On 15 April The Coronavirus Job Retention Scheme had an important, more detailed update from the government. We have in recent weeks been doing many blogs and updates on the government’s Coronavirus Job Retention Scheme (CJRS). This was announced in some haste on 26 March 2020 and the first guidance was issued shortly thereafter. More guidance has followed in a piecemeal fashion but none of it has addressed all issues for employers and the guidance has often raised as many questions as it has answered. Employers (and employment lawyers) have been chasing their tails and employers have had to furlough workers based on the limited guidance published at the relevant time of furlough, but without the benefit of any legislation or definitive statement relating to the CJRS.
How the Coronavirus Job Retention Scheme will be managed by HMRC
We have now had further updates for employers and, taken together, these are more detailed than the previous guidance. In this regard:
- On 15 April 2020, the Treasury gave a direction to HMRC (Direction), setting out how HMRC is to be responsible for the management of the CJRS and the payments to be made under it. The Direction is currently due to run until 31 May 2020.
- As well as the Direction, the Government has issued some further guidance on its website (15 April Guidance).
It is important for employers to read the 15 April Guidance and Direction in full, However, we highlight some of the main points of the Direction (and where necessary the 15 April Guidance) below.
The Direction refers throughout to “employees”. However, the previous guidance issued confirmed that the CJRS also applied to workers who were paid through PAYE. The 15 April Guidance is still referring to such workers so the scope of who is covered by the CJRS does not appear to have changed.
The purpose of CJRS was previously stated as being to allow employers to retain employees (i.e. rather than make instant redundancies). The Direction makes no reference to a narrow purpose of the CJRS and states that its purpose is to simply:
provide for payments to be made to employers on a claim made in respect of them incurring costs of employment in respect of furloughed employees arising from the health, social and economic emergency in the United Kingdom resulting from Coronavirus and Coronavirus disease.
It doesn’t appear therefore that employers will need to show that, but for furlough, redundancies would have happened. The employer must simply have decided to furlough in response to the Coronavirus crisis.
A warning is issued about abusing the CJRS though and the Direction says:
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.
Eligible employees – 19 March now the cut-off date (terms and conditions apply….)
The previous guidance said that employees had to be on payroll by 28 February 2020. This meant that employees who had started work in early March were unable to be furloughed and some employers simply terminated the contracts of such workers.
In relation to this aspect, we refer to the 15 April Guidance rather than the Direction. We think the Direction is not worded with the greatest of clarity when compared to the 15 April Guidance.
The 15 April Guidance says that an employer can claim for furloughed employees that were:
- on the employer’s PAYE payroll on or before 19 March 2020; and
- notified to HMRC on an RTI submission on or before 19 March 2020.
The April 2015 Guidance also says that:
Employees that were employed as of 28 February 2020 and on payroll (i.e. notified to HMRC on an RTI submission on or before 28 February) and were made redundant or stopped working for the employer after that and prior to 19 March 2020, can also qualify for the scheme if the employer re-employs them and puts them on furlough.
As we say, the Direction could in our view have been worded with more clarity but it does refer to the new date of 19 March 2020 where it says:
The employer must have a pay as you earn (“PAYE”) scheme registered on HMRC’s real time information system for PAYE on 19 March 2020.
The above change was intended to address the unfair consequences of the previous guidance (relating to recent joiners). The Government had some logic for a cut-off date; we just think they chose a date too early (and now they agree with us!).
However, the requirement for the employee to be notified on an RTI submission is new, and potentially re-introduces an earlier cut off date. An RTI submission is made each time an employee is paid. Therefore for employees who are paid monthly, at the end of each month, an RTI submissions will be made at the end of the month. For employees recruited in early March 2020 an RTI submission won’t be made until the end of March 2020, so after 19 March 2020. Therefore employees recruited in early March, and who are paid monthly, still won’t be covered by the scheme. Indeed, the introduction of the requirement to have made an RTI submission potentially makes the situation worse. If an employer has a payroll cut off date of the middle of the month, an employee who commences employment in late February 2020 will not have potentially been paid for the first time until the end of March 2020. Such employees, on the wording of the Direction, will no longer be eligible for furlough, when previously they were.
The Direction says that only a very narrow range of duties can be carried out by a furloughed director and this is:
to fulfil a duty or other obligation arising by or under an Act of Parliament relating to the filing of company accounts or provision of other information relating to the administration of the director’s company
Other work done by an executive director will be “work” which is not allowed under the CJRS.
This is a subtle but potentially important change.
The Direction refers to who is a furloughed employee, and states that a furlough employee is an employee where:
- the employee has been instructed by the employer to cease all work in relation to their employment. This reference to “cease all work” is important (see below);
- the period for which the employee has ceased (or will have ceased) all work for the employer is 21 calendar days or more; and
- the instruction is given by reason of circumstances arising as a result of coronavirus or coronavirus disease.
This is not new. However, all of the previous guidance issued in relation to the CJRS said that, to be furloughed, employees had to be notified by the employer that they were being furloughed. There was no express requirement to get the employee’s agreement. This is repeated in the 15 April Guidance.
