Coronavirus Job Retention Scheme and furloughed workers

Update 12 June 2020:

The government has now updated its written guidance on the CJRS as anticipated.

As outlined below in our previous updates, the government’s latest written guidance confirms that employees must have been furloughed for at least three weeks prior to 30 June 2020 in order to be eligible for furlough from 1 July 2020. Consequently, if an employee has not previously been furloughed on or before 10 June 2020, they will not now be eligible under the CJRS.

Importantly, the government has agreed to Maternity Action’s request for parents on maternity leave (and other similar types of leave) to be exempted from the new CJRS cut-off date of 10 June 2020 (see here for further details).

In a letter sent to the Chancellor, Maternity Action stated that it had received calls from women on maternity leave whose workplaces are closed. The callers were concerned that because their leave would end after the furlough scheme cut-off, their employers would not be able to furlough them and would instead make them redundant.

This decision by the government means that anyone returning from maternity, adoption, paternity, shared parental or parental bereavement leave will still be eligible under the CJRS even if they had not previously been furloughed by 10 June 2020, provided that the employer has used the CJRS for other eligible employees by that date and as long as the employee was on the employer’s payroll prior to 19 March 2020.

Employees that are flexibly furloughed from 1 July 2020 are entitled to their contractually agreed rate for any hours they work, unless another figure has been agreed in their furlough agreement. Employers cannot claim for employees’ wages for any time they spend working, or any National Insurance or pension contributions in relation to such wages.

However, a claim can be made under the CJRS by the employer in respect of any normal hours of work during which the employee does not work during the claim period. The government has provided a worked example showing how to calculate the amount you should claim for an employee who is flexibly furloughed. In addition, the government has provided a calculator tool to assist in calculating claim amounts.

If you intend to flexibly furlough employees, you will need to agree this with them and keep a new written agreement (or amend the employees’ existing furlough agreements) that confirms the new flexible furlough arrangement. You will need to:

• ensure that the agreement is consistent with employment, equality and discrimination laws;
• keep a written record of the agreement for five years; and
• keep records of how many hours your employees work and the number of hours they are furloughed (i.e. not working).

The government’s latest guidance confirms that, where any of the furlough hours are taken as paid holiday or annual leave, the employer will need to top up the pay for these hours to the employee’s full contracted rate (i.e. pay 100% of the employee’s wages in respect of such hours).

In accordance with standard tax obligations, employers must keep a copy of all records relating to furloughed employees, including:

• the amount claimed and claim period for each employee;
• the claim reference number;
• the basis for calculation of the claim for usual hours worked, including any calculations made for employees who have been flexibly furloughed (this is in case HMRC require more information about your claim in the future);
• usual and actual hours worked for employees that have been flexibly furloughed.

Update 29 May 2020:

On 29 May 2020, the Chancellor announced how the CJRS will operate over the coming months and eventually terminate. It is expected that further guidance relating to the final stages of the CJRS will be released on or before 12 June, and once such guidance is published we will be sure to update this blog post accordingly.

Most notably, the CJRS will close to new members on 30 June 2020. After this date, employers will only be able to furlough employees who have already been furloughed for the minimum period of three weeks (note that the Treasury directions clarify that three weeks means 21 calendar days – please see paragraph 6.1(b)). Therefore, the last date on which employers can furlough employees for the first time is on 10 June 2020. It appears likely that an employee furloughed for the first time on or before 10 June 2020 could return to work and then be furloughed again after 30 June 2020 – however, the government has not specifically confirmed this.

As part of the announcement, the Chancellor confirmed that the CJRS will close permanently on 31 October 2020.

Flexible furlough

As expected, the CJRS will permit flexible furlough. From 1 July 2020, employers may agree any working pattern with previously furloughed employees so as to enable such employees to return to work on a part-time basis in accordance with the revised scheme that will operate until 31 October 2020. The employer must pay employees in full for hours worked, but furlough pay will be available via the CJRS for normal hours not worked, subject to the relevant caps.

