The Government has now produced more detailed guidance on the Coronavirus Job Retention Scheme which was announced on 20 March 2020 and designed to support employers in paying employees’ salaries for those who would otherwise be laid off during the crisis. This update provides a summary of that guidance.
What is the Job Retention Scheme?
- The Scheme covers 80% of monthly “regular” wage, up to £2,500 a month. Fees commission and bonus should not be included.We consider that for salary sacrificed wages, this strictly means the lower sacrificed amount
- On top of this, the Scheme will also cover employer National Insurance Contributions and minimum employer auto-enrolment pension contributions (more guidance is expected on how these should be calculated)
- The Scheme can be used any time from 1 March 2020 to 31 May 2020
- All UK employers can use the Scheme if they had a PAYE scheme in place on 28 February 2020
- The furlough pay is subject to normal tax and National Insurance Contributions, and employees also pay automatic enrolment pension contributions as usual
Which employees are covered?
- All employees of relevant employers
- Includes employees made redundant since 28 February 2020 if re-hired by their employer
- Employees on furlough CANNOT undertake work for their employer during furlough
- Does not cover employees who have reduced hours
- Employees hired after 28 February 2020 cannot be furloughed
- Not all employees need to be placed on furlough
- Employees on unpaid leave cannot be furloughed, unless they started that unpaid leave after 28 February 2020
- Employees on Statutory Sick Pay (SSP), on sick leave, or self-isolating cannot be placed on furlough leave – they should receive SSP instead during that period, but they can be furloughed after that period ends
- Employees who are shielding in line with public health guidance can be placed on furlough (we believe this means individuals who are following guidance on shielding for extremely vulnerable groups)
How does it work?
- Employers need to agree with employees about going onto furlough leave and the changes to their contracts (which we consider will include not working, when they will return to work, reduced remuneration, and any changes to benefits)
- Equality and discrimination laws apply (so essentially the normal selection principles of fairness)
- There needs to be a written record of the furlough – which needs to include a letter to the employee confirming they have been furloughed
- Employees with more than one job can be furloughed by both employers, by one, or by none. The employments are treated entirely separately
- Furloughed employees can take part in volunteer work or training
- Any work or activities a furloughed employee undertakes for their employer are not allowed. They can undertake online training courses for their employer whilst furloughed but then need to be paid the living wage for the time spent training even if this is more than the 80 percent
- An employer can top up the payments if it wishes to but must pay employer NICs and employer automatic pension enrolment contributions on the top up amount as these will not be funded through the Scheme
- Any period of furlough needs to be for a minimum of 3 weeks
- Claims can be backdated to 1 March 2020
- Employees on furlough leave retain their same employment rights such as unfair dismissal, redundancy consultation, non-discrimination
- Maternity leave must be taken for a minimum of two weeks after the birth of the baby
- Normal rules for Statutory Maternity Pay apply
- Otherwise, it appears that individuals on maternity leave can be placed on furlough leave. Enhanced contractual pay you pay during maternity leave can be included in the wage costs calculation in relation to furlough pay. The same applies to other family leave
What do employers get back?
- You will receive a grant from HMRC for the lower of 80% of the regular wage or £2,500 a month PLUS the employer National Insurance Contributions and the minimum automatic enrolment employer pension contributions
How does the calculation work?
- For full and part time salaried employees – the actual salary before tax as at 28 February 2020 is the relevant amount to take into account. Fees commission and bonus should be excluded.
- For employees whose pay varies:
- If employed for 12 months prior to the claim, the employer can claim the higher of the same month’s earnings in the previous year, or the average monthly earnings from the 19/20 tax year
- If employed for less than a year prior to the claim, the employer can claim for an average of their monthly earnings since they started
- If the employee started work during February 2020, use a pro-rata of their earnings so far
What process should be followed when placing employees on furlough leave?
- Employee agreement is needed for the changes – so in our view this should involve following an amended redundancy process
- If sufficient numbers of staff are involved the guidance states “it may be necessary to engage collective consultation”. Our previous update on the Job Retention Scheme refers to this. If 20 or more employees are at one establishment and redundancies are proposed then we can discuss with you how to deal with these obligations. We are of the view that proposals to place employees on furlough are linked to redundancy proposals because if employees do not agree to furlough, redundancies would be the secondary option
- Furlough does need to be considered in relation to any redundancy because in our view it is part of a fair process (a fair redundancy process should look at all ways to avoid employment ending). That is not to say that furlough will be used – but it should be considered