231: What 10 points do employers need to know about the Coronavirus Job Retention scheme?
The government has gradually been issuing guidance relating to the Coronavirus Job Retention Scheme; we have highlighted the top 10 points that employers should be aware of.
1. What organisations does the Coronavirus Job Retention Scheme (CJRS) apply to?
The CJRS applies to any business, charity, recruitment agency, public authority and individual with employees paid through PAYE (for example a nanny). The CJRS is designed to help employers retain employees that will be needed when they begin to rebuild their business after the government have advised the public to stay at home in light of COVID-19. The aim is to reduce redundancies and lay-offs.
It is not expected many public sector organisations will use the CJRS as many provide essential services contributing to the response to the COVID-19 outbreak. We note that where employers (both public and non-public) receive public funds for staff costs, they are expected to use these funds to pay staff and correspondingly not furlough them.
2. Which employees does the CJRS apply to?
The CJRS applies to employees that have been placed on furlough leave. Furlough generally means temporary leave of absence from work. Furlough leave will apply to employees that remain on their employer’s payroll but are temporarily not working because of COVID-19. The employees can be on any type of contract, including full-time, part-time, agency contracts and flexible or zero-hour contracts. The CJRS also covers agency workers (paid through PAYE), company directors, salaried members of LLPs and apprentices (who can continue to train whilst on furlough leave).
The government’s guidance gives employers the discretion to choose which employees to furlough, however that discretion is subject to equality and discrimination laws in the usual way. Some employees may ask their employers for furlough leave; employers can agree to furlough employees who aren’t at risk of redundancy but are required to stay at home in line with public health guidance (and are unable to work from home) or have caring responsibilities arising from the effects of COVID-19.
It is clear that furloughed employees must have been on their employer’s PAYE payroll on 28 February 2020. The scheme does not apply to employees that were hired after 28 February 2020.
3. What can you claim through CJRS?
The CJRS will provide a grant (not a loan) to employers. Employers will be able to use the CJRS online portal to claim for 80% of the furloughed employee’s usual monthly wage cost, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
To qualify for the payment, an employee must be furloughed for a minimum of three weeks. They can then come off furlough and then furloughed again multiple times. This means that employers could rotate staff between furlough and non-furlough as long as each period lasts at least three weeks.
Employers will be eligible for the grant from the date the employee ceases work and not from when the decision to furlough the employee is made.
Employees will still pay income tax, national insurance contributions, student loan repayments and any other deductions (such as pension contributions) from their wages.
4. How do you calculate what an employee can claim if their pay varies?
If the employee has been employed for a full twelve months prior to the claim, the employer can claim the higher of either the same month’s earnings from the previous year, or, the employee’s average monthly earnings from the 2019-2020 tax year.
If the employee has been employed for less than a year, the employer can claim for an average of their monthly earnings since they started employment.
If the employee started in February 2020, the employer should use the employee’s pro-rata earnings so far.
The grant paid to the employer will be calculated on an employees’ regular contractual pay including compulsory commission and past overtime. It will not include discretionary commission (including tips) payments or bonuses, non-cash payments or benefits in kind.
5. Do employers need an employee’s consent to place them on furlough leave?
If the employee’s contract of employment does not have a lay off clause, the employer would need to obtain the employee’s consent to place them on furlough leave. It is best practice to consult with the employees and obtain their written consent to be placed on furlough leave. Given that furlough leave should be used as a mechanism to avoid redundancies, employees may be more likely to agree to be placed on furlough leave when the alternative is redundancy.
The employer will still be liable to pay 100% of an employee’s salary if they do not have a lay off clause and the employee does not agree to receive 80% of their salary for the period that they are placed on furlough leave.
It is important that the employer writes to each employee confirming that they have been furloughed and that they keep a record of this communication for five years.
6. Can you re-engage an employee that you made redundant because of COVID-19 and place them on furlough leave?
Yes, if the employee was made redundant from 28 February 2020, an employer can re-employ them and then place them on furlough leave. We also understand that employees who left their employment voluntarily after 28 February 2020 and are then rehired by their old employer can also be placed on furlough leave.
7. What happens to furloughed workers’ holiday entitlement and can they take holiday during furlough leave?
This is not entirely clear. The government’s guidance states that ‘employees who have been furloughed have the same rights as they did previously’ which suggests furloughed workers will continue to accrue holiday.
Whilst we expect it will be possible for employees to take holiday whilst on furlough leave, we await clarification from the government. An employer may refuse requests for holiday during furlough if they would like to, but it may be beneficial for employers if their employees use their holiday allowance whilst furloughed and cannot work.
Whether employees can be required to take holiday by their employer during a period of furlough is also not yet clear. Employers can usually request employees take holiday by giving twice as much notice as the length of the required holiday (eg ten days’ notice for five days’ holiday), subject to the terms of the employment contract.
Employers should also bear in mind that whether holiday taken by a furloughed worker will count towards their furlough period (minimum length of three weeks) and the rate at which furloughed workers should be paid whilst on holiday (100% or 80% of their salary) has not been confirmed.
Furthermore, new legislation has provided for employees and workers to carry up to four weeks’ paid holiday over a two year period, if they were unable to take this holiday due to the effects of COVID-19.
8. Can the employee do any paid work for their employer when they are on furlough leave?
No, if the employee is working but on reduced hours or reduced pay, they will not be eligible for the CJRS and the employer would need to continue to pay them through payroll and subject to the terms of their employment contract. Employers are free to consider allocating any critical business tasks to staff that are not furloughed.
If an employee’s contract allows, a furloughed employee can obtain other work from a company that is not associated or linked to their original employer who has placed them on furlough leave. However, the employee must be able to return to their original employer once their furlough leave ends and be able to undertake any training their original employer requires.
9. Can employees complete training or volunteer work whilst they are on a period of furlough leave?
Yes, employees on furlough leave can complete training or volunteer work, as long as it does not provide services to or generate revenue for their employer.
Whilst completing training a furloughed worker must be paid at least the appropriate minimum wage for their time spent training, even if this is more than 80% of their wage that will be subsidised.
10. What information does an employer need to place an employee on furlough leave?
Once the CJRS online portal is up and running, the employer will need the following information:
- their 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 three weeks);
- the employer’s bank account number and sort code;
- the employer’s contact name; and
- the employer’s contact telephone number.
The government aim to have the online portal operating by the end of April 2020. Employers do not need to wait until then to place employees on furlough and can backdate their claims to 1 March 2020 in some circumstances.
If an employer requires short-term cash flow support in the meantime, they may be eligible for a Coronavirus Business Interruption Loan provided through commercial lenders backed by the government.
Lastly, employers should be aware that whilst the tests HMRC will apply in practice are as of yet unclear, HMRC have retained the right to retrospectively audit all aspects of employers’ CJRS claims with scope to claw back erroneous claims. Therefore it is important that employers keep a record of all decisions made in regards to furlough.