As above, full guidance on flexible furloughing from 1 July 2020 is expected on or before 12 June 2020, however the CJRS Factsheet (published 29 May 2020) suggests that the following will apply under the revised scheme (i.e. from 1 July 2020):

• It appears that there will not be any limit or restrictions on the working arrangements of furloughed employees, although this needs to be confirmed;
• It appears that under the revised scheme it will be necessary that the newly agreed flexible furloughing arrangement is confirmed in writing;
• There will be no minimum furlough period. However, any furlough arrangement agreed between the employer and employee reported in a claim to HMRC must still cover a period of at least a week;
• Employers will need to report both hours worked and the usual hours an employee would be expected to work in a claim period. Employers should ensure that they can provide evidence if required of usual hours – this will be particularly important where hours typically vary; and
• The number of employees an employer can claim for in any claim period cannot exceed the maximum number they have claimed for under any previous claim. This could be relevant where the employer has been operating rotating furlough arrangements under the current/existing scheme. This appears to mean that, from 1 July, the employer will not be able to flexibly furlough all of its employees and have them return on a part-time basis; it will only be able to continue to furlough the maximum number it has furloughed previously.

Changes to government/employer contributions to furlough pay

For the duration of the CJRS, furloughed employees will be entitled to 80% pay for normal hours not worked, subject to a monthly cap of £2,500. However, the government contribution to furlough pay will gradually taper as follows:

• From 1 August 2020, the government will pay 80% of wages up to £2,500 a month. Employers must pay National Insurance contributions (NICs) and employer pension contributions (this amounts to around 5% of the total cost of furloughed employees).
• From 1 September 2020, the government will pay 70% of wages up to £2,187.50 a month. To make up the 80% total (subject to the £2,500 cap), employers must pay 10% of wages plus employer NICs and employer pension contributions.
• From 1 October 2020, the government will pay 60% of wages up to £1,875 a month. To make up the 80% total (subject to the £2,500 cap), employers must pay 20% of wages plus employer NICs and employer pension contributions.

Update to “claim period”

From 1 July 2020, claim periods will no longer be able to overlap months and employers who previously submitted claims with periods overlapping calendar months will no longer be able to do so going forward. This is necessary in order to reflect the forthcoming changes to the scheme. In addition, there will be a minimum claim period of a week (as opposed to three weeks under the current/existing scheme).

Will fresh furlough agreements need to be entered into with employees if their period of furlough extends beyond 30 June 2020?

Given that, since the CJRS commenced, employees have been prohibited from working for their employer while on furlough, a properly drafted furlough agreement will currently prohibit employees from carrying out any work for the employer during the furlough period. It may therefore be necessary for the furlough agreement to be amended by a side letter, or for a fresh furlough agreement to be entered into, which permits the employee to work during furlough and deals with the circumstances in which the employer can require the employee to work.

Once the full details of how the CJRS will operate from 1 July 2020 are known, employers will be able to fully assess what action should be taken. However, employers should ensure that the employee’s consent to any variation of their furlough agreement is obtained in advance of the changes taking effect to ensure that there has been a valid variation of contract. In addition, the new rules may set specific requirements in terms of accessing the CJRS where an employee is working part-time and these will also need to be complied with in implementing any contractual changes.

Update 14 May 2020:

On 14 May 2020, HMRC updated four of its guidance documents relating to the CJRS, which can be accessed using the links below:

• HMRC’s guidance on how to calculate 80% of your employees’ wages to claim through the CJRS;
• HMRC’s employers’ CJRS guidance;
• HMRC’s employees’ CJRS guidance; and
• HMRC’s CJRS claim guide.

On the same date, HMRC also published two new guides, which incorporate information previously included in HMRC’s “80% guidance” and “employers’ CJRS guidance” (links to which are provided above). The newly introduced guides can be accessed using the links below:

• HMRC’s new 80% examples guide; and
• HMRC’s new guide on which employees can be furloughed.

Acas has also further updated its Covid-19 guidance for employers and employees.

Below are some of the main points to note from HMRC’s updated guidance:

