A summary of the headline information contained in the guidance and Treasury Direction and the Further Treasury Direction is set out below. The Further Treasury Direction makes a number of modifications to the original but only provides for the extension to the end of June, not October. Given there still remains some lack of clarity in these documents and the importance of complying with the Treasury Direction legal advice specific to your circumstances should be sought before acting.
Who can claim?
- The purpose of the scheme is described as being "to 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";
Any UK organisations with employees can apply as long as they have a UK bank account and a PAYE payroll scheme must have been created and started on or before 19 March 2020;
- Organisations must have enrolled for PAYE Online - that can take up to 10 days
Most public sector organisations and both public and non-public sector organisations who continue to receive public funding for staff are not expected to use the scheme, subject to a small number of exceptions dependent on circumstances;
- Claims that are "abusive or otherwise contrary to the exceptional purposes of CJRS" cannot be made;
- Records and calculations made in relation to claims must be kept for at least 5 years to allow HMRC to audit claims in future.
How do you claim?
- Claims are made via the online portal;
To be eligible for the subsidy the original Direction states employers must have obtained the agreement of their employees in writing (which may be in electronic format such as email) that they will cease all work in relation to their employment, and keep a record of this. This appeared to contradict the Guidance which says employees need not provide a written response to their employers written notification of furlough. However, the further Treasury Direction removes the requirement for agreement in writing, instead stating the agreement between employer and employee must specify "the main terms and conditions upon which the employee will cease all work in relation to their employment". The agreement must also be incorporated (expressly or impliedly) into the employee's contract, be made or confirmed in writing by the employer and a record kept of it until at least 30 June 2025;
- Guidance on the amended scheme taking effect from 1 July requires employers to agree with their employee any new flexible furloughing arrangement and confirm that agreement in writing in order to be eligible for the grant from that date on;
Employers will also need:-
ePAYE reference number;
number of employees being furloughed;
start and end date of the claim period;
- details of employees - name and national insurance number of each furloughed employee;
the amount claimed;
- your Corporation Tax Unique Taxpayer Reference, Self-Assessment Unique Taxpayer Reference or Company Registration Number as appropriate for your entity
UK bank account number and sort code;
- your organisations registered name; and
your organisations address.
Employers will need to calculate the amount being claimed with HMRC retaining a retrospective right to audit all aspects of the claim;
It is for you to decide the period of your claim taking into account how frequently you run your payroll;
- You cannot make more than one claim during a claim period so all employees that are furloughed for that period should be included.
Conditions relating to cost of employment
- The Direction contains various conditions relating to a cost of employment being claimable in terms of the scheme;
- This includes but is not limited to the requirement that in order to qualify for repayment under the Scheme the employee must be paid either £2,500 or an amount equal to at least 80% of the employees reference salary;
- We are of the view that if an employer pays less than this then HMRC would be entitled to refuse a claim;
- Where an underpayment has been made the Direction provides a mechanism for rectifying that only for the period from 1 March to 18 April 2020 by making a balancing period before making a CJRS claim;
- Underpayments for subsequent periods may result in HMRC rejecting claims relating to employees who have been underpaid in their entirety;
- Guidance on how to work out 80% of your employees' wages was published on 17 April and an online calculator is also now available;
- Correctly classifying employees as fixed rate or not (so variable rate) is important but there is a lack of clarity surrounding issues such as whether overtime payments would mean that an otherwise fixed rate employee should be classified as not fixed rate for the purposes of the scheme;
- Where there is any doubt as to how the reference salary should be calculated or if any underpayment may have been made we recommend specific advice is taken prior to the first CJRS claim being made.
When will the online portal become available and how will it operate?
- The online portal opened on 20 April;
- A step by step guide for employers on how to claim for wages under the Scheme was published on 17 April.
Which employees are covered?
