The government has now issued some updated guidance on the furlough scheme, and have provided answers to some, but not all, of the questions that employers were struggling with – “Claim for your employees’ wages through the Coronavirus Job Retention Scheme – updated 5 April 2020“.
Answers to further questions for employers
This blog examines some of the questions which have now been answered. It does not examine those issues which were already clear from previous government announcements and so this blog should be read in conjunction with our earlier blogs on the furlough scheme. – “The Coronavirus Job Retention Scheme and the furloughed worker” and “Frequently asked questions – The Coronavirus Job Retention Scheme”. As a quick recap, the furlough scheme supports businesses whose operations have been severely affected by Coronavirus (COVID-19), by providing 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.
The Scheme is a temporary scheme in place for 3 months starting from 1 March 2020, but the government have said that it may be extended if necessary.
Who can be furloughed?
The updated guidance has provided some useful clarity on who can be furloughed. Importantly, its clarified that the following individuals can be furloughed:
Apprentices. It was unclear whether apprentices, particularly traditional apprentices, could be furloughed, but the guidance has now made clear that apprentices can be furloughed.
Previous guidance had stated that individuals can continue to receive training whilst on furlough, and so the updated guidance has made clear that apprentices can continue to receive training even if on furlough. However, they must be paid at least the apprenticeship national minimum wage whilst receiving training.
It is assumed that this means the formal training element of the apprenticeship with a training provider, rather than on-the-job training, as to allow an apprentice to continue with on-the-job training whilst claiming under the furlough scheme would effectively allow them to continue working as normal.
Employees with caring responsibilities. There was some doubt whether you could furlough those who couldn’t work because they had caring responsibilities, for example because they had young children. This was because the original guidance said that the scheme was an alternative to redundancy or lay off. The question then arose as to whether you could furlough an employee who was not working not because they would have otherwise been made redundant but because they are at home looking after, for example, young children. The updated guidance now makes clear that you can furlough employees who are unable to work because they have caring responsibilities resulting from Coronavirus (COVID-19).
Fixed term contracts. Whilst we thought this was the case, the updated guidance also makes it clear that you can furlough employees who are employed pursuant to a fixed term contract. The question then arose as to what you could do if that fixed term contract comes to an end, and whether to support the employee you could extend the fixed term contract and continue to claim under the scheme. The guidance now makes it clear that a fixed term contract can be renewed or extended during the furlough period without breaking the terms of the scheme.
Workers. There has been confusion as to whether those who weren’t employees, and in particular workers, were covered by the scheme. If they were not, then potentially they would be left without support, as they would neither qualify for the furlough scheme or for the scheme which provides support to the self-employed. The updated guidance makes it clear that workers, who are paid through PAYE, can be furloughed and receive support through this scheme. This will come as welcome news to casual workers, and workers engaged on zero-hour contracts.
Self-employed workers not paid through PAYE, however, are expressly not covered.
Agency Workers. Again, the updated guidance makes it clear that agency workers are covered by the scheme if they are paid through PAYE. This can include agency workers who are engaged through umbrella companies. It is then for the agency, or the umbrella company, as the case may be to furlough the worker. Where an employee is furloughed they cannot do work for their employer, which means in the case of an agency worker that they cannot do work for any of the agency’s clients.
Company directors. The updated guidance makes clear that company directors can be furloughed. The question then arose as to whether they could continue to work, if that work was fulfilling their statutory duties as director. The updated guidance provides some clarity in this regard, and states that where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company. Read our separate more detailed blog : “Coronavirus – Job Retention Scheme – Can directors be furloughed?”
Salaried LLP members. Similar to the position with directors, the update guidance makes it clear that members of LLPs who are designated as employees for tax purposes (‘salaried members’) are eligible to be furloughed and receive support through this scheme.
What about employees on maternity, adoption, paternity and shared parental leave?
Employees on, for example, maternity leave can be placed on furlough leave, and this won’t bring their period of maternity leave to an end. The employer can then claim back 80% of any enhanced contractual maternity leave through the furlough scheme.