• HMRC’s guidance, “Work out 80% of your employees’ wages to claim through the Coronavirus Job Retention Scheme” has been updated in a number of respects, including (but not limited to):
  • “Non-discretionary payments for hours worked, including overtime” has been added to the list of what to include in regular salary or wages. Note that non-discretionary overtime was previously listed separately. This new guidance is unlikely to be that helpful for employers, with clarification still required on what constitutes “regular salary or wages”.
  • There are new sections on “non-discretionary payments” and “non-discretionary overtime payments”.
  • The “After you’ve claimed” section has been deleted and moved to the “Service start page”.
• HMRC’s employers’ CJRS guidance has been updated to reflect the fact that the CJRS will continue in its current form until the end of July 2020. Note that on 12 May 2020, the Chancellor announced that the CJRS will be extended by four months to the end of October 2020 across all regions and sectors in the UK. Under the new guidance, employers are advised that, from August to the end of October 2020, they will be asked to pay a percentage towards the salaries of their furloughed staff. The employer payments will substitute, at least in part, the contributions currently being made by the government, ensuring that those on furlough continue to receive 80% of their salary or wages (subject to the £2,500 a month cap). HMRC advises that more information will be made available by the end of May.
• Within HMRC’s employers’ CJRS guidance, the wording on volunteering has been amended to make it clearer that employees can only volunteer for another employer or organisation (in other words, not for their own employer).
• HMRC’s employees’ CJRS guidance has also been updated to reflect the fact that the CJRS will continue in its current form until the end of July 2020. It adopts the same wording included in the employers’ CJRS guidance regarding the modifications to the CJRS from the beginning of August to the end of October 2020.
• HMRC’s CJRS claim guide has been updated to:
  • Specify that records must be kept for at least six years.
  • Clarify where employers can search for employees’ National Insurance numbers.
  • Add wording to the “After you’ve claimed” section.
• Significant amendments have been made to Acas’ guidance, some key points for employers are as follows:
  • Advice on staying at home has changed from “except in specific situations” to an instruction to stay at home “wherever possible and limit contact with other people”.
  • Acas advises that what can and cannot be done depends on whether an individual is in England, Scotland or Wales. This appears to be an acknowledgement of the increasing divergence in approaches between England and the devolved administrations (and also Northern Ireland, although Acas does not cover Northern Ireland).
  • There are new sections “If the workplace is open” (including a sub-section on which workplaces can open) and “If the workplace is closed” (including a sub-section on “Keeping in touch”). The first of these sections includes more information on an employer’s health and safety obligations and follows the publication, on 11 May 2020, of the government’s recovery strategy and guidance on working safely during the Covid-19 pandemic. Employers are advised that they must “encourage staff to work from home, wherever possible”. If working from home is not possible, the guidance suggests that staff might be furloughed, use paid holiday or use other paid or unpaid leave. The new sub-section “Keeping in touch” sets out various practical measures employers should take to support employees’ health and wellbeing.
  • The section “Planning to return to the workplace” has been moved and is now called “Planning to return to work”. Among other changes, employers are now advised that they “should” rather than “must”, consult with staff about returning to work (asking for, and considering, their views to try and reach an agreement), including with trade union representatives, employee representatives and health and safety representatives.
  • There are new sections “Making the workplace safe”, “Discussing plans with staff” (including a sub-section “If staff are worried” and “If someone does not want to return”. The first of these sections largely repeats information included in an earlier section of the guidance regarding workplaces that are open. The other sections set out a number of practical suggestions for employers and cover a number of possible scenarios that employers may face. However, they do not provide detailed guidance and may be of limited assistance to employers in practice.
  • There are new sections “Extending furlough” and “Ending furlough”. Employers are advised that they “should regularly review furlough agreements to decide when to bring furloughed staff back to work”. They are also advised that, to end furlough, they should give staff notice in writing. While the guidance states that there is no minimum noticed period for ending furlough, it suggests that employers should “talk to staff about any plans to end furlough as early as possible” and “encourage staff to raise any concerns or problems about returning to work”. Employers are able to download new template letters for extending and ending furlough from the Acas website.
• HMRC’s new guidance on which employees can be furloughed addresses considerations relevant to a number of different groups of individuals, including employees whose health has been affected by Covid-19, employees on leave (including those on family-related leave or who are self-isolating) and individuals who are not employees. Under the heading “After you’ve checked which employees you can claim for”, the guidance advises that furlough arrangements should be agreed with employees before a claim is initiated by an employer.

The further updates and new guidance documents are just the latest in a series of changes to the guidance published by HMRC and Acas. The creation of further new guidance documents is rather unwelcome, given that it makes it increasingly difficult for employers, and employees, to locate the information and advice that they may need (which is dispersed across various different guideline documents).

Update 16 April 2020:

HM Treasury has now published full rules pertaining to the Coronavirus Job Retention Scheme in the form of a Direction to HMRC. You can access the full version here.

