Please see our 6 April 2020 alert for details on the UK government’s updated guidance on the Coronavirus Job Retention Scheme (JRS) on 4 April 2020.
Her Majesty’s Revenue and Customs (HMRC) recently published further guidance on the UK government’s Job Retention Scheme (JRS) during the coronavirus crisis.
Eligibility and entitlements under the JRS
The JRS is open to all UK employers (regardless of size and including businesses, charities and public authorities) who established or started a PAYE payroll scheme on or before 28 February 2020 and who have a UK bank account. For the avoidance of doubt, recruitment agencies who pay their employees through PAYE are also eligible. The JRS is currently to operate until 30 May 2020, with effect from 1 March 2020, but that may be extended.
Under the JRS, employers will be able, by agreement, to place designated employees on furlough leave for a period of at least three months and claim a grant equivalent of the lesser of 80 percent of each furloughed employee’s normal wage up to a cap of £2,500 per month.
Employers will also be able to claim employer National Insurance contributions and minimum auto-enrolment employer pension contributions (3 percent of income above the lower earnings limit of qualifying earnings, namely £512 per month or £520 per month from 5 April 2020).
Where businesses are in administration, the administrator will be able to access the JRS.
Employers may, but are not compelled to, pay the difference between the sums payable under the JRS and the employee’s full pay. However, any refusal to pay the difference must be agreed with the furloughed employee.
Grants paid under the JRS are to be treated as income in the employer’s calculation of its taxable profit for corporation tax purposes, but employment costs can be deducted in the usual way for income tax and corporation tax purposes.
Claims are by reference to the furloughed employee’s wages or salary before tax, as at 28 February 2020. For employees with irregular earnings, the correct amount may be assessed as an average wage or salary before tax at the higher of the employee’s wage or salary during the same month in 2019 or average earnings from the 2019-20 tax year (or, if employed for less than a year, average wages or salary before tax since commencing employment).
Furloughed employees must have been on the PAYE payroll on or before 28 February 2020 and employed under full-time, part-time, agency, flexible or zero-hour employment contracts. The JRS does not apply to self-employed workers, but the government has announced its intention to introduce an equivalent scheme for such workers.
The JRS covers employees who have been made redundant since 28 February 2020, if they are re-employed by their employer.
Employees who are on sick leave or are in self-isolation in accordance with government regulations or guidance cannot be furloughed until their period of sickness absence or self-isolation has ended. However, employees who are “shielding” in accordance with UK government guidance may be furloughed.
The rights of furloughed employees
Furloughed employees may carry out volunteer work or training but may not carry out work for their employer. During any training, employers must ensure that they are paid the national minimum wage if this is more than the 80 percent government grant.
Furloughed employees retain their employment rights, including rights to statutory sick pay, maternity rights, unfair dismissal rights and rights to redundancy payments if dismissed for redundancy. Therefore, employees who qualify also retain their entitlements to statutory maternity pay, which is six weeks at 90 percent of normal weekly pay, followed by 33 weeks of the lesser of 90 percent of normal weekly pay or £148.68 per week (rising to £151.20 from April 2020). The same principles apply to employees qualifying for adoption, paternity or shared parental pay.
Claims will be made through an HMRC portal, which will not be available until the end of April 2020. In order to claim, employers will need to provide the following:
- ePAYE reference number
- Number of employees being furloughed
- Claim period (start and end dates)
- Amount claimed (per the minimum length of furloughing of three weeks)
- Bank account number and sort code
- Contact name
- Contact telephone number
HMRC will make payments to employers eligible for the grant via BACS payment into the employer’s UK bank account.
Employers will be able to submit only one claim every three weeks and the claim should be made on, or shortly in advance of, the date of their usual payroll operation.
All grant payments made must be paid to employees, or presumably accounted for in respect of payments already made to them (e.g., no deductions in respect of administration or other fees). The grant of 80 percent of normal wage or salary (capped at £2,500) is subject to deductions for income tax and employee National Insurance contributions.
Some remaining areas of uncertainty
What additional eligibility criteria may apply to claims under the JRS?
HMRC guidance does not provide further detail on whether any conditions will apply in respect of the basis for an employee’s designation as a furloughed employee. Previous UK government guidance has described the intention of JRS as being to provide financial support where the current coronavirus crisis has put employees at risk of redundancy or layoff.
Is it necessary for redundancy or layoff to be the alternative to use of the JRS at the time an employee is placed on furlough? If an employee is at risk of layoff or redundancy, is it necessary for this situation to have been caused by, or related to, the impact of the coronavirus crisis? In either case, if so, what evidence might HMRC require? For example, if an employer is already considering redundancies for reasons unrelated to the coronavirus crisis, can it now rely on the public funds available through the JRS instead?
Employers are having to consider these arrangements before full guidance is available and before the HMRC portal is available. Although in practical terms it seems unlikely that HMRC will be in a position to examine applications in detail in the short term, HMRC guidance makes it clear that it reserves the right to audit employers’ applications retrospectively.
Is there an obligation for employers to use or consider using the JRS as an alternative to redundancy?
None of the guidance suggests that an employer is obliged to make use of the JRS. On the other hand, employers who dismiss employees for redundancy are required to consider alternatives to redundancy or face potential claims for unfair dismissal. Therefore, it may be sensible to consider whether to furlough employees as an alternative to redundancy and ensure that there are good reasons for choosing redundancy instead (e.g., the immediate financial pressures on the business or whether the reasons for the redundancy are related to the coronavirus crisis).
How should furloughed employees be selected?
Some furloughed employees may resent their designation when others remain employed on full pay. Equally, remaining employees may resent that they must continue working while furloughed employees receive the majority of their pay for doing nothing. Therefore, even if a full-blown redundancy-style selection process is not practical, employers should ensure that furloughed employees are selected on justifiable, objective and non-discriminatory grounds.
When will collective consultation be required?
Guidance on the JRS makes clear that the scheme is subject to UK employment law. This means that employees may be placed on furlough only by agreement and, if 20 or more employees are to be furloughed, the collective consultation regime may be triggered. However, as with other proposed contractual changes, whether and when collective consultation obligations may be triggered will likely depend on what action an employer intends to take if employees do not immediately agree to furlough leave (i.e., whether dismissal or a unilateral imposition of furlough leave is contemplated).
Are employees who transferred to a new employer after 28 February 2020 under the Transfer of Undertaking (Protection of Employment) Regulations 2006 (TUPE) eligible?
It is unclear whether employees who transferred by operation of TUPE after 28 February 2020 will be eligible for furlough leave. Although the effect of a TUPE transfer is to put the transferee into the shoes of the transferor in relation to all matters connected with the contract of employment of a transferring employee, an employee transferring under TUPE after 28 February will not have been on the transferee’s payroll on the 28 February 2020 cutoff date.
McGuireWoods has published additional thought leadership related to how companies across various industries can address crucial coronavirus-related business and legal issues, and the firm’s COVID-19 response team stands ready to help clients navigate urgent and evolving legal and business issues arising from the COVID-19 pandemic.