Government guidance - Check which employees you can put on furlough to use the Coronavirus Job Retention Scheme - was published on 14 May;
Furloughed employees must have been on the payroll on 19 March 2020 and an RTI that included them must have been submitted to HMRC before that date;
Furloughed employees can be on any type of contract including full or part time, employees on agency contracts and employees on flexible or zero-hours contracts;
- Employees that were employed as of 28 February 2020 and on payroll and who were made redundant or stopped working for the employer after that date and prior to 19 March 2020 can also qualify for the scheme if the employer re-employs them and puts them on furlough;
- Employees cannot be on unpaid leave and furloughed simultaneously and where a period of leave started before 1 March and the envisaged end date is after the end date of the scheme, they cannot be furloughed;
- Employees unable to work because of caring responsibilities arising from coronavirus (including needing to look after children) can be furloughed;
- Employees on sick leave or self-isolating because of Coronavirus should get statutory sick pay ("SSP") but can be furloughed at the end of the "period of incapacity for work" in respect of which SSP is being paid. The end of the period can be determined by agreement between employee and employer;
- The scheme is not intended to cover short term absences from work due to sickness unless the employee would have been furloughed for business reasons had they been well, in which case they can be furloughed;
- Employees shielding in line with public health guidance can be placed on furlough;
- Employees with more than one job can be furloughed by each employer, with the cap applying separately to each job;
- Apprentices (however if they continue with training they must be paid at least the apprenticeship national minimum wage during that time) can be furloughed - guidance is available on changes in apprenticeship learning agreements because of COVID-19;
- Office holders (including company directors), salaried members of limited liability partnerships, agency workers and "limb (b) workers" can also be furloughed as long as they are paid via PAYE; and
- Foreign nationals on all classes of visa.
What can employees do while furloughed?
Until the "flexible furlough" scheme starts with effect from 1 July:-
Furloughed employees cannot undertake any work, provide any services or generate revenue for their employer or any organisation linked to their employer;
- Both union and non trade union representatives can undertake duties or activities for the purposes of individual or collective consultation of employees or other workers as long as they are not providing services to or generating revenue for their employer or a linked organisation;
Employees can volunteer or undertake training subject to it not providing services or generating revenue to their employer's organisation. The further Treasury Direction sets out more detail on this;
- The further Treasury Direction also provides for pension scheme trustees to fulfil their duties without this counting as work for the purposes of the scheme;
- Employees who have been working for more than one employer can be furloughed in one job and receive a furloughed payment but continue working for the other employer and receive their normal wages;
- If employees are not contractually prevented from doing so, it seems the intention of the guidance is that employees can take up new employment while furloughed;
From 1 July until 30 October:-
- Employers will be able to agree any working arrangements with previously furloughed employees while still claiming the CJRS grant for normal hours not worked;
- The scheme will close to new entrants on 30 June, and from this point onwards, employers will only be able to furlough employees that they have furloughed for a full three-week period prior to 30 June. This means the final date an employer can furlough an employee for the first time is 10 July.
Pay (current scheme terms until 30 June)
- HMRC has stated that the claims will be verified and employers should receive funds in six working days;
Employers do not need to make a payment to employees before claimaing reimbursement from CJRS provided they intend to pay employees within a reasonable time of receipt;
Employers will receive a grant from HMRC to cover the lower of 80% of an employee's regular wage or £2,500 per month plus associated employer NIC and minimum automatic enrolment employer pension contributions on that subsidised wage. Additional automatic enrolment contributions above the minimum mandatory contributions will not be funded;
On the face of it, correctly classifying employees as fixed rate or not (so variable rate) is important but there was a lack of clarity surrounding issues such as whether overtime payments would mean that an otherwise fixed rate employee should be classified as variable rate for the purposes of the scheme. The further Treasury Direction provides more detail on when amounts reflecting contractual commission, overtime and other similar variable payments can be recovered. The guidance states that employers should choose the calculation they think best fits the way their employee is paid. It also confirms that HMRC will not decline or seek repayment of any grant based solely on the particular choice of pay calculation, as long as a reasonable choice of approach is made;
All the grant received through the scheme must be paid to the employee, no fees can be charged from the money that is granted;
An employer can chose to top up to 100% but need not do so, however agreement needs to be obtained from the employee to the reduced wage. Employer NIC and automatic enrolment contributions on any additional top up salary will not be funded through the scheme;
For employees whose pay varies, employers can claim the higher of either the same months wage from the previous year or the average of monthly earnings from the 2019/20 tax year. For employees who have been employed for less than a year employers can claim for an average of the monthly earnings since they started work. For employees who started in February 2020 a pro-rata of earnings to date should be used;
For those employees taking maternity, adoption, paternity or shared parental leave the usual rules apply regarding statutory pay. Any contractual enhancement to pay is included as wage costs and can be claimed through the scheme;
- NLW/NMW is only payable for hours employees have worked so furloughed workers can be paid the lower of 80% of salary or £2,500 even if this is below NLW/NMW;
Employees who are required to complete online training courses while furloughed must be paid at least the national minimum or living wage (whichever applies) even if that is more than the 80% of their subsidised wage; and
While furloughed, employees' wages will be subject to the usual income tax and other deductions;
- Payments received by employers under the scheme must be included as income in the calculation of the business profits for Income Tax and Corporation Tax purposes.
