellor has promised guidance for employers before the end of May on how the Scheme will operate during this later period. He has already stated that workers, in all sectors and all regions of the UK, will “through the combined efforts of government and employers, continue to receive the same level of support as they do now, at 80% of their salary, up to £2,500” but has also said that from 1 August, the Government “will ask employers to start sharing the costs of paying people’s salaries”. Whilst it is not clear at this time, it appears that employers may only receive a reduced % grant, if the furloughed employee returns to some part-time work. Currently under the Scheme (to 31 July 2020) the furloughed employee is not permitted to do any work which could generate an income for the employer furloughing him/her.
Might the Scheme be extended further?
The Scheme is now due to expire on 31 October 2020 (albeit on varied terms than apply currently), having already been extended twice, initially from 31 May 2020 and then from 30 June, and the Government could decide to extend it further.
Employers may face difficult decisions as time goes on including whether to keep relying on the Scheme (particularly when it is varied from 1 August), or whether they need to consider making redundancies and/or other changes to their businesses.
It is imperative for employers to appreciate that the terms of the Scheme do not affect employees’ existing employment rights and protections (e.g. not to be unfairly dismissal and/or not to be subjected to unlawful discrimination). For this reason, a careful, objective and fair process would need to be undertaken before any redundancies are implemented to minimise the risk of any claims being brought against the employer. This is something our specialist Employment Law team can advise on.
You may also find our blog articles, 'Chancellor Extends Furlough Scheme Until October - A Summary', ‘Life After Furlough Leave - Employment Issues Which May Face Employers’ and ‘Collective Consultation - Multiple Redundancy Situations Explained’ helpful.
As further guidance is expected from the Government before the end of this month, we will be updating this blog article when more detail is known.
For further information or legal advice, please contact firstname.lastname@example.org or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.