The Direction includes some very important changes and clarifications, most notably:

• The qualifying date for employees to be on payroll has changed from 28 February 2020 to 19 March 2020. The payroll scheme must have been registered on HMRC’s real time information system for PAYE on 19 March 2020 (see paragraphs 3.2 and 5(a) of the Direction).
• Access to the scheme is not limited to cases where the employee would otherwise have been made redundant. Paragraph 6.1(c) of the Direction confirms that the scheme applies if the furlough is “by reason of circumstances arising as a result of coronavirus”.
• Paragraph 2.5 of the Direction states that “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”. However, it remains unclear as to how this will be interpreted.
• As stated below in this blog post, it is necessary for the employer and employee to have agreed that the employee be placed on furlough. Previous guidance suggested that an employee need only be notified, and agreement was required only if there was a contractual change, such as a reduction in the employee’s salary during the furlough period. In practice, most employers will have negotiated, agreed and implemented a reduction in salary with those employees being placed on furlough and so will be covered but if your employees have only been notified and have not agreed in writing (the agreement can be in electronic form and as such an email will suffice) then you should immediately seek their agreement. Paragraph 6.7 of the Direction suggests that funds may only be claimable with respect to the time after which the employee has provided his/her agreement.
• Paragraph 6.6 of the Direction provides that a director who has been furloughed can only undertake extremely limited duties, for example relating to the filing of company accounts or the provision of other information relating to the administration of the director’s company.
• Paragraph 7.4 of the Direction sets out the meaning of “regular” salary/wages and paragraph 7.4(a) confirms that such expression does not include any payment which is “conditional on any matter”. It might be argued, therefore, that this would exclude any payment conditional on receipt of funds by the employer, such as actually receiving payment from HMRC. However, this does not seem to be the intention of the paragraph, which is focused instead on issues such as commission, tips/gratuities, bonuses etc. Again, time will tell how HMRC interprets this paragraph of the Direction.
• However, paragraph 8.1(a) of the Direction states that the employer can claim for earnings which it “reasonably expects to be paid” to the employee. This is primarily intended to cover claims made shortly before payroll is run, but it could also include deferred earnings, i.e. which will be definitely paid but are deferred until the scheme pays out (provided they are not conditional on the scheme paying out. This is quite a fine distinction and may depend on the exact wording of any agreement and how it is interpreted by HMRC.

Introduction to the Coronavirus Job Retention Scheme

Chancellor of the Exchequer Rishi Sunak has announced a new package to help employers retain staff during the Coronavirus pandemic, such as the new Coronavirus Job Retention Scheme (“CJRS”), under which government grants (as opposed to loans) will be used to help employers cover 80% of the salary of PAYE employees who would otherwise have been laid off as a result of the downturn created by the ongoing Coronavirus crisis.

The CJRS is open to all UK businesses that have employees and pays them via a PAYE scheme and will enable such employers to cover the cost of wages backdated to 1 March 2020. HMRC have indicated that they are working urgently to set up a system for reimbursement and is expecting to have this done before the end of April 2020. The CJRS will initially be open for three months, but will be extended if necessary, and can be used to claim back salaries of employees who were in employment on 19 March 2020.

For notifying employees of their ‘furloughed status’ (as detailed below) we have developed a useful template furlough notification letter that can easily be adapted by any employer and is available for download free of charge from our shop (together with detailed guidance notes).

What employers will need to do in order to claim under the CJRS

Employers will need to do the following:

• designate affected employees as ‘furloughed workers’, and notify employees of this change. Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation. This is a reminder to employers that, where the employee is on a fixed salary, it will not simply be a case of the employer informing them that they are now furloughed and are only entitled to 80% of their salary. Employers will need to either top up the salary, or negotiate a reduction (presumably based on the threat of redundancy if the employee refuses);
• submit information to HMRC via the new online portal (once this is live) about the employees that have been furloughed and their earnings. HMRC will set out further details on the information required in due course; and
• HMRC will reimburse 80% of each furloughed employees’ wage costs, up to a cap of £2,500 per employee, per month. The Chancellor’s announcement does not say how the CJRS will deal with employees whose earnings fluctuate. It is possible that there will be some system of calculating an average based on past earnings. There is also no mention of what will happen in respect of employees who have no guaranteed earnings (such as casual or zero-hours employees) or those whose contracts already contain an express right for the employer to lay them off without pay during a downturn.

Demystifying employee furloughs

The term “furloughed” is not commonly used in the UK, and no express definition has been set out in the Chancellor’s announcement or in the government guidance on support for businesses.

Put simply, an employee furlough is when an employer requires its staff to take unpaid leaves of absence. In other words, they won’t work, they won’t get paid, but they’ll still technically be employed even though they have been furloughed and therefore will/must remain on the company’s payroll as opposed to being made redundant. It is not yet clear whether anything can (or will) be done in respect of employees who have already been dismissed as redundant or given notice of redundancy.