Pay ("flexible furlough" scheme with effect from 1 July)
- From 1 July furloughed employees will be able to work part-time while employers will still be able to claim the CJRS grant for any normal hours that are not worked;
- Employers will be liable for 100% of wages for the hours the employees are working;
- During July the Government will continue to pay 80% of wages (subject to the cap) and employers NIC's and pension contributions for the unworked hours;
- During August, the Government contribution to wages will continue but employers will become liable for employer NIC's and pension contributions for normal hours that are not worked;
- In September the Government contribution will drop to 70% of wages subject to a cap of £2,187.50. Employers, in addition to employer NIC's and pension contributions, will have to pay 10% of wages so that employees continue to receive 80% up to the maximum cap of £2,500;
- In October the Government contribution will lower again to 60% of wages subject to a cap of £1,875. Employers, in addition to employer NIC's and pension contributions, will have to pay 20% of wages so that employees continue to recieve 80% up to the maximum cap of £2,500;
- The cap will be proportionate to the number of hours worked, so, for example, an employee who is working 50% of normal hours in August will receive full pay from his employer for the hours worked, plus 80% of pay for normal hours that are not worked up to a cap of £1,250 (i.e. 50% of £2,500 in this example);
- More information on how employers should calculate claims is to be published on 12 June.
When furloughing employees organisations should be aware that equality and discrimination laws continue to apply in the usual way and collective consultation may be necessary depending on the circumstances.
Links to Guidance
There are still a number of unclear issues when it comes to furloughing staff. Now the online portal is open and claims are being made these issues are likely to be clarified through use of the scheme in the absence of further guidance.
What evidence is needed to show an employee has consented to being furloughed?
The HMRC guidance requires employers to confirm in writing where an employee is furloughed, and that confirmation must be based on collective agreement or consent. It goes on to specify that "the employee does not have to provide a written response". However the original Treasury Direction required the employee to agree in writing to cease all work in relation to their employment suggesting unilateral notice by the employer was inadequate. However, the further Treasury Direction has removed this requirement instead stating that the agreement must be in writing or "confirmed in writing" by the employer. The agreement should also specify the main terms and conditions upon which the employee will cease work and be retained until at least 30 June 2025.
From 1 July onwards employers must agree in writing with their employee any new flexible furloughing arrangement and confirm that agreement in writing.
Are employees who receive annual bonuses fixed rate employees, and when are bonuses included in the calculation of regular wage or salary?
It is not entirely clear whether employees who receive an annual bonus are fixed rate employees. Arguably where they only receive a bonus by virtue of something not connected to the work done during their normal working hours - such as a bonus based on company rather than individual performance - they would be a fixed rate employee. However, such a bonus may not be included in the calculation of their regular wage or salary.
The guidance on calculating 80% of an employee's salary or wages and the Treasury Direction are consistent in indicating that discretionary bonuses are excluded from the amounts that should be included when calculating regular wages or salary. Unfortunately, the position is not so clear when it comes to contractual bonuses. The 80% guidance is silent on the matter while the Treasury Direction sets out that regular wages or salary must not be "conditional on any matter" including performance of the business or the employee.
