What is the Employee Retention Scheme and when should your business consider using it?
Update 4 November 2020 – Furlough Extension and Postponement Job Support Scheme (JSS)
The Coronavirus Job Retention Scheme (CJRS or furlough scheme) was due to come to an end on 31 October and to be replaced by the JSS with effect from 1 November. Under the JSS there would be different levels of support for businesses remaining open and those required to close, both of which were less generous than the CJRS.
On 31 October the Prime Minister announced a four-week national lockdown to start on 5 November. It was announced that the furlough scheme would be extended until December and the JSS postponed. The JSS will come into effect once the furlough scheme ends.
Government guidance on use of the scheme is expected to be set out shortly, however we understand that all UK employers will be eligible and will have the flexibility to bring furloughed employees back to work on a part time basis or to furlough them full time. The level of support available will revert to August 2020 levels, with the government covering up to 80% of salary to a maximum of £2,500 and the employer paying NICs and pension contributions. There is no need for an employee to have been furloughed previously although they must have been included on their employer’s RTI submission before midnight on 30 October 2020.
The Job Retention Scheme allows businesses to claim up to 80% of any furloughed (those on a leave of absence) workers wages. We provide answers to questions to help you understand how your business can use the scheme (NB – these FAQs relate to the original form of the Job Retention Scheme. All information correct as at 10 June 2020):
Which businesses are covered?
The scheme is open to all UK employers with a UK bank account and who had an operational PAYE payroll scheme on or before 19 March 2020. It includes businesses, charities, recruitment agencies and public authorities (although in practice the majority of public sector organisations are expected to be providing essential public services during the outbreak).
Which employees are eligible?
The scheme is intended to cover all employees regardless of their contract type, provided that they were employed on 19 March 2020 and on their employer’s PAYE payroll on or before 19 March 2020. They must have been included on an RTI submission to HMRC on or before 19th March 2020. The scheme covers full time and part time employees, apprentices, employees on fixed term contracts and employees on flexible or zero hours contracts. Foreign nationals are eligible to be furloughed; grants under the scheme won’t be treated as “access to public funds” and employees on all categories of work visa are eligible.
As well as employees, the following categories can also be furloughed as long as they are paid via PAYE: office holders (to include company directors), salaried members of LLPs, agency workers, and limb (b) workers.
The scheme will run until the end of October 2020 and the level of government support will be gradually scaled back from August. The Scheme will be closed to new entrants from 30 June and from that point onwards, employers will only be able to furlough employees that they have furloughed for a full 3 week period prior to 30 June. This means that an employer will need to place any employees on furlough by 10 June 2020.
There is one exception to this cut-off date. Employees who are on paternity and maternity leave who return to work in the coming months will be eligible for the government’s furlough scheme even after 10 June 2020. This will only apply where they work for an employer who has previously furloughed employees.
How will the level of support change?
The Scheme will run until the end of October 2020, and the level of government support will be gradually reduced from August with employer’s expected to share the wage costs. Until 31 July 2020 the government will continue to pay the full grant, up to the lesser of 80% of the employee’s wage costs or £2,500, plus employer National Insurance Contributions and the minimum auto-enrolment pension contributions. The level of support will then change monthly as below:
|Aug||Government pays the wages up to a cap of £2,500||Employer pays the employer NICs and pension contributions|
|Sept||Government pays 70% of wages up to a cap of £2,187.50||Employer pays 10% of wages plus employer NICs and pension contributions|
|Oct||Government pays 60% of wages up to a cap of £1,875||Employer pays 20% of wages plus employer NICs and pension contributions|
What is “flexible furlough”?
From 1 July 2020, businesses will be able to bring furloughed employees back to work part time whilst still claiming under the Scheme for their normal hours not worked. When claiming the grant for furloughed hours employers will need to report and claim for a minimum period each week. Further information on the mechanics of part time working is expected imminently.
Is the cap of £2,500 pounds inclusive of wage costs such as pension contributions?
The reimbursement covers 80% of usual monthly wage costs to a cap of £2,500 per employee plus the associated employer National Insurance contributions and minimum auto-enrolment employer pension contributions (up to 3%). These payments can be recovered in addition to the cap.
Regular payments which the employer is obliged to make, for example non-discretionary overtime or non-discretionary commission payments can be included in the calculation of wages.
Any discretionary payments where there is no contractual obligation to pay them, such as tips or discretionary bonuses, should be excluded.
The sum paid to the employee will remain subject to income tax and National Insurance in the usual way.
Do I have to top up the remaining 20%?
No, there is no obligation on an employer to top up the remaining 20% and they can choose whether or not they wish to do so.
If however you are not going to top up the payments, you will require the employee’s consent in order to avoid a claim of breach of contract and unlawful deduction of wages. If you do top up payments, the Scheme will not cover the cost of any employer NICs or pension contributions in respect of the top up.
What about employees who had already been given notice of redundancy or placed on unpaid leave after 28 February 2020 and before the government scheme was announced?
