Coronavirus Job Retention Scheme – advice for employers and employees
One of the frustrations of the current crisis has been that announcements of government support packages are giving headlines, but it’s then taking some days for details to emerge as to how the schemes will operate in practice, and importantly, when businesses will be able to access the funds.
There remains some confusion over exactly how employers can access the Coronavirus Job Retention Scheme (CJRS), which is also being referred to as the ‘Furloughed Workers Scheme’.
The headline is that the government will reimburse employers to continue paying 80% of the salary for furloughed employees that would otherwise have been laid off or made redundant.
26th March 2020
Mark Neath See profile
This article covers the practical next steps based on the information which has been released to date. There are still gaps in the detail, so we’ll issue further updates in due course.
Frequently asked questions
Since the CJRS was announced last Friday, many of the same questions have kept coming up:
- Can workers be partially furloughed? (For example, reduced hours or working one week in three)
No, all the information released to date points to a furlough being ‘all or nothing’, i.e. it is effectively being laid off
- Can furloughed workers continue to do some work in the company?
No, as above, the information available to date suggests that workers who are furloughed should not undertake any work whatsoever for the company. The scheme is designed to protect workers who would otherwise be made redundant, if workers were able to still perform duties for the company, there would be scope for abuse of the scheme
- Will this cover the March payroll?
Yes and no. The grant will be backdated to 1 March, but HMRC are not yet set-up to be able to make the payments. Indications at the time of writing are that the first payments will be made toward the end of April, in which case businesses may face cash flow issues
- Can we just do this, or do employees need to consent?
Changing the status of employees remains subject to existing employment law and may be subject to negotiation
- We have already laid some people off, can we reinstate them?
It appears that employment at the end of February is the key date, and the aim of the CJRS is to reduce the numbers of workers made redundant. It may therefore be possible to reinstate and then furlough. Further guidance is awaited.
The CJRS incentivises companies to keep employees on the payroll rather than laying them off; the idea being that once business returns to normal, they can be re-activated which will be vital for recovery of the economy.
Indications are that to access the government support, businesses will need to classify employees as a ‘Furloughed Worker’. Whilst this term is well-known in America, it has not previously been a part of the UK business landscape. A ‘Furlough’ is in effect, a temporary lay-off, but it is, to all intents and purposes, equivalent to a lay-off, which means the Furloughed Workers shouldn’t undertake any work at all whilst laid-off, which would even extend to answering phone calls or responding to emails. Basically, they need to behave as if they no longer work for the business; except that they have the potential to come back and resume continuous service. This may be inconvenient to businesses, but is an understandable protection to counter abuse of the scheme. The government only wants to be funding the pay of people who would genuinely be made redundant, but for the CJRS.
Provided these conditions are met, employers can claim a grant of up to 80% of each employee’s wage for all employment costs, up to a cap of £2,500 per month.
The employee will remain ‘employed’ for the duration of the furlough, and the employer can choose to fund the difference between the government payment and their usual salary, i.e. the 20% shortfall, or the amount over £2,500, but this isn’t compulsory.
Employer National Insurance and Pension Contributions
All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.
You can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying those wages.
You can choose to provide top-up salary in addition to the grant. Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded through this scheme. Nor will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5 April and will be £520 per month from 6 April 2020 onwards).
Employees whose pay varies
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
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.
If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.
Businesses will submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. This portal does not yet exist but HMRC is said to be working on it urgently. HMRC are expected to publish in the near future further details on the information required.
The CJRS grant is a reimbursement by HMRC of the salary costs paid to furloughed workers, and it’s clear that HMRC is not yet able to process or issue these payments. There will therefore be initial cash flow issues in paying the furloughed individuals. In the short-term, it may be necessary to source bank funding or the Coronavirus Business Interruption Loan.
It’s been announced that the CJRS will initially run for three months from 1 March 2020 but may be extended if the coronavirus crisis continues beyond the end of May.
The scheme is available for workers who were in employment on 28 February 2020 and indications are that February payroll will form the basis of the calculation. Whether or not there’ll be some averaging calculation based on earlier months is not yet known.
CJRS and furlough doesn’t override employment law. All of the usual rules continue to apply, including the need for fairness, consultation and non-discrimination.
Employers will need to establish a business need for the furlough, although in the current crisis that should be relatively straightforward.
Employees need to be formally notified of their conversion to furlough status, and this confirmed in writing. We recommend taking legal advice from your business’ employment lawyers before placing anyone on furlough status.
For employees already notified that their role is considered ‘at risk’ or already given notice, employers should be discussing the CJRS option with them as part of any consultation process and agree to either carry on with the redundancy process, or agree to introduce the CJRS furlough as an alternative.
It may become necessary to move from furlough to redundancy, if it becomes clear that part of a business will be irrecoverable for example, or if the business in its entirety has to close. In this case, the furlough payments would cease from the CJRS. Again, legal advice will be critical at that stage.
It’s not been confirmed in the government guidance, but employment law commentators are suggesting that it’s likely that the CJRS will not interrupt an employees’ continuity of service, and annual leave will still continue to accrue while workers remain ‘employed’.
All UK businesses are stated as being eligible with no restrictions on size or number of employees.
Employees are eligible if they were employed in the business at the end of February 2020.
The CJRS does not apply to the self-employed.
When are employees entitled to Statutory Sick Pay (‘SSP’)?
- If an employee displays any of the coronavirus symptoms, government advice is that they should stay home and will be eligible for SSP for the whole 14 days they are self-isolating and not from the fourth day onwards, as is usually the case for SSP
- If an employee is in a vulnerable group, has returned from a high risk country, or been in contact with a confirmed case or person displaying symptoms, they should stay home or be sent home and will also be entitled to SSP
- If an employee is in the same household as someone who is displaying symptoms, they should stay home for 14 days and will be entitled to SSP
- If an employee chooses to self-isolate and does not fall into any of the above categories, the employer does not have to pay them as this is a personal decision made by the employee
- If an employee isn’t displaying symptoms, in a vulnerable group, or living with someone displaying symptoms but is told to go home or not come in, for example because the whole business is shutting temporarily, they are entitled to full pay unless the employer has a short time working/lay off clause in their contracts, as this is a business decision the employer is making
If you have any questions or would like to know more, please do get in touch.
'All UK businesses are stated as being eligible with no restrictions on size or number of employees.'