Most bonuses are conditional on some basis, but arguably even basic pay is conditional on the employee "performing" the duties he or she has been engaged to undertake. Logically the requirement for payment not to be conditional on performance cannot include basic performance of the role. It is therefore arguable that if a contractual bonus becomes due on an employee performing their duties then it should be treated in the same way as basic pay and included in the calculation of regular wage or salary. The exclusion of regular wages or salary not being conditional on any matter as set out in the Treasury Direction is therefore open to some interpretation. Identifying which bonuses should be included and which should not is far from straight forward. In the absence of further guidance there will be a risk that inclusion or exclusion of the bonus will result in pay being either over or under estimated. It is recommended that advice is taken on this point.
Are employees who occasionally work overtime fixed rate employees, and when is overtime included for the purposes of calculating their regular wage or salary?
Under the Treasury Directive an employee is fixed rate if their contract of employment does not provide for them to be paid anything in addition to their annual salary for working their basic hours. However, this doesn't address whether the employee can be paid anything extra for working additional hours. The Directive also states that a fixed rate employee is someone whose basic hours worked do not normally vary according to business, economic or agricultural seasonal considerations. While the position is not entirely clear it does seem that an employee who only rarely works overtime could still qualify as a fixed rate employee. It is also worth noting that the 80% guidance states that HMRC will not decline or seek repayment of any grant based solely on the particular choice of pay calculation as long as a reasonable choice of approach has been made.
In terms of whether overtime should be included when calculating regular wage or salary, the 80% guidance states non-discretionary overtime should be included. However, it is difficult to reconcile that with the Treasury Direction requirement that regular salary or wages must not be conditional on any matter - payment for overtime is conditional on the employee working additional hours. Where overtime is compulsory then arguably payment for it should be treated in the same way as basic pay for performing the duties required for the role, and it should be included in the calculation.
It is possible that voluntary overtime would be treated differently. It is more easily distinguished as something over and above the requirement to perform the role and as such it is more likely that pay for voluntary overtime should not be included when calculating regular pay. Advice should though be taken on this point.
According to the Guidance benefits provided via a salary sacrifice scheme that reduce taxable pay should not be included when calculating the amount of grant an employer can claim for a furloughed employee. So the lower post salary sacrifice figure is the one that should be used to calculate the claim.
What is the position if we usually pay more than the minimum auto enrolment pension requirement?
The Pensions Regulator issued guidance on auto-enrolment and pension contributions on 9 April. The guidance clarifies that the mandatory employer contribution required under the Coronavirus Job Retention Scheme means 3% of a furloughed employee's qualifying earnings for auto-enrolment purposes. If an employer pays any amount over and above that (either a higher percentage or a percentage based on all earnings rather than just qualifying earnings) then the difference between the two will not be funded by the scheme.
Where an employer pays contributions in excess of the mandatory employer contribution under the scheme into a defined contribution scheme (i.e. a money purchase scheme) it may be able to reduce that to the minimum level subject to the terms of employees' contracts, any collective agreements and the scheme rules. Where the employer has more than 50 employees the statutory pension consultation regime would normally require a 60 day consultation period. However, in cases where:- (1) the employer only proposes the reduction to be made in respect of furloughed employees; (2) the reduction is only for the duration of the furlough; and (3) they have written to affected staff and their representatives to describe the intended changes and the effects to the scheme and on furloughed staff, then the Pensions Regulator has confirmed no action will be taken for failing to consult for the full period. That does not mean no consultation is necessary - the guidance recommends employers carry out as much consultation as they can.
What deductions can be made from salary?
Where the employee has authorised deductoins from salary these can continue during furlough provided they are not charges, fees or other costs in connection with employment.
How long can employees be furloughed for?
There is a minimum furlough period of three weeks, but this can extended by any amount of time whilst the employee is on furlough. However the scheme end date is the last day that a claim can be made for through the scheme.
Will holidays continue to accrue while employees are furloughed
This has not specifically been addressed by the guidance but the UK Government has said that contracts will continue through the furlough period so we assume holidays will continue to accrue.
Can furloughed employees take holidays?
The UK Government guidance on working out how to calculate 80% of your employees pay confirmed that holidays can be taken whilst on furlough and this was re-stated in the BEIS guidance on holiday entitlement and pay published on 13 May. In the context of the right to carry forward holidays that it has not been reasonably practicable for the employee to take due to the effects of coronavirus, the guidance notes that furloughed employees are unlikely to need to carry foward statutory annual leave as they will be able to take it during furlough.
