Coronavirus - The furlough extension: Q&As for employers - UK

• United Kingdom

• Coronavirus - Workforce issues
• Employment law

02-11-2020

On 31 October 2020 the UK Government announced the introduction of additional public health restrictions in England with effect from Thursday 5 November (subject to parliamentary approval). Crucially for employers, the UK Government also announced an extension during November of the Coronavirus Job Retention Scheme (“CJRS”), often referred to as the ‘furlough’ scheme. Although arising very late in the day, this extension of the CJRS will be welcomed by employers working hard to manage the impact on their organisations of the latest restrictions. However, there are some important points to note and actions for employers.

The CJRS was due to end on 31 October and be replaced by the Job Support Scheme (“JSS”). The JSS will now be introduced following the end of the extended CJRS, which is currently anticipated in December 2020. While the Government states that ‘there will be no gap in eligibility’ in relation to the CJRS’ extension, employers need to ensure that they have agreed with their employees a change in terms and conditions to permit a claim under CJRS. In particular, those employers who have spent the last week or so agreeing temporary working agreements with their staff to facilitate a claim under JSS, need to ensure that they have the appropriate terms in place as soon as possible to ensure that their ability to continue to claim under the CJRS is not prejudiced.

In addition, while the CJRS has been extended “until December” (according to the press statement), given the uncertainty regarding the length of the latest restrictions in England, a further extension of CJRS under the same or lesser terms cannot be ruled out.

Overview of extended CJRS

• During this latest period of lockdown, when a business closure means that employees are unable to work, the Government will pay 80% of wages up to a cap of £2,500 for hours not worked by the employee. The grant level is the same as applied under the CJRS in August. Employers must pay normal pension contributions and National Insurance Contributions. That is the only cost for hours not worked, unless of course the employer decides to “top-up” employees’ wages.
• Flexible furloughing is permitted allowing employees to work part of their usual hours where, for example, lockdown has not resulted in complete business closure or they are still required to perform safety and maintenance tasks during a closure. For hours worked, the employer pays the employee in line with the existing contract/statutory minimum wage, as applicable. During furloughed hours, the employee must do no work (as per the earlier CJRS).
• As the CJRS grant level is more generous than the proposed JSS and a greater proportion of pay is supported by Government, it is likely that many employees will be ready to agree to any changes to their contract that will allow them to be placed on ‘furlough’ and the employer to claim for part of wage costs under CJRS. Given the likely need to have an agreement in place covering the revised working arrangements from the start of the claim period (and maintain/produce appropriate records) employers should ensure they have documented the position.

1. Which employers are eligible?

• All employers “with a UK bank account and UK PAYE scheme” are eligible. There is no need to have previously claimed under CJRS. Unlike the JSS, there does not seem to be any distinction between large and small employers and no financial impact test for large employers. Employers will, however, need to keep in mind the purpose of the CJRS – to assist employers to maintain employment where they have been impacted by the pandemic and the public health measures taken in relation to it. Employers should continue to be mindful of the ethical and reputational concerns and additional scrutiny of claims under the extended CJRS.
• There is no requirement to have claimed under the earlier CJRS.
• As before, the Government expects publicly funded organisations  not to use the CJRS.

2. Which employees are eligible?

• Employers can claim for employees that were on their PAYE payroll at 23:59 on 30 October 2020. This will be a welcome extension to those staff who missed the March ‘cut off’ for the earlier CJRS.
• If employees were on an employer’s payroll on 23 September 2020 and were made redundant or stopped working for the employer afterwards, according to HMRC, they can also qualify for CJRS if the employer re-employs them.
• Essentially, all those treated as an employee for Income Tax purposes will be eligible (this will include agency workers if they are employees for Income Tax purposes) and can be on any type of contract, including zero hours or temporary contracts.
• As flexible furlough is possible, employees may be placed on and off furlough and do not have to be working the same pattern each week, but each claim must cover a minimum period of seven consecutive calendar days. However, we expect this to be clarified in further guidance.
• Employees (or their representatives) must agree to any changes made to their employment contract to reflect their new working arrangements and must be notified in writing by the employer. This agreement must be retained for five years, made available to HMRC on request and a record kept of how many hours employees work, together with the usual hours they are not working.

3. What is the process for submitting CJRS claims?

• Employers will be able to claim upfront for their allowable costs. However, the Government has stated that there will be a “…short period when we need to change the legal terms of the scheme and update the system..”. As a result, there will be a period when employers need to pay their staff and recover under CJRS in arrears. Therefore, there could be a short term cash flow issue. In relation to that, business premises forced to close in England are to receive grants worth up to £3,000 per month under the Local Restrictions Support Grant.

