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Coronavirus - Job retention scheme - Northern Ireland

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On Friday 20 March 2020, the Chancellor announced a new “Coronavirus Job Retention Scheme” (the Scheme) to help pay people’s wages. Further Guidance on the Scheme has now been announced (the Guidance).

In summary, employers are able to access Government funds, via HMRC, to reimburse them for specified employment costs for certain employees who have no work from their employer as a result of the CV-19 pandemic.

Whilst many of the aspects of the Scheme are as we understood them following the 20 March announcement, there are some helpful clarifications (such as employer national insurance contributions and auto enrolment contributions being recoverable) and some important differences, such as the minimum three week furlough period. Inevitably, with a new concept to the UK and the complex, evolving nature of the situation, there will continue to be questions. This Alert seeks to deal with the main questions we believe that employers will have.

The Government has confirmed that the Scheme will not be up and running until the end of April, claims must then be made, processed by HMRC and the reimbursement sent to the employer. Whilst hopefully these funds should arrive before the ‘end of June’ timetable being discussed for assistance for the self-employed (further information here), there is a cash flow issue for employers to consider. As the Guidance indicates in the context of what employers should do when the Scheme ends, employers should consider whether the impact of the outbreak and their wider organisation requires redundancies to be proposed (or indeed if other changes are necessary).

The Scheme is an overlay on existing employment law – it does not change the fundamentals. It is a helpful option for employers to consider and offers the opportunity to recover certain costs while they take stock of the extraordinary circumstances (in some cases existential threats) they are facing.

It therefore remains the case that employers will need to decide to furlough and pay staff who otherwise they would (a) have made redundant (itself a cashflow issue – as indicated) or (b) have laid off without pay (and for most employers, as they do not have a right to lay off, this risks claims for breach of contract and unlawful deductions from wages). Each employer will need to take detailed financial and legal advice in the light of its unique circumstances.

The Scheme is stated to be for employers who have been “severely affected” by the virus outbreak. We are advising employers that they need to be mindful of this principle when making decisions as to the Scheme such that decisions now can be justified justified later. It is obvious that the Scheme is intended, as an emergency and as a last resort, to help employers to help their staff. Any pushing of the boundaries is to be avoided both in the specific context of the scheme and an organisation’s wider reputation.

It therefore remains the case that employers will need to decide to furlough and pay staff who otherwise they would (a) have made redundant (itself a cashflow issue – as indicated) or (b) have laid off without pay (and for most employers, as they do not have a right to lay off, this risks claims for breach of contract and unlawful deductions from wages). Each employer will need to take detailed financial and legal advice in the light of its unique circumstances.

The Scheme is stated to be for employers who have been “severely affected” by the virus outbreak. We are advising employers that they need to be mindful of this principle when making decisions as to the Scheme such that decisions now can be justified justified later. It is obvious that the Scheme is intended, as an emergency and as a last resort, to help employers to help their staff. Any pushing of the boundaries is to be avoided both in the specific context of the scheme and an organisation’s wider reputation.

This note is a generic briefing and is not a substitute for detailed legal advice on the specific circumstances employers are facing. Employers should therefore take legal advice.

Coronavirus job retention scheme duration

The Government has made clear that the Scheme will run for at least three months from 1 March 2020, but it will be extended if necessary.

Coronavirus job retention scheme - questions and answers

We have attempted below to answer some potential questions based on what we know so far. Readers should be aware that we are in many cases basing these views on existing legal principles and applying common sense. The Q and A below should therefore be considered with this in mind. As and when further information and guidance becomes available we will update this. You will recognise most of the questions from our initial briefing – these have been updated and we aim to further update as the Scheme and situation evolves.

1. What does the term “Furlough” mean?

In the United States, a furlough (from Dutch: verlof, "leave of absence") is a temporary leave of employees due to special needs of a company or employer, which may be due to economic conditions at the specific employer or in the economy as a whole. This term has been adopted by the Government in relation to the Scheme.

2. Does the Scheme cover wages for workers as well as employees?

The staff must have been on the employer’s payroll at 28 February 2020. This would appear to include directly-engaged workers in relation to whom the employer currently deducts income tax and national insurance via PAYE. The Guidance says it covers all employees, including

“full-time employees,
part-time employees,
employees on agency contracts and
employees on flexible or zero-hour contracts.”

It would not, cover the self-employed for tax purposes), where the individual makes a self-assessment to HMRC each year.

