UPDATED: Coronavirus job retention scheme - what you need to know
Coronavirus Job Retention Scheme: FAQS
This information is based on the HMRC government guidance updated on 4 April 2020 and the Acas guidance on using holiday updated 7 April
What is it?
The Coronavirus Job Retention Scheme is designed to support employers who cannot maintain their current workforce because their operations have been severely affected by coronavirus (COVID-19). It enables them to furlough employees and apply for a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
It is a temporary scheme in place for 3 months starting from 1 March 2020, but it may be extended if necessary.
The scheme is designed to help employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy. However, the guidance says all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus.
The portal required to operate the scheme is expected to be up and running by 20 April 2020 – please see here for more details.
Which employers are eligible?
All UK employers with a PAYE scheme created and started on or before 28 Feb 2020, enrolled for PAYE online and with a UK bank account.
This includes businesses, charities, recruitment agencies and umbrella companies paying agency workers through PAYE, individual employers and public authorities. Employers (public and non-public sector) receiving public funding for staff costs should use that money to pay staff and should not furlough them.
Organisations receiving public funding specifically to provide services necessary to respond to COVID-19 are not expected to furlough staff and so should not access the scheme.
Where a company is being taken under the management of an administrator, the administrator will be able to access the scheme. However, an administrator should only access the scheme if there is a reasonable likelihood of rehiring the workers.
Who in the workforce is covered?
The guidance clarifies that it is not just employees in the employment law sense that are covered by the scheme. Any of the following can benefit from the scheme if they are paid via PAYE:
- Office holders (including company directors)
- Salaried members of a Limited Liability Partnership
- Agency workers (including those employed by umbrella companies)
- Apprentices - they can continue to train while furloughed but must be paid the appropriate national minimum wage for time spent training
The guidance has separate sections dealing with each of these which employers should refer to where relevant.
Which ‘employees’ are covered?
Those on the employer’s PAYE payroll on or before 28 February 2020. Employees hired after 28 February are not covered and so for these employees the employer will have to decide whether to continue to pay them their contractual salary and benefits or consider redundancy or other options.
The employees can be employed on any type of contract, including temporary or zero-hour contracts.
Employers can furlough employees who are on fixed-term contracts and they can renew/extend their contracts during the furlough period without breaking the terms of the scheme.
Employees who left employment since 28 February
Employees made redundant or who stopped working for their employer on or after 28 February 2020 can be re-employed and put on furlough. The employer can then claim for their wages through the scheme. This means that an employee who left employment for any reason is potentially eligible, if their employer agrees to re-employ them and put them on furlough.
Employees working reduced hours?
Employees working, but on reduced hours or for reduced pay, are not eligible.
Employees on unpaid leave?
Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.
Employees on sick leave or self-isolating?
Employees on sick leave or self-isolating should get Statutory Sick Pay, but they can be furloughed and claimed for after this.
Employees who are shielding?
Employees who are shielding in line with public health guidance (or need to stay home with someone who is shielding) can be furloughed if they are unable to work from home and they would otherwise have to be made redundant.
Employees with caring responsibilities?
Employees who are unable to work because they have caring responsibilities resulting from COVID-19 can be furloughed, for example, employees that need to look after children.
Employees on maternity, adoption, paternity or shared parental leave?
The guidance suggests that these employees can be furloughed. The normal rules for maternity and other forms of parental leave and pay apply but employers can claim through the scheme for any contractually enhanced pay.
Employees with more than one job?
If an employee has more than one employer, they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
Employees can be furloughed in one job and receive a furloughed payment but continue working for another employer and receive their normal wages.
No work rule
While on furlough, the employee must not undertake work for or on behalf of their employer - this includes providing services or making money for their employer.
Although not in the employer guidance, the employee guidance confirms that the prohibition on doing any work for an employer while furloughed includes working for a linked or associated employer.
Directors will be able to carry out statutory duties without falling foul of the ‘no work’ rule, provided they do no more than would reasonably be judged necessary for that purpose.
A furloughed employee can take part in volunteer work or training, provided it does not provide services to or generate revenue for or on behalf of their employer. An employer can agree to find furloughed employees new work or volunteering opportunities while on furlough if this is in line with public health guidance.
Furloughed employees can engage in training, provided they do not provide services to, or generate revenue for, or on behalf of their employer. The guidance says furloughed employees should be encouraged to undertake training.
Where furloughed employees undertake training at the request of their employer, they must be paid at least their appropriate national minimum wage for this time.
Starting work for another employer?
An employee can start work for another employer while furloughed, if the employment contract allows this.
