David Reade KC and Daniel Northall Write: An Update on the Cornavirus Job Rentention Scheme

26th March 2020

Government has now published further guidance on the application of its Coronavirus Job Retention Scheme which can be found at the following link: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

This note provides a short update on the important practical points arising out of the guidance whilst providing an update on our summary published earlier on 26 March 2020.

Who can be furloughed?

An employer can claim under the scheme in respect of the following employees:

full-time employees
part-time employees
employees on agency contracts
employees on flexible or zero-hour contracts.

However, the employees must have been on the employer’s PAYE?payroll on 28 February 2020.
If you have made one of these employees redundant since 28thFebruary then they may be rehired in order that they can be placed on furlough.
Otherwise any new hires since 28th February 2020 cannot be placed on furlough.
Neither can employees who were already on unpaid leave on 28th February 2020.
Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this.
Employees who are shielding in line with public health guidance can be placed on furlough.

The Restriction on Work

	8.	The guidance makes clear that the furloughed worker must not undertake work on behalf of the organisation. This appears to embrace working for another associated entity of the employer. This is said to include providing services or generating income. One cannot use the scheme if employees are still working for reduced pay or on reduced hours. Employees who are on agency contracts must not be working.
	9.	The tax position is clarified in that the employee is subject to tax and other usual deductions. It follows that the employer will be liable to employer’s NI, but see below.
	10.	As anticipated the guidance makes clear that necessary changes to the employment contract to go on furlough, i.e. an agreement not to work and receive 80% of pay, have to be agreed with the employee.
	11.	As noted previously the employer has a discretion as to which employees to place on furlough but that discretion is subject to the need to have regard to equality and discrimination law.
	12.	Employees when furloughed can undertake voluntary work or training as long as it does not provide services or generate revenue for the employer. If the employer requires the employee to carry out online training it appears that the national minimum wage must be paid for the time they are so engaged.
	13.	As to the NMW generally it is made clear that those on furlough are not working and thus it does not apply, unless as noted they are required to undertake online training.

Maternity and Statutory Maternity Pay

14.

These payments appear to apply as normal, but if the employer offers enhanced earnings-related contractual pay for maternity leave this can be claimed as a furloughed wage cost. The same proposition applies for contractual adoption, paternity or shared paternity pay.

Procedural requirements

15.

The application portal is not yet ready and its precise form remains to be seen. However, the latest guidance gives a helpful indication of the list of information an employer will need to make an application:

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

	16.	An employer will also need to calculate the amount it is claiming. It is obviously sensible for an employer to start to draw together all of this information now so that an application can be made as soon as the portal launches.
	17.	One further important procedural requirement seems to have been introduced by the new guidance. It states that:To be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of this communication.
	18.	Subject to the publication of more detailed rules, all employers should ensure they follow this basic requirement.

What the Employer Receives

	15.	The Government guidance describes what the employer receives in the following terms:“You will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included.”
	16.	So it appears that the employer receives wage costs such as NI on top of the £2,500 or 80%. The employer then has to pay the 80% or £2,500 per month to the employee, so they get the whole of this subject to tax and their NI.
	17.	That does not extend to any payment the employer chooses to make to top up the 80% to 100% or any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income. The employer has to pay the NI on the top up and pay the additional pension contributions.
	18.	Note that the salary on which the 80% is calculated is the employee’s salary as at 28thFebruary 2020 and does not including commission and bonuses.

Variable Pay

	19.	Variable pay is addressed, but not using the 13 weeks reference period contained in ERA, instead a wider basis of assessing average pay is used.
	20.	If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, 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
	21.	If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
	22.	If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.

Collective Consultation

	23.	As set out in our previous note this may be engaged. The guidance says this:“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.”
	16.	So it appears that the employer receives wage costs such as NI on top of the £2,500 or 80%. The employer then has to pay the 80% or £2,500 per month to the employee, so they get the whole of this subject to tax and their NI.
	17.	That does not extend to any payment the employer chooses to make to top up the 80% to 100% or any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income. The employer has to pay the NI on the top up and pay the additional pension contributions.
	18.	Note that the salary on which the 80% is calculated is the employee’s salary as at 28th February 2020 and does not including commission and bonuses.

Variable Pay

	19.	Variable pay is addressed, but not using the 13 weeks reference period contained in ERA, instead a wider basis of assessing average pay is used.
	20.	If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, 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
	21	If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
	22	If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.

Collective Consultation

23.

As set out in our previous note this may be engaged. The guidance says this:“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.”

Moving In an out of Furlough

24.

The guidance says that only one claim can be submitted ever 3 weeks which is said to be the minimum length an employee could be furloughed for. It follows that you can take staff in and out of furlough on a 3-week cycle, or a longer cycle, if you wanted to spread the burden of actual work.

Employee Rights on Furlough

	25.	As anticipated employees during the period of furlough retain their employment status. At the conclusion of the furlough it is made clear that the employees have the same rights as they did previously, including Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.
	26.	Again, it must follow that they have continued to accrue holiday entitlement.