However the guidance also notes that employers "should consider whether the restrictions the worker is under such as the need to socially distance or self-isolate would prevent the worker from resting, relaxing and enjoying leisure time, which is fundamental to the purpose of holiday". Under EU law holidays must enable a worker to rest and enjoy a period of relaxation and leisure and this leaves an unwelcome lack of clarity on whether holidays during furlough would meet that test.
If an employer does require employees to take their holiday during the furlough period then that needs to be done by agreement or in compliance with the minimum notice requirements set out in regulation 15 of the Working Time Regulations 1998. The notice required is double the length of the holiday being enforced - so at the start of the minimum three week furlough period an employer could give an employee 2 weeks' notice to take 1 weeks holiday, enuring the correct rate of pay during the week of holiday.
We are of the view that requiring employees to utilise all of their holiday, or a significant part of it, during this time could be seen as unreasonable use of the system (subject to further extentions of the furlough scheme). We would recommend that employees are not required to take any more holiday than they have accrued at the point notice is given by the employer to take the holiday.
Holidays must be paid at the employee’s normal rate of pay or, where the rate of pay varies, calculated on the basis of the average pay received by the employee in the previous 52 working weeks. Therefore, if a furloughed employee takes holiday, the employer should pay their usual holiday pay in accordance with the Working Time Regulations. Employers will be obliged to pay additional amounts over the grant, though will have the flexibility to restrict when leave can be taken if there is a business need.
If an employee usually works bank holidays then the employer can agree that this is included in the grant payment. If the employee usually takes the bank holiday as leave then the employer would either have to top up their usual holiday pay, or give the employee a day of holiday in lieu.
It is also important to note that the guidance confirms the UK Government will be keeping its policy on holidays under review.
Can I rotate staff on furlough?
The guidance confirms that staff can be furloughed multiple times but each seperate incidence must be for the minimum period of 3 weeks. That provides scope for rotating staff on a 3 weekly basis.
Can disciplinary proceedings be continued while an employee is furloughed?
Both disciplinary and grievance procedures can, in theory, begin or continue during furlough subject to a number of caveats. Firstly the subject of the proceedings must be participating voluntarily. Secondly employment law and the ACAS Code of Practice continue to apply so the employer must assess whether the procedure could be carried out in a fair and reasonable way and, finally, the procedure must take place in line with current public health guidance.
ACAS have recently published guidance on carrying out these procedures. The guidance suggests that other employees involved in the procedure (hearing chair, note taker etc) can also take part while furloughed as long as they do so voluntarily. It is though difficult to see how those other employees would not fall foul of the restriction on carrying out work for the employer while on furlough, putting the CJRS grant at risk. Until the position is clarified by the Government or HMRC we consider that there is a significant risk of invalidating the CJRS grant by involving employees who are furloughed in relation to disciplinary and grievance processes and advice should be taken.
If an employee becomes unwell while furloughed should he continue to be furloughed or paid SSP?
If the employee becomes sick while furloughed it is up to the employer to decide whether to continue the furlough or pay sick pay. If the employee is moved on to SSP the employer can no longer claim the furloughed salary but may qualify for a rebate of the first 14 days of SSP if they meet the eligibility criteria. If the employee is kept on the furloughed rate then the costs can still be claimed through the scheme.
How do I reclaim statutory sick pay?
Employers who had less than 250 employees on 28 February and who had a payroll scheme already in place at that date may claim under the Coronavirus Statutory Sick Pay Rebate Scheme for repayment of SSP paid to current or former employees for periods of sickness or self-isolation, due to coronavirus, that started on or after 13 March 2020. Employees do not require to have submitted fit notes for employers to make a claim. The UK Government has published guidance for employers on how to reclaim. Claims can be made online.
Can my employee start working for someone else while on furlough?
Your contracts of employment may prevent your staff from working for others during their employment with you. If that is the case you should remind them of this at the point of being furloughed and that you expect them to be available to return to work immediately when you need them.
