COVID-19 Coronavirus Business Impact: UK Coronavirus Job Retention Scheme – more guidance issued

The UK Government has issued further detail about its Coronavirus Job Retention Scheme. In this OnPoint we report on some of the specific issues relating to the operation of this scheme now addressed in more detail in the updated guidance.

Introduction

On Saturday 4 April 2020 the UK Government updated its guidance on the Coronavirus Job Retention Scheme (“the Scheme”) initially announced on 20 March 2020 and about which further detail was announced on 26 March 2020.

Broadly the Government will reimburse to employers 80 percent of employees’ regular pay while they are furloughed – up to a cap of £2,500 per month – together with the related employer’s NI costs and minimum auto enrolment pension payments. The employer can, but is not required to, top up the balance of an employee’s pay. Furloughed employees may not work for the employer while furloughed – so reduced hours will not qualify for reimbursement. The furlough must be for a minimum three-week period and employees will typically need to consent to the consequent changes to their employment contracts. Only those employees who were on payroll as at 28 February 2020 are covered but those whose employment has ended in the meantime can be re-engaged and put on furlough. The scheme is scheduled to last for three months from 1 March 2020 but may be extended.

The updated guidance clarifies several of the uncertainties that have been concerning employers and their advisers in relation to the operation of the Scheme. The updated guidance again confirms that the Government expects the Scheme to be available by the end of April 2020 and that it may be extended beyond its current duration of three months from 1 March 2020.

This OnPoint, which should be read in conjunction with our previous OnPoints (linked to above), summarises the main issues confirmed and clarified in the updated guidance.

Executive Summary

The most important points clarified in the updated guidance are that:

• the Scheme covers “workers” paid under PAYE and not just employees;
• employees who ceased work following 28 February 2020 can be re-engaged and furloughed by their former employer even if they were not made redundant;
• “compulsory” commission falls within the scope of the Scheme;
• it is now explicitly confirmed that employees can continue work with another employer while furloughed;
• rotating furlough arrangements are permitted as long as the minimum furlough period of three consecutive weeks is observed in relation to each period of furlough;
• furlough arrangements must be notified to employees in writing rather than just recorded in writing;
• records must be kept for five years.
  

Redundancy

The updated guidance does not explicitly provide that reimbursement of wage costs under the Scheme only applies to those employees who would otherwise have been made redundant. The updated guidance states that a grant under the Scheme is available “[i]f you cannot maintain your current workforce because your operations have been severely affected by coronavirus (COVID-19)” and that the Government “recognises different businesses will face different impacts from coronavirus.”

Administrators

Whilst it had previously been confirmed that the administrators of a company in administration could take advantage of the Scheme, the updated guidance makes clear the Government’s expectation that “an administrator would only access the scheme if there is a reasonable likelihood of rehiring the workers”, for instance “as a result of an administration and pursuit of a sale of the business.”

Termination of employment since 28 February 2020

The initial guidance on the Scheme suggested that only employees made redundant since 28 February 2020 could be re-engaged by the employer and put on furlough. On this basis the Scheme would not cover those who had resigned in the normal course – who of course could not be furloughed for the purposes of the Scheme by their new employer as they would not have been on the new employer’s PAYE payroll as at 28 February 2020.

It has now been confirmed that those who left an employer’s employment after 28 February 2020 can be reengaged and put on furlough even if they had not been made redundant. The updated guidance now states specifically that “[i]f you made employees redundant or they stopped working for you after 28 February 2020, you can re-employ them, put them on furlough and claim for their wages through the scheme.”

Unpaid leave

The updated guidance confirms that employers can only claim for employees who commenced unpaid leave after 28 February 2020.

Shielding Employees

Employees who are “shielding” in accordance 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, as the guidance puts it, the employer would otherwise have to make them redundant.

Employees with caring responsibilities

Employees who are unable to work because they have caring responsibilities resulting from COVID-19 – for example, for children – can be furloughed.

Employees with more than one job

That an employee could take up separate employment while furloughed was not explicitly confirmed in the earlier guidance. The updated guidance confirms that if an employee has more than one employer:

• the individual can be furloughed separately by each employer in relation to each job; and
• employees can be furloughed in one job but continue working for another employer and to receive their normal wages for that employer.
  

