Here we take a look at the new “Coronavirus Job Retention Scheme” (the “CJRS”), and provide you with some useful know how.
This content is based on information and guidance issued by the government as at 12th May 2020, which includes the iteration of the guidance for employers “Check if you can claim for your employees’ wages through the Coronavirus Job Retention Scheme” (updated 1st May 2020) and “The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction” (“the Treasury Direction”) dated 15th April 2020.
We will update the content of this article as new information becomes available. However, it should be noted that the government’s position and its guidance to the scheme has been subject to substantial change as the situation has developed, and may continue to do so.
This page was last updated on 12th May 2020.
- Background – what is the Coronavirus Job Retention Scheme (“CJRS”)?
- The framework of the CJRS
- What is the purpose of the scheme, and what businesses can use it?
- Which staff can businesses claim for under the CJRS?
- What costs may be claimed for?
- Calculating the claim
- When is an employee ‘furloughed’?
- Will the employer be required to prove the furlough requirements were met?
- Can the employee undertake any work-related activities whilst furloughed?
- What about volunteering activities?
- How should employers go about deciding which staff to furlough?
- Can employers furlough staff who are off sick? What if a staff member falls sick whilst on furlough leave?
- Can staff take holiday whilst on furlough? Can employers require them to do so?
- What about other kinds of leave, for example maternity and other statutory family leave?
- Can an employer choose to rehire a staff member whose contract has ended, furlough them, and claim under the scheme?
- Can a new employer benefit from the furlough leave scheme following a TUPE transfer?
Background – what is the CJRS?
The scheme was originally announced on 20th March 2020. The aim has been to encourage businesses to retain staff on payroll, rather than terminate their employment. It currently allows employers to claim reimbursement for 80% of the basic salary costs of ‘furloughed’ workers plus pension contributions and employer NICs (subject, in each case, to upper limits).
It was originally announced to run for 3 months, covering the period 1st March 2020 to 31st May 2020, but was extended for a further month, to 30th June 2020. On 12th May 2020, the chancellor announced that the scheme would be extended for another four months until the end of October 2020 but that there would be changes to the scheme in the coming months including making it possible for employers to bring furloughed employees back to work part-time and expecting employers to “start sharing” the cost of the scheme. The Chancellor announced further details on 29 May 2020. For further information, please see our update here.
The initial announcement on 20th March 2020 and the first guidance documents issued on 26th March 2020 were very sketchy and left many basic questions unanswered. Fortunately, the guidance has been incrementally expanded, with various different updates being published. The main guidance document for employers is here.
On 15th April 2020 the Chancellor also separately issued the Treasury Direction, an updated version of which was issued on 20th May 2020 . Here is the link to it.It contains the most specific and detailed information about the scheme and essentially amounts to an instruction to HMRC about how the scheme must be operated in practice.
How the scheme will operate in practice has become much clearer, and there are fewer areas of uncertainty as to its scope and application though, rather less helpfully, there was some disparity between the original Treasury Direction and the government’s guidance (some of which has been resolved in the updated Treasury Direction). We shall take a look at the key features of the scheme, and consider some of the trickier practical issues that employers are most frequently asking us.
The framework of the CJRS
The Treasury Direction essentially sets out what the scheme is for, who and what is within its scope, how to calculate the claim and what conditions must be satisfied for a valid claim. It does this through a framework of definitions and rules covering:
- The purpose of the scheme
- Which businesses are eligible to claim, and in respect of which staff
- What employment costs may be claimed for, how to calculate them, and the applicable limits
- What it means to be ‘a furloughed employee’
- What activities furloughed staff may (and may not) undertake without invalidating the claim
- It lays out a framework for dealing with a variety of commonly-encountered employment issues, such as the interplay with sick leave, statutory family leave and non-statutory unpaid leave (although it does not address how annual leave is to be dealt with)
- Audit and record-keeping requirements
The government has published a number of discrete guidance documents to explain how the scheme will operate in practice and to provide help to navigate, assess eligibility and entitlement, and claim under the scheme.
In this note, our aim is to introduce an overview of the key elements of the scheme before considering how employers should approach some of the trickier employment issues that have arisen. We hope it will be helpful but, of course, it is not a substitute for specific legal advice. If you would like any further guidance, our Employment team would be happy to advise you.
What is the purpose of the CJRS, and what businesses can use it?
Section 2 of the Treasury Direction says its purpose “…is 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.”
The guidance says “It is designed to help employers … retain their employees and protect the UK economy.” It says it was “designed to help [employers] whose operations have been severely affected by coronavirus” but that “all employers are eligible to claim and the government recognises different businesses will face different impacts”.