It is important to note that these are different from layoffs. Furloughs are meant to be temporary — employees are expected to return to work full-time when the organisation is ready — whereas layoffs are permanent. The concept of furlough seems similar to “lay off”, in that the individual remains an employee but is provided with no work. However, the key difference is this: “lay off” in section 147 of the Employment Rights Act 1996 refers to a situation where the employer provides no work and, due to the nature of the employee’s contract, the employee is not entitled to any wages. “Furlough” is being used in this context to describe a situation where the employee is provided with no work but will nevertheless receive some or all of their pay.

The CJRS will apply to individuals who have been designated by their employers as “furloughed employees”, and who have been notified of this by their employer. It is key therefore that the employer makes any employee that is to become a furloughed employee aware of this. It is advisable that the employer prepares notification letters to give to the employees that will be designated as furloughed.

The term “furloughed” means that the employee is still employed but will not do any work at all for the company during the entirety of the period which they are placed on furlough leave. On this point, the government’s employee guide states as follows: “To qualify for this scheme, you should not undertake work for them while you are furloughed”. Consequently, employees who have had their hours reduced but who are still working will not be eligible under the CJRS.

For the avoidance of doubt, the CJRS does not apply to self-employed individuals or contractors, although the position regarding agency workers remains unclear and needs clarification.

There is also ambiguity regarding the status of people who are sick or self-isolating, and whether employers can designate them as furloughed so as to enable such employees to receive more than statutory sick pay (which is currently £94.25 per week), or to cover the cost of company sick pay.

How do employee furloughs work?

When facing tough financial times, as many businesses will be as a result of the Coronavirus pandemic, employers will need to identify which jobs can temporarily be terminated by placing such employees on furlough leave and determine when the period of furlough leave will commence and finish.

Sometimes furlough leave is for a set period and the employee will know when they are expected to return to their normal work schedule. Other times the duration of leave is open-ended, which will be most likely under the circumstances that employers currently find themselves in given the level of uncertainty as to how long UK’s lockdown will last and how circumstances will change.

The main purpose of furloughs is for businesses to be able to save money by reducing staff and labour costs. This means they could put employees off work “until further notice”, or they could cut back expenditure on staff costs in other ways, for example, they could require employees to take unpaid leave one day per week or one full week per month.

Advice and guidance for businesses intending to take advantage of the CJRS

If businesses intend to take advantage of the CJRS, they should talk to the employee about being classified as a furloughed employee.

Once considered a furloughed employee, the employee will remain on the payroll and not lose their job.

Where an employee’s contract of employment provides provisions pertaining to redundancy or lay-off, employers will likely be in a strong position to benefit from the scheme. Employers are advised to check the precise rules on how an employee is designated as “furloughed” once these are published by HMRC. The employer should also use objective (rather than subjective) criteria for deciding who should be furloughed. Employers should therefore ensure that they have objective reasons for selecting who is furloughed and who is not. Using an objective selection process should provide a strong defence to claims from employees such as breach of trust and confidence or discrimination.

Where there are no such contractual provisions, the employer will need to obtain the employee’s consent to being furloughed. Without that consent, the employee could technically claim breach of contract or unlawful deduction from wages to recover the lost income if the employer does not top up to full pay; constructive dismissal; and potentially a protective award for failure to consult in the run-up to dismissal.

Taking the above into consideration, employers should contemplate how they could secure the necessary consent from their employees so as to mitigate the legal risks. The most straightforward route would be to run a voluntary scheme and perhaps offer to top up the scheme payment so as to incentivise employees to volunteer to be classified as “furloughed”.

Given that many people are now nervous about leaving home and a large proportion of workforces are facing childcare issues, voluntary schemes should be successful.

Employers will therefore need to carefully consider how they would implement furlough if there is no contractual term permitting it. Whilst the practical legal risk is relatively slim, it still exists and when everything returns to normality the employer will still want an engaged workforce who feel that they are valued and have been fairly treated.

If an employer still wants to implement redundancies then they should err on the side of caution and consider whether the option to furlough is a reasonable alternative to dismissal, in order to reduce the risk of unfair dismissal claims.

Finally, employers will need to decide whether they will top up the remaining 20% of pay not covered by the government under the CJRS, but note that employers are not required to do this. If an employee’s salary is reduced as a result of these changes, employees may qualify for support though the welfare system, including Universal Credit.

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited 2023.