Fixed-term contracts

Employees on fixed-term contracts can be furloughed and their contracts can be renewed or extended without prejudicing the application of the Scheme. Eligibility under the Scheme ends on the termination of the fixed-term contract.

Non-employees

The updated guidance provides more detail about the application of the Scheme to those who are not employees for the purposes of employment law – in the sense of not being engaged under a contract of service or apprenticeship. Categories of non-employee that are covered, and to which the other requirements of the Scheme still apply in any event, include:

• office holders – the guidance notes that where the office holder is a director or member of an LLP, any furlough arrangements should be adopted formally as a decision of the company or LLP.
  
• Companies Act directors – the guidance indicates that where the Board considers that furlough arrangements are appropriate in the context of its statutory duties – to act in the best interest of the company – this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned. Furloughed directors may carry out particular duties to fulfil their statutory obligations as directors “provided they do no more than would reasonably be judged necessary for that purpose.” Consistent with this and the Scheme more generally, a furloughed director should “not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.” This principle also applies to salaried individuals who are directors of their own personal service company.
  
• salaried members of LLPs – the guidance notes that there may need to be a formal decision of the LLP to furlough the LLP member and record the necessary variation of the member’s obligations to work, to receive remuneration etc.
  
• agency workers paid through PAYE (including those employed by umbrella companies) – the updated guidance notes that furlough arrangements for agency workers should be agreed between the agency, as the “deemed employer,” and the worker. It also suggests that the need to furlough these workers may need to be discussed with the agency’s end user clients. The updated guidance confirms that agency workers should perform “no work for, through or on behalf of the agency that has furloughed them while they are furloughed, including for the agency’s clients.” In relation to umbrella companies, it will be for the umbrella company and the worker to agree whether to furlough the worker or not.
  
• workers – the guidance now expressly addresses the position of “limb (b)” workers – i.e. those who are not employees in the sense of being engaged under a contract of service or apprenticeship and are not truly self-employed independent contractors. Workers who are paid through PAYE can be covered by the Scheme whereas those who pay tax on their trading profits through Income Tax Self-Assessment may be eligible for the Self-Employed Income Support Scheme.
  

Rotating furlough

It is now clear that furloughing can be rotated across a group of employees. The updated guidance confirms that employees must return to work at the end of a furlough period and can be furloughed multiple times provided that each period of furlough is for a minimum period of three consecutive weeks.

Overtime, fees, commission, bonuses and non-cash payments

Reimbursement under the Scheme can be claimed in relation to any “regular payments” that the employer is “obliged to” pay to its employees including wages, past overtime, fees and “compulsory” – presumably contractual – commission payments. Although no further detail has provided to what the term means, “fees” had been excluded from the scope of the Scheme in the earlier guidance. As before, discretionary bonuses (including tips), commission payments – other than those that are compulsory – and non-cash payments are not covered.

Benefits

The updated guidance reiterates (in more detail) that the Scheme does not cover non-monetary benefits including taxable benefits in kind – in respect of which tax will still be due – or benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay.

Payments relating to family leave

The updated guidance again notes that the normal rules for maternity and other forms of statutory parental leave and pay continue to apply and reiterates that under the Scheme claims can be made in relation to “enhanced (earnings related) contractual pay” for employees who qualify for maternity pay, adoption pay, paternity pay and shared parental pay.

Salary sacrifice schemes

The updated guidance confirms that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.

Apprenticeship Levy and Student Loans

Both the Apprenticeship Levy and Student Loans should continue to be paid as usual but are not covered by the Scheme.

The claim period

The updated guidance confirms that backdated claims can be made as it indicates that claims should be started from the date that the employee finishes work and starts furlough – and not the date when the decision is made or when the employee’s furloughed status is recorded in writing. Payments under the Scheme will be prorated if an employee is only furloughed for part of a pay period.

Written confirmation and records

The updated guidance confirms that:

• to be eligible for reimbursement under the Scheme employers must confirm in writing to the employees in question that they have been furloughed; and
  
• records of the communications recording an employee’s furlough arrangements must be kept for five years.
  

Unanswered questions

The updated guidance leaves some questions unanswered – in particular, the interaction of a period of furlough, reimbursement of wages under the Scheme and employees’ holiday entitlements remains unclear as does whether, in the context of a TUPE transfer, the new employer can claim reimbursement under the Scheme in respect of a transferring employee who was furloughed at the point of transfer.