However, it is a requirement in nearly all cases (there are some limited exceptions) that the employer has a UK bank account and a PAYE account registered with HMRC’s real time information system at 19th March 2020. The Direction and the guidance also give further information covering more complex situations, such as where staff have transferred under TUPE, and where an employer has multiple PAYE accounts.
Whether an organisation (whether or not it is also a public organisation) in receipt of public funding already designed to cover its staffing costs is eligible to claim under the scheme will depend on its specific circumstances. If you would like advice on how this will apply to your organisation, then please do get in touch with us.
Which staff can businesses claim for under the CJRS?
Employers can claim reimbursement of basic employment costs paid to staff who are taxed as employed earners (self-employed earners may be able to apply on their own behalf under a different scheme). The guidance is quite clear that as well as applying to ‘ordinary’ employees it also applies to apprentices, office holders, company directors, salaried members of LLPs, agency workers and ‘limb (b)’ workers, as well as to individuals engaged by public sector organisations under specific arrangements, provided they are paid via PAYE in all cases. It does not matter whether they are engaged on a permanent, fixed-term, full or part-time, zero hours or other sort of contract but it is crucial that their contract continues (after all, that is the purpose – and name – of the scheme).
As well as being paid via PAYE, staff in respect of whom claims are made must also meet certain additional criteria. including that they:
- Had been individually identified to HMRC via a Real Time Information PAYE submission by 19 March 2020 at latest (see also the comments below about the possibility of claims in respect of staff whose employment had terminated on or after 28 February 2020 and who are subsequently re-hired);
- Remain employed during the period for which the claim is made;
- Are ‘furloughed’ throughout the period being claimed for.
- The CJRS will close to new entrants from 30 June. From 30 June, only employees who have been furloughed for a full three week period prior to 30 June can be furloughed. This means that the cut-off date for an employee to be placed on furlough for the first time is 10 June.
What costs may be claimed for?
Currently the basic principle is that employers can claim for 80% of wage costs (up to a maximum gross figure, per employee per month, of £2,500), plus pension contributions (up to a maximum of 3%) and plus employer’s NICs on the claimed-for sum – however, see here on the changes that will apply from 1 August 2020. Employers are required to pay in full all money received from the scheme to the employees in respect of whom it was claimed (or return it to HMRC).
It should be noted that 80% of relevant employment costs is the most the employer can currently claim under the scheme but, unless it has agreed otherwise with its employees, it will still be liable under its contract with them for 100% of its contractual liabilities. Some employers have continued to pay employees their full entitlement, some have obtained the employee’s agreement to receive only what can be recovered under the scheme and others have reached an agreement that is somewhere in between. Employers paying less than 100% of the employee’s contractual entitlement will need to obtain their employee’s consent (ideally in writing, for evidential purposes) or risk a claim for unlawful deductions or breach of contract.
Calculating the claim
It is for the employer to work out what sum they are claiming from the scheme and input the relevant details into an online portal (see the comments below about record-keeping).
There are very detailed rules about how employers should calculate what to claim. The calculations should be more straightforward for employees whose salary does not vary, but less so for employees whose pay varies. There is a separate guidance note providing much more detail about how to perform the relevant calculations, and explaining what earnings may (and may not) be claimed for. Here’s the link.
When is an employee ‘furloughed’?
Essentially a furloughed employee is one with whom the employer has reached an agreement to do no work (whether directly or indirectly) for the employer or for anyone connected with the employer, for a minimum of 21 days and for coronavirus-related reasons. There was (see below) some discrepancy between the text of the Treasury Direction and the text of the government’s guidance about when an employee is to be regarded as furloughed, though we do not expect that to present a problem in practice.
Will the employer be required to prove the furlough requirements were met?
Not at the point of making the claim. It is up to employers to calculate the costs they are claiming for and make the claim via the government’s online portal. HMRC will make some initial checks and, if satisfied, will make a bank transfer to the employer. However, HMRC specifically reserves the right to make retrospective audit checks. Employers are therefore required to keep all relevant records (including how they calculated their claim) for at least 5 years.
For further guidance on what amounts to a furloughed employee and what you might be required to provide to prove furlough requirements have been met, please get in touch with our team who would be happy to advise you.
Can the employee undertake any work-related activities whilst furloughed?
The employee must have agreed to do no work (whether directly or indirectly) for the employer, and the Treasury Direction also makes clear (paragraph 6.2) that they may not work for any “person connected with the employer” either. The guidance puts it like this: “an employee cannot undertake work for, or on behalf, of the organisation or any linked or associated organisation. This includes providing services or generating revenue.”