For many employers, getting agreement has already been necessary. The CJRS only guarantees up to 80% of the employee’s wage costs (up to the cap). Where employers were reducing an employee’s pay, the employer had to get agreement from the employee to avoid a breach of contract and potential wages claim.
However, where an employer was paying full pay (i.e. topping up), in many cases, agreement was not required under established employment law. This is because there is generally no legal right to work, just a legal right to be paid. A number of employers who are paying full pay have therefore not got agreement from all employees and have instead just notified as per the previous guidance (mirrored still in the 15 April Guidance).
However the Direction says that an employee will only have been instructed to cease all work if:
the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment.
The purpose of this will be to ensure there is evidence of furlough but the Treasury will not have realised that this subtle difference will have an impact on some of the employers who have furloughed on full pay.
Interestingly, the 15 April Guidance does not refer to the need to get agreement; it says that, to be eligible for the grant employers must confirm in writing to their employee they have been furloughed.
Given the uncertainty and what is said in the Direction, for employers topping up to full pay who have only notified, we are recommending they now going back to employees to get confirmatory agreement. This should be a formality but is a step worth doing.
Furloughing employees in receipt of SSP
We have said above that a furloughed employee is someone who has been instructed by the employer to cease all work and that the period for which the employee has ceased (or will have ceased) all work for the employer is 21 calendar days or more. Employers now need to exercise care in relation to employees who are in receipt of or entitled to claim Statutory Sick Pay (SSP).
The Direction says that where SSP is payable or liable to be payable in respect of an employee (whether or not a claim to SSP is made) at the time when the instruction to cease work is given, the 21-day period does not begin until this original claim or entitlement to SSP has ended.
The Direction appears to give clear guidance to employers and it states that, where an employee is off sick, and entitled to SSP, then the employer cannot start the furlough period until they have returned from sick leave (or at lease notionally because they won’t be returning to work probably). However, if this is the case, then this conflicts with the 15 April Guidance, which hasn’t then been updated to reflect this change. The 15 April Guidance still says:
If, however, employers want to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees. In these cases, the employee should no longer receive sick pay and would be classified as a furloughed employee.
The 15 April Guidance therefore suggests that if an employee is off sick, an employer can bring the period of sick leave to an end, and put the employee onto furlough instead. However under the wording of the Direction, this wouldn’t be allowed if the employee was still entitled to SSP (whether or not a claim for SSP was being made). This aspect really needs urgent clarity from the government.
The Direction goes on to address a furloughed employee who (after going on furlough) would be entitled to SSP. Fortunately, the Direction says that this subsequent entitlement to SSP must be disregarded (i.e. it does not end furlough or change the payments due).
Under the CJRS, an employer can claim for:
- 80% of your employees’ wages – up to a maximum of £2,500 per month.
- Employer National Insurance contributions that are paid on the subsidised furlough pay.
- Employer pension contributions that are paid on the subsidised furlough pay, up to the level of the minimum automatic enrolment employer contribution.
There has been uncertainty in relation to a number of areas including commission. The Direction now addresses this.
The Direction refers to an employee’s reference salary and this will be:
- For employees on a fixed salary, the reference salary is the amount payable to the employee in the salary period ending on or before 19 March 2020.
- For employees whose pay varies, the reference salary is the greater of:
a) the average monthly (or daily or other appropriate pro-rata) amount paid to the employee for the period comprising the tax year 2019-20 (or, if less, the period of employment) before the period of furlough began, and
b) the actual amount paid to the employee in the corresponding calendar period in the previous year.
The key point for employers who pay incentive based pay is set out in paragraphs 7.3 to 7.5 of the Direction. We set this out in full here (with our emphasis added):
7.3 In calculating the employee’s reference salary for the purposes of paragraphs 7.2 and 7.7, no account is to be taken of anything which is not regular salary or wages.
7.4 In paragraph 7.3 “regular” in relation to salary or wages means so much of the amount of the salary or wages as-
(a) cannot vary according to any of the relevant matters described in paragraph 7.5 except where the variation in the amount arises as described in paragraph 7.4(d),
(b) is not conditional on any matter,
(c) is not a benefit of any other kind, and
(d) arises from a legally enforceable agreement, understanding, scheme, transaction or series of transactions.
7.5 The relevant matters are-
(a) the performance of or any part of any business of the employer or any business of a person connected with the employer,
(b) the contribution made by the employee to the performance of, or any part of any business,
(c) the performance by the employee of any duties of the employment, and
(d) any similar considerations or otherwise payable at the discretion of the employer or any other person (such as a gratuity).
Paragraph 7.4(d) supports what was previously stated about variable commission being included as recoverable wages provided it is a contractual entitlement. However, we are not sure what the Treasury means by 7.4 (b) which could be interpreted very broadly. Employers may decide to include contractual commission in a claim and take it up with HMRC at that point if we still do not have 100% certainty.
We’ve all been waiting for the guidance on annual leave. We are still waiting we are afraid; neither the Direction nor the 15 April Guidance address this aspect at all. Next time maybe?
If you would like to discuss any of the issues discussed in this update please contact a member of the Employment team.
Our page “Coronavirus (COVID-19) – Legal advice and guidance” is continually being updated with advice and guidance as and when updates come in from Government or other regulatory bodies.