The scheme is back dated to 1st March 2020 and it is therefore possible for employees who had already begun being given notice of redundancy or placed on unpaid leave from 28th February to be placed on furlough leave instead. This applies as long as they were on their employer’s PAYE payroll as at 28 February 2020, and an RTI submission notifying payment in respect of that employee to HMRC had been made on or before 28 February 2020.
Whilst the guidance is unclear, it would seem that this applies to employees who had been made redundant or placed on unpaid leave because of COVID-19, rather than for an unrelated reason.
Do employees have to be at risk of redundancy to be placed on the scheme?
The guidance on this point remains unclear, however the purpose of the Coronavirus Job Retention Scheme is to cover those who would otherwise have been laid off as a result of the crisis. HMRC retain the right to retrospectively audit all aspects of the scheme to enable them to claim back for fraudulent or erroneous claims and we recommend taking advice as to whether furlough is the best course of action in your particular circumstances.
Can I put an employee on long-term sick on furlough leave?
The government guidance suggests that employees on sick leave or who are self-isolating should receive statutory sick pay (subject to any contractual entitlement to company pay), but they can be placed on furlough once they have recovered or no longer need to self-isolate.
The government guidance confirmed that employees who are on long term sick are eligible to be furloughed. Our view is that this sits uncomfortably with the Treasury Direction of 15 April 2020 and it seems logical that where these employees remain unfit to work due to a non-COVID reason, they would not qualify until such time as they were fit to work.
What do I do where an employee is self-isolating or on sick leave?
The minimum length of time for which an employee can be furloughed is 3 weeks and the scheme is not intended to cover short-term absences. Where an employee is self-isolating or on sick leave as a result of Coronavirus, they will be entitled to Statutory Sick Pay. Whether they are entitled to enhanced contractual sick pay will be governed by their employment contract and / or any company sickness absence policy.
Although short-term illness or isolation shouldn’t be a decision in deciding whether to furlough an employee, these employees can still be furloughed for business reasons.
I have several employees who are shielding. Can they be furloughed?
Employees who are shielding, or who live with someone who is shielding, can be furloughed. Employers can decide whether or not to furlough these employees.
What steps do I need to take to place employees on furlough leave?
Placing someone on furlough involves a change in their terms and conditions and you need their agreement. The proposal to place an employee on furlough leave needs to be discussed with them and their agreement to the change to be obtained. Where an employee agrees to be placed on furlough leave this needs to be confirmed to them in writing.
If you intend to put 20 or more employees on furlough leave, you may wish to take advice on your collective consultation obligations.
How do I select who to place on furlough leave?
This will in large part be driven by the needs of your business and which areas require a reduced workforce or will be subject to a temporary closure. It is possible to ask for volunteers in the first instance, although there is a risk that you may receive requests from more employees then you wish to furlough leaving you in a situation where you have to follow some form of selection exercise in any event.
One approach may be to draw up an objective selection criteria such as would be used in a redundancy scoring exercise.
The decision must not based on any discriminatory criteria, unless such discrimination is likely to be justified. For example, it may be possible to justify choosing to use age as a criterion in circumstances where people over 70 are understood to be at higher risk.
Can I rotate furlough leave between my employees?
The minimum length of time somebody can be placed on furlough is currently set at three weeks. There doesn’t seem to be any reason why you could not move employees on and off furlough leave subject to that three week period.
An employee has asked to be put on furlough leave. Do I have to agree?
There is nothing to stop an employee from asking to be placed on further leave however you are under no obligation to agree. Whether or not to furlough employees ultimately remains a business decision.
You should however be wary of jumping straight to a refusal where the alternative is redundancy in case the employee subsequently sought to argue that the decision to dismiss was unreasonable in the circumstances.
What can employees do whilst on furlough leave?
The main thing to remember is that an employee cannot do any work for your business, or any linked or associated business, whilst on furlough leave.
Where an employee has more than one employer, each is treated separately for the purposes of the Scheme.
There is nothing in the guidance to suggest that an employee cannot work for another employer, although this would remain subject to any restrictions in their employment contract or as may be agreed when placing them on furlough leave.
Employees on furlough leave are able to do volunteer work and indeed a number of businesses are actively encouraging such activity.
The government guidance also confirms that an employee can still carry out training whilst on furlough and where this is agreed in advance with their employer, but they must be paid the national minimum wage in respect of the training period, even if takes them above the 80% they would otherwise receive.
How do I make the claim to HMRC for reimbursement?
The online claims service has been live since 20 April 2020. You should receive payment within six working days of submitting an application.
Guidance on the process for making a claim and the information you need to provide can be found at: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme.
This page was last updated on 10 June 2020. Whilst these FAQs are intended to provide guidance on the employment law implications of the Job Retention Scheme, they do not constitute legal advice and should not be relied upon as such. The guidance and information around the scheme is constantly evolving and if you wish to discuss your specific situation, please contact Natalie on email@example.com or 0115 910 6237.
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