The Government's Coronavirus Job Retention Scheme (CJRS) announced on 20th March introduced a new word in the HR lexicon- FURLOUGH.
PLEASE NOTE: The CJRS will close to new entrants from 30th June 2020. From 30th June, employers will only be able to furlough employees that they have furloughed for a full three-week period prior to 30th June. This means that the final date by which an employer can furlough an employee for the first time will be 10th June, so that the current three-week furlough period can be completed by 30th June.
On 29th May 2020, the Chancellor announced an important extension and changes to the CJRS, after he had announced on 12th May 2020, that it would be extended until the end of October 2020.
- June and July: The government will pay 80% of wages up to a cap of £2,500 as well as employer National Insurance (ER NICS) and pension contributions. Employers are not required to pay anything.
- August: The government will pay 80% of wages up to a cap of £2,500. Employers will pay ER NICs and pension contributions – for the average claim, this represents 5% of the gross employment costs the employer would have incurred had the employee not been furloughed.
- September: The government will pay 70% of wages up to a cap of £2,187.50. Employers will pay ER NICs and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500. For the average claim, this represents 14% of the gross employment costs the employer would have incurred had the employee not been furloughed.
- October: The government will pay 60% of wages up to a cap of £1,875. Employers will pay ER NICs and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500. For the average claim, this represents 23% of the gross employment costs the employer would have incurred had the employee not been furloughed. Gov.uk
The Chancellor also extended the Self-Employed Income Support Scheme on 29th May 2020.
What is Furlough?
It means “Workforce who remain on payroll but are temporarily not working during the Coronavirus outbreak” - Gov.uk.
This is a summary of some of the key components of the CJRS, which is based on number of sources, including the helpful daily Covid-19 updates by the CBI and must now be read in the light of the changes announced on 29th May 2020:
- CJRS is temporary to help save jobs by avoiding redundancies and to keep the economy running during the Covid-19 crisis
- HMRC will reimburse 80% of 'furloughed' workers wage costs up to a cap of £2,500 per month (therefore maximum reimbursement will be £2,000 pm per employee)
- They will also reimburse employers' NI and other compulsory contributions made on furloughed employees' salaries up to £2,500
- A furloughed employee is anyone asked and agrees to stop working during the Coronavirus pandemic
- The CJRS also covers employees made redundant since 28th February 2020 if they are rehired
- CJRS originally did not cover anyone employed after 28th February 2020, but the eligibility cut-off date for CJRS has now been extended to 19th March 2020
- This means that employers can claim for furloughed employees employed and on their PAYE payroll on or before 19th March 2020.
- The employee must have been notified to HMRC through an RTI submission notifying payment in respect of that employee on or before 19th March 2020.
- CJRS covers all types of employment contract as long as the furloughed employee is on PAYE and not working for his/her employer- i.e. full-time/part-time/agency/zero hours/flexible hours
- Employees working reduced hours, on unpaid leave or on reduced pay are non-eligible for the CJRS
- Employees on unpaid leave cannot be furloughed
- Employees on sick leave or self-isolating can be furloughed after returning to work
- Employee shielding for health reasons can be furloughed
- Employees on a fixed term contract can be furloughed
- Limb (b) Workers paid through PAYE can be furloughed
- Employees who are shielding in line with public health guidance (or need to stay home with someone who is shielding) if they are unable to work from home and would otherwise have to be made redundant can be furloughed
- Employees who are unable to work because they have caring responsibilities resulting from COVID-19 can be furloughed
- Employees can be allowed back to work after 3 weeks of furlough and this can be repeated provided each furlough lasts for at least 3 weeks
- Employees with more than one employment can be furloughed for one if on PAYE
- Employees made redundant or who stopped working after 28th February 2020 can be re-employed and then furloughed
- Directors, office holders, owners and managers who are employees and on PAYE can be furloughed
- They can continue to carry out statutory duties during the furlough period (unlike other employees who must not work for their employers)
- Members of a limited liability partnership who are employed and on PAYE can be furloughed
- Agency workers can be furloughed as long as they are on PAYE
- A company Administrator can furloughed employees and claim under the scheme where there is a reasonable prospect of re-hiring the furloughed employees