Agency workers are covered where they are paid via PAYE by their agency (technically, an employment business). However, this is only where they have no work from that ‘agency’. It is the ‘agency, not the end user or hirer that should make any application to the Scheme.

The status of casual staff is unclear and depends on the specific circumstances of their engagement – whether they are employees or workers etc. It would seem odd if the self-employed and PAYE agency temps were covered and this group (who may be seen as amongst the most vulnerable).

3. What about staff who have already been dismissed prior to the Scheme becoming active?

Applications can be made backdated to 1 March 2020.

It is therefore somewhat odd that staff dismissed since 28 February for redundancy can be rehired, furloughed and claimed for via the Scheme.

4. Does the process have to be initiated by the employer?

Yes. There is no right to be furloughed.

5. Is the employer obligated to make up the 20% of wages lost by staff who are paid under the Scheme?

Employers will not have to pay the 20% but can choose to and many clients are doing so (on a limited or open) basis.

6. What is the effective salary cap, below which the Scheme applies and above which it does not? What about tax?

The Guidance says:

You can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying those wages.”

Government grants will cover 80% of the pay of retained workers up to a total of £2,500 a month (provided, where necessary, they obtain the consent of staff – see below). If 80% of salary is £2,500 per month, the full salary would be £3,125 per month. This amounts to a salary of £37,500 per annum. Accordingly, our calculations suggest that any wages earned by a member of staff in excess of £37,500 per annum are not covered by the Scheme. Wages up to £2,500 paid to such a higher earner would be covered by the Scheme.

Employers will be required to deduct income tax and employer and employee’s NICs from the monies paid to furloughed workers.

Employers will also need to pay the employer’s NICs (13.8%) and (where applicable) any apprenticeship levy (0.5%) on those wages. Tax is tax, after all.

In addition to the £2,500 or 80% (the lower of the two) employers will also be able to claim the cost of employer NICs and (mandatory) auto enrolment pension contributions employment costs can be claimed from HMRC by way of reimbursement. Any additional pension contributions would not be recoverable, any apprenticeship levy or the costs of other benefits such as life or medical insurance may not be reclaimed under the Scheme.

In respect of lower earners, it is the lower of £2,500 per month or the 80% that may be recovered by the employer.

7. Which wages are covered by the Scheme?

The Guidance states:

“Full time and part time employees

For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.

Employees whose pay varies

If the employee has been employed (or engaged by an employment business [an ‘agency’] ) for a full twelve months prior to the claim, you can claim for 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 a year, you can claim for an average of their monthly earnings since they started work.

Of course, HMRC will have the payroll records to substantiate this.

8. How does the NMW apply to furloughed employees?

The Guidance confirms that individuals are only entitled to the NMW for the hours they are working and furloughed workers are not working. Therefore, they must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.

However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

9. Can the employer choose to claim less than 80%? If so, is there scope to increase the claim later?

The employer must be able to do this, but there would not be any obvious reason to do so, because the Scheme is for three months initially and may be extended, and so employers will likely not get “credit” later on for sums which could have been claimed under the Scheme but which were not.

One wonders whether this could be a missed opportunity for the Government. It seems that grants will only be made under the Scheme where no work is performed by affected staff at all. It might have been more practical (and efficient for the Government) to have allowed partial working under the Scheme arrangements. However, they have not chosen to adopt the reduced working type of scheme which other countries have and employers wishing to claim under the Scheme would need to accept that.

10. If employees have already been temporarily laid off, can the employer access the Scheme?

Our view is that it can if they were on the payroll at 28 February 2020. We think that once the employer has designated such staff as furloughed, the Scheme will apply, backdated to 1 March 2020.

11. What of staff who are not currently laid off, but have chosen to take paid holidays, unpaid holidays or unpaid sabbaticals? What about sick leave & holiday?

Broadly, once the employer has designated the staff as furloughed, our view is that the Scheme will apply, backdated to 1 March 2020. If the employer is not paying the 20% of salary, staff who are on paid annual leave and receiving full pay may prefer to retain their “holiday” status. This could be the subject of agreement between staff and the employer. Practically, we think it unlikely that a worker would take holiday simply in order to earn the additional 20%, but may do if they earn substantially more than £37,500.

If staff were placed on unpaid leave after 28 February they can be furloughed.

The Scheme, however, does not apply where employees have agreed to take unpaid holiday/sabbaticals for personal reasons unrelated to the coronavirus outbreak.