However, if an employee is only receiving statutory maternity pay, or has exhausted their company enhanced maternity pay, then to able to recover and pay to the individual concerned 80% of their normal salary it would seem that it would be necessary for the individual concerned to bring their maternity period to an end.
Once the maternity period has been brought to an end they can be treated like any other employee, and can be put on furlough leave. Normally 8 weeks’ notice is required from an employee to return early from maternity leave, but this could be waived by the employer.
What if the employee worked regular overtime?
It was unclear, if an employee worked regular overtime, whether you could pay an employee a sum in respect of the overtime he would have worked whilst furloughed, and then claim this back under the scheme. Unfortunately the updated guidance is unclear on this point.
The updated guidance says:
“You can claim for any regular payments you are obliged to pay your employees. This includes wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments should be excluded.”
It is unclear what is meant by the reference to ‘past overtime’. Arguably, it could be limited to being able to claim under the scheme for overtime already worked. However, if this is what is meant by past overtime then this is wages already earned, and so should be paid in full and not limited to 80%.
If an employee works regular overtime, then to only pay 80% of their base wage could result in a significant drop in income for the employee, and much more than 20%. Therefore, the reference to past overtime could mean that you can claim under the scheme for an average of the overtime worked by the employee, so that you can recover 80% of the average earnings of the employee concerned. Whilst the guide is unclear on this point, this latter interpretation would appear to accord better with the underlying purpose, and principle, of the scheme.
What specifically has changed in connection with compulsory commission payments?
As we say above, compulsory commission payments can be claimed for a furloughed worker. On the face of it, this will be welcome news for industries where a modest basic salary is paid and the bulk of a worker’s income is paid in commission. Car sales people are a good example of this.
The guidance does not expressly say that a person paid a basic salary and compulsory commission comes under the definition of an employee whose pay varies but we think this must be the intention of the scheme (and would be fair application of the scheme in our view). This is supported by the employee guidance which says:
“The grant paid to your employer will be calculated based on your regular, contractual pay, such as wages, compulsory commission and past overtime. The calculation will not include discretionary commission (including tips) payments or bonuses, non-cash payments or benefits in kind”.
It is important to note, however, that the commission has to be compulsory, which will mean that the employee has a contractual right to the payment. Purely discretionary schemes are not covered.
Unfortunately, this point (like the overtime point above) remains one where some more guidance (or preferably legislation) would be very welcome.
What about benefits in kind?
Some confusion was caused by the original announcement for employees which said that the employer could apply for the grant in respect of all employment costs. However, the updated guidance has now made it clear that you cannot include within a claim the cost of non-monetary benefits provided to employees, including taxable benefits in kind.
The updated guidance has also provided clarity in respect of salary sacrifice benefits, and has confirmed that benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included in the reference salary.
What about the tax treatment of the grant?
The updated guidance makes it clear that payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.
Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.
Can a furloughed employee take a second job?
This has been a question asked by a number of employers. The latest employee guidance has confirmed that, provided the employment contract permits it, the employee may undertake other employment whilst on furlough. We assume an employer could consent to this in the normal way as well (although this is not stated in the guide). This means a furloughed worker could get furlough pay from his normal employer and 100% of pay from the new, temporary, employer.
What questions remain unanswered?
The updated guidance is useful, and answers some, but not all, of the questions that employers were struggling with.
One of the main questions which remain unanswered is the impact of furlough leave on holidays. Can an employee take holiday whilst on furlough leave? This may be attractive to employees, particularly if it then means that they can top up their pay to 100%. However, if they can take holiday does this bring the furlough period to an end?
Also, can an employer require an employee to take holiday whilst on furlough leave? These questions are particularly relevant with Easter approaching, as what happens to holiday leave which employees have booked over Easter? Also, what happens to the bank holidays over Easter?
Hopefully further clarity will be provided on these, and other issues, shortly.
If you have any queries with regard to this blog then please contact any member of the employment team.
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