Government support for business and workers in the UK

On 20 March 2020 the UK government introduced its Coronavirus Job Retention Scheme (the Scheme). The Scheme allows employers to access a government grant to cover some of their employees’ wage costs where those employees are “furloughed”. This new concept of “furlough” essentially means employees are not required to work for their employer but continue to be employed.

The Scheme opened on 20 April 2020 and will be backdated to 1 March 2020. The Scheme (as set out in this note) will be in place until the end of July 2020.  From August until October 2020 the Scheme will remain but changes will be made.  We do not yet have detail on what those changes will be however we expect that:

• From August 2020 the Scheme will have greater flexibility to help employees come back to work.  It appears that those already on furlough will be able to return to work part-time; and
• Employees on furlough will still receive the same level of financial support (i.e. 80% of pay or £2,500 less tax (whichever is lower))  but that employers will be expected to share the cost of the Scheme with the UK government.    

More detail on how the Scheme will change from August 2020 is expected by the end of May 2020.  

Current Scheme

Under the Scheme, employers can apply to HM Revenue & Customs (HMRC) for a grant to cover 80% of furloughed employees’ monthly wage costs up to a cap of GBP 2,500. The employer can choose to top up the amounts covered by the Scheme, but does not have to.

The government guidance on the Scheme (the Guidance) can be accessed here.

On 15 April The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction (the Direction) was also published by the Treasury which contains the legal basis for the Scheme.  Employers must follow the rules in the Direction and the Guidance when accessing the Scheme.

Other measures introduced to address the crisis include:

• Temporary changes to Statutory Sick Pay (SSP) so that it is payable from the first day of sickness absence (rather than the fourth) and to employees who are self-isolating as well as unwell. Small employers (with 250 or less staff) can reclaim up to 14 days’ SSP per employee.
• Temporary changes to the rules on carrying over untaken holiday so that, where at the end of a holiday year it was not reasonably practicable for a worker to take some or all of the leave to which they were entitled as a result of the effects of coronavirus (including on the worker, the employer or the wider economy or society), the worker may carry over up to four weeks’ untaken holiday, to be taken in the following two holiday years. If the worker’s employment terminates then they must be paid in any untaken holiday that has been carried forward.
• A new statutory right for most workers to take emergency volunteer leave (EVL) to act as an emergency volunteer in health or social care, to alleviate the pressure on these essential services as a result of COVID-19. EVL can be taken on 3 working days’ notice in two, three or four consecutive week blocks over a 16-week period and workers taking EVL have similar protections to those on family leaves. (This measure has not yet come into force.)
• A new Self-Employed Income Support Scheme, providing similar protection to the Scheme for self-employed individuals with trading profits of less than GBP 50,000 per annum.
• Access to a Business Interruption Loans Scheme to cover immediate payment needs and other cash flow support through the tax system.

The Scheme covers 80% of furloughed employees’ monthly wage costs up to a cap of GBP 2,500. The employer applies to HMRC for grants – it still makes the wage payments, and deducts and accounts for income tax and National Insurance contributions (NICs), as usual.

The Guidance provides that claims under the Scheme should begin from the date that the employee finished work and starts furlough, not from when the decision is made to place them or furlough or when their furlough status is confirmed in writing.

There are different calculation methods for claiming “wages costs” under the Scheme depending on whether the employee has regular hours or their pay varies.

2.1 Regular hours

For full-time and part-time employees with regular hours on a salary, the Guidance states that employers will receive a grant from HMRC to cover the lower of 80% of the employee’s salary as in their last pay period prior to 19 March 2020 or £2,500 per month (gross).

2.2 Variable pay

Where an employee’s pay varies, the employer can claim for 80% of the higher of:

• the same month’s earnings from the previous year; or
• their average monthly earnings from the 2019-2020 tax year (or, if the employee has been employed for less than a year, their average monthly earnings since they started work)

subject to the £2,500 per month cap.

2.3 What is included in pay?

Employers can claim for any “regular payments” they are legally obliged to pay their employees plus the associated employer’s NICs and minimum auto enrolment employer pension contributions.

This includes “wages, past overtime, fees and compulsory commission payments” but excludes “discretionary bonus (including tips) and commission payments and non-cash payments”.

The Guidance expressly states that the costs of benefits in kind are not claimable and “where the employer provides benefits to furloughed employees this should be in addition to the wages that must be paid under the terms of the Job Retention Scheme”. Employees may be able to waive their right to receive benefits (other than the minimum pension auto enrolment contributions) under the terms of a furlough agreement though.

2.4 Training time

If employees (including apprentices) are required to undertake any training for their employer while furloughed, they must be paid at the least the applicable National Living Wage/National Minimum Wage rate (and the employer must pick up any shortfall).

