COVID-19 Coronavirus Business Impact: UK Coronavirus Job Retention Scheme – What We Do and Don’t Know So Far

March 23, 2020


On Friday 20 March 2020, Rt Hon Rishi Sunak MP, the Chancellor of the Exchequer, announced in broad outline the UK’s Coronavirus Job Retention Scheme. As he described the scheme in his statement:

“Any employer in the country small or large, charitable or non-profit, will be eligible for the scheme. Employers will be able to contact HMRC for a grant to cover most of the wages of people who are not working but are furloughed and kept on payroll rather than being laid off."

What we do know

Very little detail is available as yet of how the scheme will operate in practice in relation to those who are “furloughed”. Being furloughed is not a concept which has previously been used in UK employment law but describes the situation where staff remain employed but are not provided with work.

The Government has confirmed that:

  • HMRC will reimburse 80% of furloughed workers’ wage costs up to a cap of £2,500 per month.
  • The scheme will be open to PAYE registered employers.
  • Employers will need to “designate” affected employees as furloughed workers and notify those employees of this change.
  • Employers will need to submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal.
  • The scheme will be backdated to 1 March 2020 and will last for three months but may be extended.
  • To qualify for the scheme, employees should not undertake work for the employer while furloughed.
  • It is a matter for the employer whether it makes good any shortfall in the employee’s normal earnings while furloughed and in receipt of the payments made under the scheme.

What we don’t yet know

As the detailed operation of the Coronavirus Job Retention Scheme has not yet been announced; there are a number of issues which will need clarification including:

  • The detail of the information required to be submitted to HMRC about the employees who have been furloughed and their earnings.
  • To what extent, and on what basis, employers will need to demonstrate that employees would otherwise be or have been laid off to be eligible to receive payment under the scheme.
  • How the scheme will operate in relation to zero hours employees and the application more generally of the scheme to those who are workers rather than employees for employment law purposes.
  • Whether the £2,500 per month figure is the maximum payment per employee or the maximum earnings 80 per cent of which will be reimbursed. The former appears to be the intention.
  • What will count towards reimbursable wage costs in terms of items such as salary, allowances, commissions etc.
  • Whether responsibility for the payment of employer’s national insurance contributions falls within or must be met by the employer in addition to the payments to be made by the Government under the scheme.
  • On what basis employers might be able to re-engage employees who they have already dismissed and then continue to employ them on a furloughed basis within the scope of the scheme.
  • What, if any, other conditions will apply to the payments made which are described as a “reimbursement” in the guidance to employers and a “grant” in the guidance to employees.
  • How the scheme will be policed to ensure that it is not abused.

The process of furloughing

The Government’s announcements concerning this scheme note, in relation to the process of designating an employee as furloughed, that “changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.” Where the employer does not have the power, under employees' contracts of employment or a collective agreement, to impose a lay off from work and reduced pay, employees’ agreement will be needed to their being furloughed.

Employers wishing to take advantage of this scheme will need to plan carefully how they are going to address the changes needed to be made to employment arrangements to fall within its scope - in terms of seeking agreement to and documenting employees being furloughed.

Communication and consultation about the process of furloughing will need to be carefully handled as will the selection of employees whom the employer would wish be furloughed to reduce the risk of constructive dismissal or discrimination claims from those unhappy with their treatment.

Next steps

At this stage a system has not yet been set up for employers to provide the relevant information and receive payment under this scheme and HMRC is in the process of setting up a payment system urgently and the Government expects the first payments to be made before the end of April.

The introduction of the Coronavirus Job Retention Scheme may have an impact on employers’ approach to cost saving and restructuring in response to the consequences for their businesses of the COVID-19 epidemic. They will need to consider whether they should pause any plans which are about to be implemented until further detail of this scheme is available and they are able to assess whether the scheme can enable them to avoid dismissals and other cost saving measures at this stage. Employers may well want - sooner rather than later - to start identifying employees whom the employer would wish to furlough – and how utilising the scheme may affect plans being developed for potential redundancy exercises. Another important decision for those utilising this scheme will be whether to make good any shortfall in an employee’s pay - which will amount  to 20% - or more if the employee earns more than the limit applying under the scheme.

Depending on their circumstances, employers will still need to consider the steps they may need to take by way of cost savings and restructuring if employees cannot contractually be compelled to or will not agree to be furloughed. Further guidance on the issues which employers need to consider in relation to cost cutting and restructuring exercises relating to their employees can be found here.

Employers will need to keep a close eye on the roll out of the Coronavirus Job Retention Scheme and its detailed operation. We will issue further briefings as and when further detail is available.

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