The COVID-19 pandemic is continually changing and the government advice for employers is being updated as the situation develops. On 20 March 2020, the government announced the Coronavirus Job Retention Scheme, designed to help support employers in paying employees’ wages where the employer’s operations have been severely affected. The initial government guidance provided a short overview of the scheme but more detailed guidance had been periodically released. At the time of writing this blog, the latest guidance to help businesses was released on 4th April 2020.

This blog outlines what we know so far about the Scheme (taking into account parts of the latest government guidance) and discusses a number of issues employers may now need to address. This is part of a series that we are producing to help businesses deal with the latest legal changes and understand what has been confirmed so far – more blogs can be found on our website.

Coronavirus Job Retention Scheme

The Scheme involves the “furloughing” of employees (i.e. placing them on a leave of absence) and enables employers to claim a grant from HMRC to cover 80% of certain wage costs (up to a cap of £2,500 per month per employee). The employees will remain on your payroll but are not allowed to work whilst furloughed.

The guidance on the Scheme confirms that: “If you cannot maintain your current workforce because your operations have been severely affected by coronavirus (COVID-19), you can furlough employees and apply for a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage”. If you want to read it, the full guidance can be found here.

The government has also confirmed that the scheme will be backdated to 1 March 2020 and will be open for at least three months. HMRC are urgently working to set up the new system of reimbursement, but the government hopes that the first grants should be paid within weeks.

Can all businesses access this Scheme?

Under the Scheme, all UK employers with employees will have access to the Scheme, provided that they have created and started a PAYE payroll scheme on or before 28 February 2020, have a UK bank account and have enrolled for PAYE online. Where a company is under the management of an administrator, the government has confirmed that the administrator will be able to access the Job Retention Scheme.

Who is covered? Does the scheme cover wages of workers as well as employees?

The scheme will apply to all employees on PAYE who are on furlough leave, provided that the employees were on your PAYE payroll on 28 February 2020. In addition, the government has confirmed that the minimum length someone can be furloughed for is 3 weeks so employers should ensure the furlough period meets that requirement as well.

The guidance from the government as at 4 April 2020 confirms that any UK organisation with employees can apply and gives some examples, which specifically includes “recruitment agencies” and it goes on to confirm agency workers can be covered. This is helpful as many were previously wondering whether agency workers would be covered by the furlough arrangements as well as traditional employees.

The government has confirmed (amongst other matters) that:

• Furloughed employees can be on any type of employment contract, including full-time, part-time, agency contracts and flexible or zero-hour contracts. Foreign nationals are also eligible to be furloughed. The scheme also covers employees who were made redundant or who “stopped working” for the employer since 28 February 2020, if they are rehired by the employer. It is not entirely clear whether the latter reference just covers those dismissed for other reasons by the employer or if it would include those who had resigned as well;
• If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed; and
• Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February 2020.

Certain individuals are eligible under the scheme despite not necessarily all being traditional employees under employment law. The latest guidance released on 4th April 2020 confirms that, as well as employees, the grant can be claimed for any of the following groups, if they are paid via PAYE:

• office holders (including company directors)
• salaried members of Limited Liability Partnerships (LLPs)
• agency workers (including those employed by umbrella companies)
• limb (b) workers

Important details and specific considerations in relation to each category set out above can be found in the government guidance.

What can employers claim?

The government have said that a grant will be provided to cover 80% of employee’s “usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage”. 

For full and part-time staff on a salary, the employee’s actual salary before tax and as of 28 February should be used to calculate the 80% (albeit that a cap of £2500 a month will apply).

For those employees whose pay varies, then, if the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, the government confirms that you can claim for “the higher of either:

• the same month’s earning from the previous year
• average monthly earnings from the 2019-20 tax year”.

If the employee has been employed for less than a year, the government confirms that you can claim for an average of their monthly earnings since they started work. If the employee only started in February 2020, the government has confirmed that you can pro-rata their earnings so far to claim.

The latest guidance released on 4th April 2020 confirms that an employer can claim for any regular payments they are obliged to pay their employees. This includes “wages, past overtime, fees and compulsory commission payments.” However, discretionary bonus (including tips) and commission payments and non-cash payments are excluded.

Once an employer has worked out how much of an employee’s salary it can claim, it will then have to work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions they can claim. Further guidance will be issued from the government about this.

In the guidance, the government confirms that employers can only submit one claim at least every 3 weeks under the Scheme, which is the minimum length the government confirm that an employee can be furloughed for. This means employers should be ensuring that furlough leave is applied for at least 3 weeks as a minimum to any employees that it wishes to furlough.

Is the employer obligated to make up the 20% of wages lost by employees who are paid under the Scheme?

Employers will not have to pay the 20%, as the Chancellor specifically said that “employers can top up salaries further if they choose to” and the government guidance also confirms that employers do not have to top it up. To require this would arguably defeat the effectiveness of the Scheme. If employers do decide to top it up then it is clear from the latest government guidance that it will not refund employers for that sum or National Insurance Contributions and automatic enrolment contributions linked to it and these additional costs will solely fall to the employer.

For employment law purposes, withholding 20% of an employee’s wages will amount to an unlawful deductions of wages unless the employee gives their consent. However, in practical terms, it is hoped that the majority of employees will consent since furlough leave is likely to be a better alternative for them then unpaid leave, lay-off or redundancy.