3.1 Which employers?

All employers are eligible to access the Scheme (private, voluntary sector and public), providing the furloughed employees were on the payroll  on19 March 2020 and the employees were notified to HMRC on a RTI (real time information) submission on or before 19 March 2020. However, there is an expectation that public sector employers will not take advantage of the Scheme, since many public sector organisations are providing essential services during the pandemic.

Administrators (appointed to insolvent businesses) can also access the Scheme if there is a reasonable likelihood of rehiring the workers which “could be as a result of an administration and pursuit of a business sale”.

3.2 Reason for accessing the Scheme?

The Direction says that the reason for furloughing staff must be  “by reason of circumstances as a result of coronavirus or coronavirus disease”. This would suggest that an employer does not need to prove that redundancies were otherwise being considered. However, there is still a requirement that employers act consistently with the purpose of the Scheme and do not abuse this. The Direction states, “No CJRS claim may be made in respect of an employee if it is abusive or is otherwise contrary to the exceptional purpose of CJRS.”

3.3 Which employees?

Provided they were on the employer’s payroll on or before the19 March 2020 (and notified on a RTI):

• Apprentices, part-time employees, temporary and casual workers, workers on zero hours contracts, fixed-term employees and foreign nationals;
• Directors, office holders and salaried partners of an LLP (this should be recorded formally as a decision of the company or LLP);
• Agency workers (via the agency);
• Employees of contractors with public sector engagements, where those employees would be deemed employees under the IR35 regime;
• Those made redundant or who “stopped working” after 28 February 2020 if they are re-employed even if the employer does not re-employ them until after March 2020;
• Employees on maternity/paternity/adoption/shared parental leave;
• Employees who are shielding, or who are caring for employees who are shielding; and
• Employees with caring responsibilities if they need to stay at home to look after their children.
• Employees on unpaid leave after 28 February are eligible to be furloughed. If an employee went on unpaid leave on or before 28 February, they cannot go onto furlough until the date on which it was agreed they would return from unpaid leave. Employees who have transferred into the business after 19 March 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.

Employers need to seek their employees’ agreement to be furloughed, and must write to their employees to confirm that they have been furloughed and keep a written record of this for 5 years in order to be eligible under the Scheme. The Direction provides that an employee only becomes a furloughed employee if they have been instructed by their employer to cease all work for their employer and the employer and employee agree this in writing. However, the agreement can be in the form of an e-mail.

The furlough agreement should as a minimum state that the employee cannot do work for the organisation while on furlough and set out how long they are being put on furlough for, what pay and benefits they will receive while furloughed, and whether they can work for another organisation during this period.

Where selection procedures are required in order to determine which employees should be furloughed, employers should be live to the same type of discrimination risks which might be relevant in a redundancy selection process. Another factor to consider is the rules around collective redundancy consultation if furlough cannot be agreed. This is a complex area of law and advice should be taken on this issue.

The Guidance confirms that an employee can be furloughed multiple times, provided each separate instance of furlough is for a minimum period of three consecutive weeks, so it is possible to rotate employees in and out of furlough. We understand this to mean that employers can swap individual employees and groups of employees in and out of furlough.

From a practical perspective, employers will apply for grants from the Scheme through an online portal which should be ready for the April payroll. Employers will be able to make one claim under the Scheme every three weeks. Employers should carry out the calculation submitting a single claim for a grant to cover the full sum. The information the employer will need to provide to make a claim is set out in the Guidance, and varies depending on whether an employer is furloughing 100 or fewer employees.

Employees cannot perform any work for their employer or any “linked or associated organisation” whilst furloughed, where that work involves providing services or generating revenue, although they can (and indeed are encouraged to) undertake volunteer work and training. The Scheme therefore does not cover short-time working.

An employer can agree to find a furloughed employee new work or volunteering opportunities whilst on furlough if this is in line with public health guidance. This is likely to be employer/industry specific.

An employee with two jobs can be furloughed by one employer and remain working for the other. A furloughed employee can also take up new employment with a different employer, provided it is “contractually allowed”. Presumably this means an employer which can insist on exclusive service may or may not choose to enforce that contractual right. That decision may turn on whether or not the employer is topping up the employee’s pay, and it may wish to impose restrictions for example on working for competitors. The new employer is responsible for notifying the government that the person is already furloughed.
The payments made to an employer under the Scheme are “made only for the purpose of CJRS” and “must be returned to HMRC immediately” if the employer is unwilling or unable to use the payment for the purposes of the Scheme.

No, the purpose of the Scheme is to try to avoid the need for redundancies, however employees who are furloughed can still be dismissed (although the usual protections continue to apply).