As for holiday going forward, existing statutory and contractual principles apply unless (in respect of contractual leave) the parties agree otherwise. For example, our current view is that the employer may designate certain dates as holiday (in accordance with the Working Time Regulations – essentially double the days’ leave must be given in notice) and may agree a different basis of accrual (subject to the Working Time Regulations). It is possible that HMRC may take a more restrictive view on application/audit, Importantly, it is currently unclear whether ending furlough to take holiday will prevent employees re-entering furlough at a later date. For this reason, as well as the cost of contractual holiday pay unless varied, employers need to exercise caution about ending furlough for these purposes. Perhaps the preferred approach is to seek to say that part of the furlough is to be deemed to be taken as holiday (and deal with the issue of pay for that period).

12. Can employers bring staff into the Scheme who are already on sick leave or receiving SSP/CSP due to self-isolation?

We believe that the Scheme is only intended to be applicable where employers have no work to give to staff who are available to work. Therefore, it currently appears that an employee who is sick or self-isolating cannot be furloughed until they are well enough to return to work. Whilst they remain sick, they would receive occupational/statutory sick pay until that is exhausted. If they are still unwell when sick pay is exhausted, it is unclear whether they can then be furloughed.

The Guidance states:

“Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this.

Employees who are shielding in line with public health guidance can be placed on furlough.”

13. Can employees on maternity etc leave be brought into scheme by being “furloughed”?

The Guidance states:

“Individuals who are on or plan to take Maternity Leave must take at least two weeks off work (four weeks if they work in a factory or workshop) immediately following the birth of their baby. This is a health and safety requirement. In practice, most women start their Maternity Leave before they give birth.

If your employee is eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance.

Employees who qualify for SMP, will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is currently £148.68 a week, rising to £151.20 a week from April 2020.

If you offer enhanced (earnings related) contractual pay to women on Maternity Leave, this is included as wage costs that you can claim through the scheme.

The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.”

We think that employees on maternity leave cannot be furloughed until the compulsory leave period has ended. After that period, the Guidance suggests that the employer can recover enhanced maternity pay which suggests that the woman will terminate her maternity leave and be designated as furloughed. Clearly, a women deciding to terminate her maternity leave early is a significant step. For example, is there is the possibility that work picks up again before her maternity leave was due to end. It will need careful evaluation by the woman and discussion with her before she makes that decision.

14. Does the “furlough period” need to be continuous? Is there flexibility for workers to move in and out of the scheme?

The Guidance states a minimum furlough period of three weeks, which had not previously been included in any material on the Scheme.

The employees must do no work for their employer. Where there is a genuine business reason to furlough or remove from furlough, this should be recoverable. However, ‘rotation’ arrangements seem to us to risk offending the principles of the Scheme. It remains unclear whether there will be any restrictions on claiming for employees who re-enter furlough.

15. Is it a condition of the scheme that the employee does no work at all during the furlough period? If so, what would be the consequences if this is not observed? What about the volunteer scheme and work for third parties.

The obvious intention of the Scheme is to allow employers to pay staff who are without work. To this extent, we see performing work and being furloughed as mutually exclusive. HMRC will of course have visibility of pay records, and therefore we would anticipate that if a member of staff earns wages during a furlough period, it will result in the employer not being reimbursed for any “furloughed” wages paid. The Government guidance to employees states “To qualify for this scheme, you should not undertake work for them while you are furloughed.”

It seems that employees may undertake training and be paid at least the NMW rate for that work. One would expect HMRC, in due course would require confirmation that such training was mandatory or at least essential - to ensure skills did not atrophy etc.

The new right to volunteer is separate to the Scheme and a furloughed employee can take part in emergency volunteer work as long as it does not provide services or generate revenue for their employer.

The Guidance indicates that other work for the employee is separate and s/he can be furloughed by each employer. One would expect HMRC (in due course) to be vigilant where work carried out for third parties outside the volunteer scheme whilst furloughed which allowed a ‘windfall’ for them.

16. What is the process for the employer accessing funds under the Scheme?

The Guidance says:

“To claim, you will need:
• your ePAYE reference number
• the number of employees being furloughed
• the claim period (start and end date)
• amount claimed (per the minimum length of furloughing of three weeks)
• your bank account number and sort code

… HMRC will retain the right to retrospectively audit all aspects of your claim.”

17. What steps does the employer need to take to designate staff as “furloughed workers”?

The Guidance makes clear employers may need to take legal advice.