When is the Scheme running from and for how long?

It is hoped that the scheme will be fully operational before the end of April 2020, but will be backdated to 1 March 2020. At the time of writing, it is understood that the scheme should be up and running from 20 April 2020. It is expected to run for at least 3 months.

Can an employee request that their employer puts them on furlough leave?

Yes, but the employer does not have to agree. It is the employer’s decision which employees to place on furlough leave, if any.

When will the HMRC portal go live and what tips can we give employers in terms of acting now?

As mentioned above, it is anticipated that the scheme should be operational before the end of April 2020 and we understand that 20 April 2020 is the proposed start date. The government guidance confirms that employers should discuss furloughing with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way. In practical terms, we understand this to mean that you must select who to furlough fairly based on your work requirements and be able to justify how you have done this.

To be eligible for the subsidy, the government has confirmed that employers should also write to their employee confirming that they have been furloughed and keep a record of this communication for a period of five years. Employers should discuss the matter with their staff and make any changes to the employment contract by agreement (seeking legal advice where needed).

The government has also stated that “If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment”. However, this statement creates some difficulties for employers in our view. We assume it is alluding to the collective consultation obligations under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) – those obligations apply where the employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less. The definition of redundancies for these purposes is wider than normal and includes proposed dismissals linked to changing terms and conditions as well as collective redundancies in the normal sense. 

To comply with the TULRCA obligations, an employer must consult on its proposal with representatives of the affected employees, comply with minimum timeframes for consultation and also notify BEIS. However, as that process is time consuming, then it may be difficult for some employers to comply with those obligations before furloughing employees. If employers are dealing with 20 or more employees, then we suggest that urgent legal advice is taken so you can understand the implications of the collective consultation obligations.

In practical terms, we consider that employers should consider the following steps:

1. Consider which employees to furlough (ensuring this is based on work requirements and not any discriminatory factors etc) and the number of employees (if the collective consultation obligations apply then we suggest legal advice is sought at this point);
2. Where no work is available for one or more employees, employers should immediately consult with a view to securing those employees’ agreement to become furloughed (for some, it may be appropriate to start collective consultation at this point or you may decide to wait to see if employees will agree the change first);
3. If agreement is not reached with some, employers may wish to take immediate legal advice on the implications of that and what to do next;
4. Write to each worker to be furloughed and keep a record of that;
5. Submit information to HMRC about the employees that have been furloughed (you can begin preparing this information now – see comments below);
6. Pay your employees in accordance with the arrangements; and
7. Ensure that employees do not carry out any further work while they are furloughed.

Employers should start collating the information needed for the portal as soon as possible to assist with submitting a timely claim once the portal is open. To claim, the government has confirmed that employers will need:

• your ePAYE reference number
• the number of employees being furloughed
• the claim period (start and end date)
• amount claimed (per the minimum length of furloughing of 3 weeks)
• your bank account number and sort code
• your contact name
• your phone number

HMRC will retain the right to retrospectively audit all aspects of your claim so it is important the information provided to them is accurate.

What if employees do not agree to be furloughed workers?

Where an employer forces an employee to take a pay cut, the employee would be entitled to make a claim for unlawful deductions (and constructive dismissal, if they then resigned as a result of the employer’s breach of contract). It is hoped that employees will agree to this temporary variation as the other potential options would be:

1. Redundancy;
2. Being asked to take unpaid leave;
3. Being asked to use their annual leave entitlement during this period; or
4. Being dismissed for “some other substantial reason”.

The government has not said what happens to employees who fail to agree and whether the scheme is available in those circumstances. However, some employers may wish to notify the employees they are being furloughed in any event to see if reimbursement is later possible.

Can an employee do any work while furloughed?

The guidance suggests a zero-tolerance rule whereby being on furlough means that an employee cannot do any work at all for their employer. If they do then they are not on furlough and therefore the employer should not be benefiting from the government grant. The guidance states that an employer cannot ask a furloughed employee to do any work that:

• makes money for the employer’s organisation
• provides services for the employer’s organisation

Furloughed employees can however take part in volunteer work or training, for which they must be remunerated.

Any company directors who have been furloughed can carry out their statutory obligations, e.g. filing documents at Companies House, but must not generate revenue for the company.

The updated guidance states that, if contractually allowed, employees who have been placed on furlough for one employer are nevertheless permitted to work for another employer.

What about employees who are on sick leave or receiving sick pay because they are self-isolating?

According to the government guidance, if an employee is on sick leave or self-isolating they can get Statutory Sick Pay and they can be furloughed after this.

In addition, employers can claim for furloughed employees who are “shielding in line with public health guidance (or need to stay home with someone who is shielding) if they are unable to work from home and you would otherwise have to make them redundant.

If you need advice or have any queries about dealing with any workplace issues arising from the COVID-19 outbreak, please contact Paul Chamberlain or another member of the employment team at JMW Solicitors LLP on 0345 646 0342. 

This note is for general guidance only and should not be used for any other purpose. It does not constitute, and should not be relied upon as legal advice.

JMW Solicitors is a Limited Liability Partnership.

The copyright in this note is owned by JMW. Any reproduction of this article should be credited to JMW. All rights reserved.

This note was prepared as of 9 April 2020 but please be aware that further guidance may be released following this date and you should check the government’s website for the latest version of the guidance.