4. How much can be claimed under CJRS?

• There is no requirement for an employee to work for a minimum of their usual hours. However, where  flexible furlough is applied, employers cannot claim for employees’ wages for the time they spend working.
• The employer will pay the Employer NICs and auto enrolment/relevant pension contributions.
• Employers must pay the full amount claimed for an employee’s wages to the employee. They cannot agree with the employee to reduce wages below the amount claimed (such as a salary sacrifice scheme). This includes any administration charge, fees or other costs in connection with the employment.

5. Can the employer top-up pay?

• Yes, an employer can top up the employee’s wages above the 80% capped contribution at their own discretion.

6. What rate of pay and hours will be is used to calculate usual pay/hours?

• According to the Government, the calculations will “…broadly follow the same methodology…” as the CJRS as at 31 October.
• Given the extension of eligibility for staff hired since the pandemic first impacted, the CJRS will need to set out the dates to be used to determine the relevant reference pay and hours. For those employees previously furloughed, it is unclear whether the same pay/hours will continue to be used for the extended CJRS or be updated. We suspect the former but this is to be confirmed.

7. Will the CJRS be available for the restrictions in the devolved nations?

• Yes, we expect so given the Government’s statement that “all UK employers” can access the CJRS. Therefore, for example, when the Wales ‘circuit breaker’ ends, CJRS will continue to be available. However, this is an evolving situation. For example, it seems that discussions with devolved administrations and, potentially, the English regions are ongoing in relation to additional funding for business support.

8. Will HMRC monitor the operation of the CJRS?

• Yes. Employers will need to report hours worked and the usual hours an employee claimed for would have been expected to work. Employers should keep records of their claims and the calculations and note the rationale for the decisions taken. HMRC has been writing to employers who have claimed under CJRS to ensure they have reviewed claims made and notified any errors which have resulted in overclaims. In summary, employers should be vigilant as regards compliance.

9. What has happened to JSS?

• JSS was due to commence from 1 November 2020, to immediately follow the ending of CJRS, and run for a period of six months. Now that a late change of tactic has been forced by the pandemic, CJRS will continue for an extended period and the start of JSS will be postponed in the interim (we assume until 2 or 3 December 2020). Note, however, that JSS was always intended to operate by paying in arears, so there could potentially be a delay between the end of CJRS and future wage reimbursement under JSS.
• In short the JSS (as and when effective) consists of two parts:
  • A short-time wage subsidy scheme, aimed at protecting jobs in those businesses facing lower demand due to COVID-19 – known as “JSS Open”
  • A closed business wage support scheme, aimed at subsidising employers’ wage costs where they are legally required to close their premises – known as “JSS Closed”
• Both parts of the JSS commenced on 1 November 2020 and  run for a period of six months.
• The Government has published guidance on how JSS Open and Closed will apply.
• Employers will need to communicate any changes urgently to employees, as appropriate (such as a cancellation of a move to JSS and, instead, a move to CJRS).

Practical considerations of the extended CJRS

As a minimum, employers should:

• check their eligibility to claim under the extended CJRS
• decide whether, beyond extended CJRS, it is commercially viable to claim under JSS. Cash flow may also be problematic given the subsidy operates monthly in arrears
• review the interaction between redundancies planned or underway and the extended CJRS. Reputational considerations will exist. Tribunals may also expect employers to have formally reviewed extended CJRS as an alternative to redundancy as part of a fair process. Current redundancy consultations should be reviewed
• if the CJRS is being offered to part of the workforce, with others being retained as normal or being made redundant, consider fair and reasonable selection criteria, avoiding discrimination risks
• decide whether to top-up employee pay
• engage with trade union/employee representatives and employees individually
• ensure agreement or side letter, notifying affected employees in writing is in place urgently. This must ensure that affected employees do not do any work other than training during the non-working or furlough claim period
• invest time now in understanding likely amendments to CJRS pay/hours calculations
• plan (as best as one can, given the urgent and fast moving pace of restrictions and support measures) for the end of the CJRS and introduction of JSS at the end of November 2020

Furlough extension: a summary

Employers have been occupied implementing changes to ensure they were ready for the closure of the CJRS at the end of October. For many, this has involved arranging a transfer to the JSS – Open or Closed - and writing to staff accordingly.

An important aspect of working out what the anticipated English restrictions mean to the organisation is considering access to Government support. The extended furlough scheme is a key part of that. Furlough not only lives on past 31 October, but it has been enhanced to the level of support provided in August.

Employers need to ensure urgently that the employment documentation is in place so that they can claim as soon as possible in November. Employees will also welcome clarity on what the developments mean for them. The announcement on 31 October stated that additional guidance will be “…available shortly…”. Guidance regarding the JSS arrived just 48 hours before its intended start date, so employers will be hopeful that the guidance is timely and comprehensive (especially highlighting any different calculations from the prior CJRS and how hours and pay are to be defined for starters since March).