If your employee is contractually free to undertake work for other employers during their employment with you, or you consent to them temporarily undertaking work for another employer while on furlough, then the guidance states they can do so. While the employer guidance is slightly ambiguous as to whether it refers to new rather than pre-existing employment, (a) the treatment of pre-existing second (or further) employment is dealt with elsewhere in the guidance and (b) there is also reference to employers ensuring they correctly complete the starter checklist for PAYE for new staff who have been furloughed from another role. The employee guidance is clearer, referring to new employment as well as providing further instruction on how to complete the correct starter checklist. For these reasons it appears that employees can take up new employment while furloughed without it affecting the HMRC grant.
Can I rehire staff that I have already made redundant
Staff that have been made redundant since 28 February 2020 can be re-hired and then furloughed. Staff made redundant before that date will not be eligible for the scheme.
Can I make staff redundant while on furlough leave
Although redundancy is the scenario that furloughing is aiming to avoid, it would be possible to go through a redundancy procedure with furloughed staff. One unanswered question is whether an argument could successfully be made that a dismissal, in circumstances when the furlough scheme was operational, will be unfair. The argument would be that there were alternatives to redundancy (i.e. the furlough scheme) and so the dismissal is unfair. This has not yet been tested albeit we fully expect to see the argument made at some point. As such, there will be a risk in making an employee redundant where the employer could, at no cost effectively, have furloughed the employee. In addition, leaving aside that risk, bear in mind that the usual consultation requirements would also still be required for a fair dismissal, albeit alternatives to face to face meetings would need to be found. If you find yourself needing to make 20 or more staff redundant within a 90 day collective consultation requirements will apply and we strongly recommend that advice is taken in these circumstances.
How is notice pay calculated during furlough?
Calculating notice pay can be more difficult than initially perceived even when furlough is not involved. If the employee is entitled to either (1) statutory notice only, or (2) no more than one week's greater notice than the statutory notice period, then the Employment Rights Act 1996 gives them rights to minimum pay during the notice period subject to certain criteria including that they are "ready and willing to work" but where the employer is not supplying work. That scenario is likely to cover most furloughed employees.
For employees who have rights to minimum pay during their notice period, how the notice pay is calculated then depends upon the employee's working hours and whether pay varies with the amount of work done. For employees with normal working hours where salary doesn't vary with the amount of work done, a "week's pay" is the amount of contractual pay due on the day before notice was given. For employees who have agreed to vary their contractual salary entitlement that will mean the pay they receive while furloughed not their usual pre furlough rate. For employees without normal working hours or those with normal working hours but whose pay varies with the amount of work done, a "weeks' pay" is the average earnings over the 12 weeks before notice was given - depending on when notice was given and how long it is that will likely involve averaging out pre furlough and furlough pay.
An employee who does not qualify for the minimum guaranteed notice rights - for example someone with a statutory right to 2 weeks' notice but a contractual right to 4 weeks' notice - can be paid whatever they have agreed to receive while on furlough - in many cases that will be 80% of normal salary subject to the £2,500 per month cap.
All these scenarios assume the notice period expires during furlough. If the notice period extends beyond the period of furlough, the employee should be paid their normal contractual rate of pay for that part of the notice period.
There are risks in paying notice at a rate lower than the pre furlough contractual pay even while the employee is on furlough. It is possible that tribunals may interpret both the CJRS and the legislation setting out how a week's pay is calculated to conclude that normal contractual remuneration should be paid during notice.
Can company directors be furloughed?
Directors (including those who have an annual pay period) who are employees can be furloughed. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed. Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.
Only work undertaken by a director of a company 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 is excepted from the general requirement not to undertaken any work while furloughed.
This also applies to salaried individuals who are directors of their own personal service company (PSC).
If furloughing an employee working on a Tier 2 visa do employers have to top up grant money to meet the minimum salary threshold of a Tier 2 migrant?
The Home Office has confirmed that employers do not need to top up an employee’s salary beyond the 80% or £2,500 cap paid by the government to meet minimum Tier 2 salary thresholds.
Can employees who transferred into a business under TUPE after 28 February 2020 be furloughed?
Yes, a new employer can claim under the scheme in respect of the employees of a previous business who transferred after 28 February 2020 if either TUPE or business succession rules apply to the change of ownership.
For more advice on this please contact Innes Clark on firstname.lastname@example.org.
The content of this Q&A are for information only and is not intended to be construed as legal advice. You should take advice on specific circumstances.