There is an exception to the ‘no work’ rule in the case of company directors, but only to the very limited extent permitted by paragraph 6.6 of the Treasury Direction i.e. only as necessary “…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” (or, as the updated Treasury Direction confirms, making a claim in respect of an employee under the scheme or paying an employee’s wages).
There is another exception to the ‘no work’ rule with regards to training activities. If you would like further advice on what training activities are permitted and what pay employees should receive for any training undertaken, then please do get in touch and we can provide further assistance.
Following the Chancellor’s announcement on 29 May 2020, from 1 July 2020 it will be possible for an employee to return to work part-time and for the employer tol claim for the employee under the scheme still (in respect of the hours the employee does not work). For further details see here.
What about volunteering activities?
The Treasury Direction does not explicitly address volunteering work.
We have been asked, particularly in relation to charity employees, whether they can do voluntary work supporting their employer’s charitable activities whilst they are on furlough, if their activities would be different to the work they are employed to do. Following an update to the guidance on 14 May, it now seems clear that employees can only volunteer for another employer or organisation, and not for the organisation that is furloughing them.
How should employers go about deciding which staff to furlough?
Some decisions about which staff to furlough will be straightforward – for example, where all of a team’s work has disappeared. Where an employer has to choose between staff to furlough, options include asking for volunteers (though, as with seeking volunteers for redundancy, that may raise other issues such as receiving too many requests, or requests from the ‘wrong’ people). When employers need to apply selection criteria, care should be taken to avoid unlawful discrimination – the guidance is quite clear that “equality and discrimination laws will apply in the usual way”.
The guidance also confirms that individual employees may be furloughed multiple times, so employers have the option of rotating employees on and off furlough if they wish. Particularly where the employer is paying less than 100% salary and benefits to furloughed employees, this may be a way of sharing the pain (or, depending on the employee’s perspective, the gain) between staff. Employers will need carefully to orchestrate the individual furlough periods to ensure that each period of furlough is at least 21 days, otherwise they will not be entitled to claim under the scheme.
Following the Chancellor’s announcement on 29 May 2020, the final date by which an employer can furlough an employee for the first time and claim under the scheme will be 10 June 2020 – see update here.
Can employers furlough staff who are off sick? What if a staff member falls sick whilst on furlough leave?
Both the Treasury Direction and guidance deal with the question of furloughing staff who are off sick, but they are not in alignment.
The updated Treasury Direction states (at paragraph 6.3) that “Where Statutory Sick Pay is in payment or due to be paid in respect of an employee …”, the 21 day minimum furlough period for which an employer can claim under the CJRS cannot begin until the period for which the SSP is being paid or due to be paid has ended (which, according to the updated Treasury Direction, must be determined by an agreement between the employer and employee). In contrast, the guidance says only that “Short term illness/self-isolation should not be a consideration in deciding whether to furlough an employee…” and that the CJRS “is not intended for short-term absences from work due to sickness” but, nevertheless, “If … employers want to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees.
As noted above, the Treasury Direction is the ‘higher authority’ and so it is likely to take precedence here. Employers are therefore safest to assume that staff for whom SSP is being paid or is due to be paid cannot be regarded as validly furloughed, at least for the purposes of making a claim under the scheme, until the period for which the SSP is being paid or is due has ended (and the end date has been agreed between the employer and employee).
It seems clear that if someone falls sick after being furloughed, reimbursement will not be affected. Paragraph 6.3 of the Treasury Direction specifically addresses this point by saying “…any subsequent entitlement to Statutory Sick Pay by virtue of the employee becoming unfit for work again after the original SSP has ended must be disregarded”. The guidance makes clear that “Furloughed employees retain their statutory rights, including their right to Statutory Sick Pay… [and that] furloughed employees who become ill must be paid at least Statutory Sick Pay”.
If you have any further questions regarding sick pay and furloughed employees, then please do get in touch with us.
Can staff take holiday whilst on furlough? Can employers require them to do so?
There is now detailed guidance regarding holiday entitlement and pay during coronavirus, which was issued on 13 May 2020.
The guidance confirms both that furloughed employees continue to accrue holiday in accordance with the terms of their contract (unless, of course, they have agreed a valid variation with their employer) and that holiday may be taken whilst on furlough.