- Paid holiday leave will not be reimbursed under the scheme if taken during furlough
- Car allowances paid to furloughed employees are thought to be reimbursable under CJRS if they are a "regular payment' to employees
- Discretionary bonus (including tips) and commission payments and non-cash payments are not reimbursable under CJRS
- Individuals can furlough employees such as nannies provided they pay them through PAYE
- Furloughed employees's salaries remain subject to income tax and other deductions like NI
- Furloughed employees can do volunteer work for others or training
- Employees shielding in line with public health guidance can be furloughed if they are unable to work from home and their employer would otherwise have to make them redundant
- Employees with caring responsibilities resulting from Covid-19 can be furloughed- e.g. employees who need to look after children
- Apprentices can be furloughed and can continue to train provided they are paid at least Apprenticeship Wage, National Living Wage or National Minimum wage during time spent training
- Employees must be paid the NLW/NMW while training even if higher than 80% of their wage to be reimbursed under CJRS
- No limit on the amount of money payable under CJRS to employers
- The scheme runs until the end of May 2020
- All UK businesses are eligible for CJRS, including charitable and not-for-profit organisations
- Reimbursement under CJRS must be included as employers' income for tax purposes
- Employers remain liable for ENI and automatic enrolment contributions on wages paid to furloughed employees (subject to employee opt-out)
- Holiday pay and furloughing remains a vexed question and needs to be further clarified by the Government
- Furloughed employees retain the same employment rights as non-furloughed employees, including in respect of unfair dismissal, discrimination, redundancy payments and statutory payments such as statutory sick pay and maternity rights and other parental rights.
- NI and Pension Contributions
We have looked around to find the best sources of online information about furloughing and the Job Retention Scheme so that we can bring these to our clients and readers; these include the Government's own website Guidance - Claim for wage costs through the Coronavirus Job Retention Scheme
Who cannot be furloughed?
- Employees working on reduced hours or for reduced pay.
- Employees hired after 19th March 2020.
- Employees placed on unpaid leave before 19th March 2020.
- Employees on sick leave or self-isolating should get SSP but they can be furloughed after this.
- Employees on the two weeks compulsory maternity leave after birth.
- The self-employed (for whom a separate scheme will apply as announced on 26 March 2020) including a limb (b) worker who is not paid through PAYE.
How is an employee to be furloughed?
- To furlough an employee he or she must be sent home without work.
- This means no work can be done for the employer, although there are moves to get the Government to relax the strict 'no work' rule to help smaller businesses.
- It is not available to employers where the employee continues to work or simply works from home instead of their normal place of work.
- The CJRS does not set out any specifics on how to carry out furloughing, which means employers have to proceed with some caution to avoid claims arising (e.g. for unlawful deducation of wages).
- From the various sources we have researched the following guidelines have emerged:
- Selection for furloughing must not be done in a discriminatory manner or because a worker is a whistle-blower.
- If furloughing is going to involve paying employees less than their contractual salaries then it's best to get their consent because if deductions go ahead without consent it is potentially open to employees to make a claim for unlawful deduction of wages within 3 months of the last deduction.
- Consent needs to be given in writing (e.g. email or text) by employees, and it's not acceptable, we understand, for a deemed consent to be obtained e.g. by saying that no reply to a furlough notice will amount to consent.
- If employees don't consent to being furloughed or to a deduction in salaries it is possible to look at redundancy as an alternative.
- Redundancy is a complex and technical process and specific advice should be sought. Gov.uk
- The treatment of employees' holiday entitlements (holiday pay etc) should be explained in the furlough notice wherever possible, although this is an area where more clarity is needed from the Government.
- As furloughed employees can take on other work during furlough, it's best for employers to agree with them that they are not to work for competitors if that is what they want to restrict.
- Employers' contact with furloughed employees during furlough must not involve them doing any work, but can take the form of offering health & wellbeing support and updating them on the business itself.
Can an employer insist on putting someone on Furlough?
