Coronavirus Job Retention Scheme guidance – another turn of the documents and still some uncertainty…
On Wednesday 1 July 2020 the Government updated its various guidance materials addressing the Coronavirus Job Retention Scheme (“the Scheme”) and its operation. At least this time there are no dramatic changes but one crucial question remains unanswered about claims relating to those employees made redundant during the operation of the Scheme.
Revised guidance on the operation of the Scheme was issued on Wednesday 1 July 2020 following hot on the heels of the third Treasury Direction (“the Direction”) issued on Friday 26 June 2020. These iterations of the Government’s various guidance materials do not introduce any material changes to the operation of the Scheme. However, one important question concerning whether notice pay can be reclaimed under the Scheme remains less clear than prior to the issue of the Direction.
The main points to note in the Government’s revised guidance are as follows:
- If employees are flexibly furloughed, hours spent on holiday count as furloughed hours. The guidance notes as follows – “Employees can take holiday whilst on furlough. If an employee is flexibly furloughed then any hours taken as holiday during the claim period should be counted as furloughed hours rather than working hours. Employees should not be placed on furlough for a period simply because they are on holiday for that period.” In essence, this means that time spent by an employee on holiday during a claim period is treated as time on furlough. This makes an employer’s life easier in a situation where, by way of holiday and furlough, an employee remains furloughed in full for an entire claim period. The employer then does not need to apply the complex flexible furlough calculations – the simpler approach where an employee is furloughed in full for the claim period then applies.
- The guidance on making claims now includes information about what to do if the employer has claimed too much and does not plan to make another claim.
- It is confirmed that employers should deduct income tax and national insurance contributions from the total payment made to an employee (including any furlough grant) and pay this direct to HMRC.
- It is also confirmed, as this had not been included in the most recent version of the guidance, that returning military reservists can be added to the employer’s maximum number of employees in respect of whom furlough claims can be made for the period from 1 July 2020 onwards.
- An example has been added as to how to calculate the variable hours of an employee who is on statutory adoption leave.
- The guidance confirms that any claim under the Scheme should be reduced by the amount of any statutory payments received such as SMP.
Links to guidance
The revised guidance can be found at:
- Changes to the CJRS
- Check if you can claim for your employees’ wages through the CJRS
- Check which employees you can put on furlough to use the CJRS
- Calculate how much you can claim using the CJRS
- Claim for wages through the CJRS
- Steps to take before calculating your claim using the CJRS
- Reporting employees’ wages to HMRC when you’ve claimed through the CJRS
- Find examples to help you calculate your employees’ wages
- Check if your employer can use the CJRS
Claiming under the Scheme for notice payments
As we reported previously, the description of the Scheme has been updated in the latest version of the Direction. The Direction now states that “[i]ntegral to the purpose of CJRS is that the amounts paid to an employer pursuant to a CJRS claim are used by the employer to continue the employment of employees in respect of whom the CJRS claim is made whose employment activities have been adversely affected by the coronavirus and coronavirus disease or the measures taken to prevent or limit its further transmission” (emphasis added).
It had previously been assumed that, if an employee is given notice to terminate his or her employment, a claim under the Scheme could cover the relevant proportion of the individual’s wages payable during the applicable notice period. This appears less clear now that the Direction indicates that Scheme payments are to be used to continue (as opposed to terminate) employees’ employment.
That said, it is not entirely clear that this change to the wording of the Direction is intended to disallow claims for wages payable during employees’ notice periods. The Scheme guidance documents envisage that an employee may be made redundant whilst on furlough – the employee guidance, for example, states that “Your employer can still make you redundant while you’re on furlough or afterwards.” It can be argued that an employee who is serving out his or her notice does continue in employment for that period so that a claim under the Scheme does not conflict with its objectives. After all, circumstances may change during a notice period leading to employees actually being retained. Moreover, this argument would be particularly strong if, without payments from the Scheme, employees would be terminated sooner by reason of the employer’s insolvency.
Clarification on this point has been sought by various interested parties from HMRC but as at the time of writing we are unaware of HMRC having responded formally to confirm the position. This lack of clarity is unhelpful to say the least, not least as the Direction is in effect retrospective so could affect the validity of claims already made. In any event, employers do also need to consider the risk of public criticism for being seen to use the Scheme to fund a redundancy programme which could be portrayed as being against the spirit of a job retention scheme.
It seems clear in any event, however, that a payment in lieu of notice cannot be claimed for under the Scheme as this is a payment on termination of employment rather than a payment of ongoing wages and cannot be said to be a payment which is used to continue employment.
Notice pay during furlough
Related to the question of whether an employer can claim for notice pay under the Scheme is the question of what notice pay should be paid to a furloughed employee. There are complex statutory provisions concerning notice pay. In broad terms, if an employee has a contractual notice period which is at least a week longer than the statutory minimum notice (one week for each complete year of service up to a maximum of 12 weeks), then it can be argued that the employee can be paid the notice pay agreed under the contract rather than by reference to the statutory formula determining a week’s pay. Consequently, if the contractual pay due has effectively been varied to 80 percent of full pay by a furlough agreement then notice pay can be paid at this level (and claimed under the Scheme subject to the concerns raised above).
However, if the employee is entitled only to statutory minimum notice (or is contractually entitled to less than a week more than the applicable statutory minimum notice), then notice pay must be calculated in accordance with the relevant statutory provisions. These provide that a “week’s pay” is to be calculated with reference to the amount payable to the employee when he or she works throughout his or her normal working hours in a week. In other words, this means that the employee should be paid at the rate they would be paid if they were working rather than the rate payable on furlough leave. Assuming that a claim can be made in respect of wages payable during the notice period, the employer would therefore need to claim 80 percent of pay through the Scheme and then top that up to 100 percent of pay for the duration of the notice period.
Employers need to keep a close eye on the Government guidance to ensure their claims remain valid and to consider whether they face any historic issues. After multiple versions there is no guarantee that further guidance will not be forthcoming over the remaining months of the Scheme.