Staff need to be notified of the change in their designation, from employees or workers to “furloughed workers”. Our view is that this should be in writing.

However, as indicated above the Government website is clear that changing the status of staff remains subject to existing employment law- consent to contractual change, consultation obligations etc. - and, depending on the employment contract, may be subject to negotiation. Additional considerations apply in relation to those staff within scope of union collective bargaining and there are risks of further union related claims arising if those staff are approached directly.

If there is a contractual right to lay staff off in the employment contract, this should present little difficulty: furloughed status will at least mean that the staff are paid.

Where there is not a contractual right to lay off, designating staff as “furloughed” will in theory (without agreement) amount to a breach of contract. Given that the Government is paying 80% of wages up to £2,500 per month, it is unlikely that most staff will complain. However, we can foresee potential problems arising:

• for those who are paid more than £2,500 per month and where the employer does not propose to top-up the wages
• for those who will see a pay-cut where the employer does not pay the 20% reduction in wages
• due to the fact the normal lay-off rules will continue to apply, such that if staff are laid off for four consecutive weeks or for six weeks in any period of 13, they would be entitled to leave and claim a redundancy payment (although in practice the continuation of a proportion of pay will mean that only higher earners will actually satisfy the relevant conditions). The Scheme would not preclude claims for redundancy payments being made, although in many cases the risk of staff triggering these payments will be low given the current economic climate, it would be unlikely that staff would claim a redundancy payment rather than ongoing pay. However, it is possible depending on circumstances, particularly for staff where, due to their profile, a payment would be material and/or higher paid staff who might be able to find other opportunities for work.

18. When will the portal go live, and what advice are we giving employers in terms of actions now?

The Guidance confirms they hope the HMRC portal will be live before the end of April.

Employers should therefore anticipate payments under the Scheme will not likely be available until May 2020 at the earliest. Coronavirus Business Interruption Loans are available (for qualifying employers) interest free to cover the intervening period. There is also a Bank of England scheme for very large employers with grade A investment ratings.

From now, and consistent with the Government’s intention of saving jobs in order to allow the economy to quickly recover at the end of the crisis, we anticipate the following process is likely to apply:

• 1. where no work is available for one or more members of staff, and where there is no contractual right to lay staff off, our view is that employers should immediately consult (either individually or collectively following usual rules on negotiation and consultation) with a view to affected staff agreeing to become “furloughed”. Where there is a contractual right to lay staff off, go to 3. below
2. if agreement is not reached, employers should take immediate legal advice. If agreement is reached, go to 3. below
3. we believe the next applicable step will be that employers should write to each worker confirming that t hey are considered to be “furloughed”, following the Chancellor’s announcement of Friday 20 March 2020 and release of the Guidance
4. in due course we would expect ACAS to prepare a template letter by way of guidance. In the absence of such template, we believe the letter should confirm that each member of staff will receive 80% of their salary up to £2,500 per month (taking into account employer’s NICs and any apprenticeship levy due). The gross amount of pay per month should be set out. It should be made clear that the payment is being made under the Scheme and is subject to change depending upon the rules of the Scheme, and in particular upon the interpretation of rules under the Scheme as clarity emerges
5. employers should pay staff in accordance with the arrangements, they are not permitted to make any deductions for administrative costs or other charges except as specified in the Scheme
6. employers should submit information to HMRC (each three weeks) about the staff that have been furloughed and their earnings through the new online portal when it is available

19. Which employers are covered by the Scheme?

The Guidance says:

"Any UK organisation with employees can apply, including:
• businessescharities
• recruitment agencies (agency workers paid through PAYE)
• public authorities.”

A company in administration will be able to access the Job Retention Scheme.

The Guidance says:

“Public sector organisations

The government expects that the scheme will not be used by many public sector organisations, as the majority of public sector employees are continuing to provide essential public services or contribute to the response to the coronavirus outbreak.

Where employers receive public funding for staff costs, and that funding is continuing, we expect employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them. This also applies to non-public sector employers who receive public funding for staff costs.

Organisations who are receiving public funding specifically to provide services necessary to respond to COVID-19 are not expected to furlough staff.

In a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate for some staff”.

Each organisation will need advice on its unique circumstances.

We hope this summary is helpful. It is our preliminary assessment following the recent Guidance and we will keep you updated as more information becomes available.

For support on legal issues facing your business in light of the outbreak of Covid-19, please visit our Coronavirus hub to get our latest information and guidance.

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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