- If there's a clause in the employment contract allowing the employer either to lay-off staff or to introduce short-time working, then the answer is employers can introduce furloughing and no employee consent is required.
- If there's no lay-off clause in the employment contract, employee consent will usually be required.
- If consent to furlough is not forthcoming from an employee, then the employer may need to move towards making them redundant instead, provided the employee has been fairly selected for redundancy.
The Government's own guidance on the furlough process is in very broad terms, which is why advisers have been working through the Government's rules and applying existing employment law and best practise to them to come up with workable solutions for businesses. If in doubt, consult a lawyer or an HR specialist.
Do employers have to top-up the 20% of furloughed employees wages not covered by the Government's scheme?
The answer is no.
Employers may choose to do so but are not compelled under the CJRS.
However, there is a potential future risk of employees' claiming for incorrect deduction of wages.
We have read that to avoid this risk, employers should attempt to get written consent from employees to their terms of the furlough. This may be reasonably unobjectionable given the alternatives for employees, but inevitably it will be case by case.
How to apply for CJRS:
The HMRC portal to receive CJRS claims went live on Monday 20th April 2020. HMRC intends to be ready to make payments to employers by Thursday 30 April 2020.
The system is supposed to be available 24 hours a day, seven days a week, meaning that callers can queue to speak to an adviser.
Importantly, it is understood that payments will be processed by HMRC within 4-6 working days of receiving the claim.
The current HMRC guidance is to take the following steps in making a claim:
- designate affected employees as ‘furloughed workers,’
- notify your 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 and employee consent
- submit information to HMRC about furloughed employees & their earnings through a new HMRC online portal (still to be announced)
Making a CJRS claim:
The Government website says that employers will need to provide:
- 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 3 weeks)
- their bank account number and sort code
- their contact name
- their phone number
HMRC states that it retains the right to retrospectively audit all aspects of any claim.
Which employers can claim the furlough benefit
Any employer, large or small, whether a sole trader, partnership, limited company or limited liability partnership can claim the benefit, including charities and not-for-profit organisations.
The only criteria is that you have employees, and you furlough them by sending them home without work.
Umbrella employees' pay can vary week by week, the balance of any income over and above basic pay is paid as a commission. The Government's guidance does not make it clear if furlough pay for umbrella employees should be based on 80% of the usual monthly wage, up to a maximum of £2,500 including the commission element. The current guidance still refers to commissions being excluded which means that calculations need to be based on 80% of basic pay for all umbrella employees.
"HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.”
The Chancellor, the Governor of the Bank of England, and the CEO of the FCA wrote jointly on 25th March to the CEOs of the UK Banks on the subject of COVID-19 and bank lending, saying that the priority for "..banks, building societies, government and the financial authorities- should now be to take all action necessary to ensure that the benefits of the [Government's support measures]..are passed through to businesses and consumers."
If in doubt on furlough issues, please consult your employment law specialist.
For more information on eligibility see the CBIs website guidance and the House of Commons Library FAQs on the CJRS.
The scheme rules were originally updated on 4th April 2020 by the Government following feedback from multiple channels.
On 15th April 2020, a Treasury Direction was issued to set out the legal framework for the CJRS- read the full Direction here; it is the authoritative statement on how the scheme operates as at that date. It is assumed that the Direction will be updated as and when necessary.
On 17th April 2020, the Chancellor extended the CJRS until the end of June 2020, which has the effect of businesses avoiding having to consider making staff redundant.
On 20th April 2020, the CJRS went live for employers to make claims. 185,000 employer claims were made on the first day. Payments out to be made in six days from application.
As of 27th April 2020, more than 500,000 applications for £4.5 bn in funding, covering more than 3 million employees, had been made. This scheme now appears to be working well, but the number of claims underlines the scale of the challenge we face, according to the CBI.
On 12th May 2020, the Chancellor announced that CJRS would be further extended until the end of October 2020. Up to the end of July, benefits are to remain unchanged, but from August employers are to be asked to contribute to the costs of salaries as employees are expected to gradually return to work. Details of the extension will be announced by the end of May.
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