How long must furlough last?
Furlough must last a minimum of 3 consecutive weeks. Employees can be furloughed multiple times, but each separate instance must be for a minimum period of 3 consecutive weeks. This enables employers to rotate furloughed employees so they take it in turns to be furloughed.
How much can employers claim?
An employer can claim 80% of furloughed employees’ wages, up to £2,500 a month plus:
- The associated Employer National Insurance contributions on that subsidised wage and
- Minimum automatic enrolment employer pension contributions (so capped at 3%) on that subsidised wage
An employer can also choose to top up an employee’s salary beyond the 80% but is not obliged to.
Employers will be responsible for all employment costs for any top-up.
Full time and part time salaried employees
Employers should use the employee’s salary before tax, as at 28 February 2020 to calculate the 80%.
Employees with variable pay
If the employee has been employed for 12 months or more, the employer calculates the 80% using the higher of either:
- The same month’s earning from the previous year
- Average monthly earnings from the 2019-20 tax year
If the employee has been employed for less than 12 months, the employer can claim for 80% of their average monthly earnings since they started work.
If the employee only started in February 2020, the employer should work out a pro-rata for their earnings so far and claim for 80% of that.
Past Overtime, Fees, Commission, Bonuses and non-cash payments?
The guidance says employers can claim for any regular payments they are obliged to pay their employees. As well as wages, this includes past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments should be excluded.
Employers cannot claim for benefits in kind or any employer pension contributions in excess of minimum auto-enrolment contributions.
Student loans and the apprenticeship levy?
Student loans and the apprenticeship levy must be paid as usual but grants under the scheme do not cover these.
Where there is a salary sacrifice arrangement in place, the employer can only claim for the post-sacrifice salary. HMRC agrees that COVID-19 counts as a life event that could warrant a change to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.
How much will the employee receive?
The employer must pay the employee all the grant they receive for the employees’ gross pay. They cannot charge any fees from the money that is granted.
This means as a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month, less deductions for income tax, National Insurance Contributions, employee pension contributions on the subsidised wage and any other statutory deductions.
This can bring their wages below the National Living Wage/ National Minimum Wage as they are only entitled to this when they are working (see below). However, furloughed employees must be paid the National Living Wage/ National Minimum Wage if undertaking training.
National Minimum Wage
Employees are not entitled to the National Living and Minimum Wage while furloughed, except where they are undertaking training. Where an employee is training and so entitled to the National Living/ Minimum Wage, the employer will have to fund the difference between the furlough payment and the National Living/ Minimum Wage.
How do you furlough an employee?
Employers should discuss with their staff and make any changes to the employment contract by agreement. Usual equality and discrimination laws apply when making decisions, including who to offer furlough to.
If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment. This seems to be referring to procuring changes to terms and conditions by dismissal and re-engagement. Therefore, if employees agree readily to be furloughed it would seem collective consultation is not necessary.
To be eligible for the grant, the employers must confirm in writing to their employee that they have been furloughed. A record of this communication must be kept for five years.
Employee rights while furloughed
Employees still have the same rights at work, including Statutory Sick Pay, maternity and other parental rights, rights against unfair dismissal and redundancy payments.
Grants cannot be used to substitute redundancy payments.
The HMRC guidance says nothing about holiday and holiday pay during furlough. Acas has issued guidance on taking holiday and while it clarifies some things, others still remain unclear.
The guidance indicates that:
- Furloughed employees can still request and take their holiday in the usual way. This includes bank holidays
- Furloughed employees can still be required to use a day’s paid holiday for bank holidays
- Furloughed employees who usually work bank holidays should check with their employer to see if they have to take that day as holiday or if they can take the time off at a later date
- Furloughed employees should be paid their usual pay in full for any holidays they take
- An employee may need to carry over holiday if they’ve been 'furloughed' and they cannot take paid holiday because of coronavirus.
It is currently unclear whether employers can require employees to take holiday (other than bank holidays) while furloughed. The Acas guidance does not say anything about this. However, it does recommend employers and employees should be as flexible as they can about holiday during the coronavirus pandemic and says it is a good idea to:
- talk about any plans to use or cancel holiday during coronavirus as soon as possible
- discuss why holiday might need to be taken or cancelled
- listen to any concerns, either from staff or the employer
- invite and suggest ideas for alternatives
- consider everyone’s physical and mental wellbeing
- be aware that it’s a difficult time for both employers and staff
We look at holiday more generally during the pandemic here.
Links to guidance
The articles published on this website, current at the date of publication, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your own circumstances should always be sought separately before taking any action.