The employee guidance also states that a day’s annual leave taken during furlough should be paid at “…your usual holiday pay in accordance with the WTR [Working Time Regulations 1998]” and that “Employers will be obliged to pay the additional amounts over the grant [from the CJRS]”. Where furlough pay is less than the employee’s normal pay, employers will therefore need to make up the shortfall. From the employee’s perspective, many will not see the point of using up holiday entitlement during a period when they are required not to work anyway, but for others, especially the low paid, the difference in the amount payable may be important.
It is possible for an employer to require employees to use up annual leave during furlough, under the existing provisions of the WTR. Some commentators have suggested that employees cannot enjoy proper rest and relaxation (and that that is the whole purpose of annual leave) during the current lockdown conditions. Although we do not doubt that requiring employees to use up their accrued holiday has potential adversely to affect goodwill, we do doubt the validity of that legal argument. In any event, the provisions of the WTR will continue to be the law notwithstanding the current emergency situation.
If you have any questions about employees taking annual leave whilst on furlough, we would be happy to assist you.
What about other kinds of leave, for example maternity and other statutory family leave?
The guidance states that employees still have the same rights at work while on furlough, including maternity and other parental rights and also makes clear that employers can claim under the scheme for enhanced (earnings related) contractual maternity, adoption, paternity or shared parental pay.
It is therefore clear that employees can be on furlough leave and maternity or other statutory family leave at the same time. Employers will be able to reclaim statutory maternity and other statutory family pay in the normal way and any enhanced contractual pay can be recovered under the rules of the scheme.
For further information on maternity and other statutory family leave, please get in touch for further guidance.
Can an employer choose to rehire a staff member whose contract has ended, furlough them, and claim under the scheme?
Subject to meeting all the other requirements, it is possible for an employer to make a claim in respect of employees who were notified to HMRC via a Real Time Information PAYE submission not later than 19th March 2020. Conversely, no claim may be made in respect of an employee who stopped working for the employer (whether because of redundancy or some other reason) prior to 28th February 2020 or who was not notified to HMRC as on the employer’s payroll until 20th March 2020 or later.
The position is more complex in relation to employees who were not still on the employer’s payroll as at 19th March 2020 but had been previously notified to HMRC via an RTI PAYE submission before then. Even if their employment ended (whether for redundancy or another reason) provided it ended on or after 28th February, it may be possible to rehire them, put them on furlough and claim under the scheme in respect of them. The guidance confirms that it does not matter if they do not become re-employed until after 19th March 2020 as long as:
- If they were made redundant or stopped working (including, according to the guidance, fixed-term employees whose contracts expired) on or after 28th February 2020, they had been notified to HMRC as being on payroll as at 28th February 2020; or
- If they were made redundant or stopped working (including, according to the guidance, fixed-term employees whose contracts expired) on or after 19th March 2020, they had been notified to HMRC as on payroll as at 19th March 2020.
However, rehiring staff in order to furlough and claim for them is not possible if either:
- The employee’s employment ended before 28th February 2020 (for any reason); or
- If they were engaged under a contract (whether or not fixed-term) that started and ended between 28th February 2020 and 19th March 2020.
Helpfully, because there was considerable uncertainty about the rehiring aspects of the scheme, and because the government changed the cut-off date from 28th February to 19th March 2020, the government guidance is now quite detailed about the circumstances when former members of staff may be rehired and claimed for. Employers should therefore check it carefully, to ensure their situation is covered. If you still have questions regarding this, our team will be able to assist you further.
Can a new employer benefit from the CJRS following a TUPE transfer?
In this context ‘new employer’ means one whose PAYE payroll scheme was not ‘activated’ with HMRC by the cut-off date of 19th March 2020 (which would have excluded it from applying). However section 9 of the Treasury Direction provides that such an employer may make a claim under the CJRS in respect of employees that transferred to it after 28th February 2020 (this was amended from 19th March 2020 in the original Treasury Direction) provided:
- Those employees were employed by another employer on 28 February 2020;
- They transferred to the new employer after 28 February 2020 and “remain in employment in the same business”;
- The other employer’s payroll was a qualifying PAYE scheme; and
- The change of employer is not a “cessation of employment” for PAYE purposes, and/or the transferred employee’s contract of employment is transferred to the new employer by operation of the TUPE Regulations and/or the employee’s continuity is preserved by section 218 of the Employment Rights Act 1996.
The government’s guidance has been conspicuously limited in relation to these issues saying, in relation to TUPE and changes in ownership, little more than: “A new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 28h February 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership” and makes equally skimpy comment in relation to payroll consolidation exercises
If you have any further questions relating to the content of this update, then please do get in touch with our Employment team who would be happy to assist you further.