On 9 April 2020 and 15 April 2020, the Government updated its guidance on the Coronavirus Job Retention Scheme (CJRS) for the third and fourth time!
Later on 15 April 2020, the Treasury then issued a formal Direction to HMRC under powers conferred by the Coronavirus Act 2020, containing authority and instructions for making payments under the Coronavirus Job Retention Scheme.
This Direction which can be accessed here has the same effect as formal legislation and, therefore, carries more legal weight than any of the forms of Guidance which the Government has issued so far.
Whilst there is still a possibility of the Direction being amended (see para 14 of the Direction), we anticipate that this could be as definitive guidance as we get, particularly before the CJRS Portal opens (which we understand is due to be on Monday 20 April 2020).
The Directive also has retrospective effect. This means that some employers may have furloughed employees in good faith on the basis of the guidance issued so far by the Government, and because of the changes to the rules of the CJRS introduced by the Direction (see below) may now find themselves unable to make claims for reimbursement from HMRC for some of their furloughed employees – see below.
Together, the new version of the Guidance and the Direction have provided some much needed clarity on a number of areas, whilst making a small number of significant changes - but these documents also unfortunately leave other issues open, and may require employers to take additional steps before they can make a claim under the CJRS.
The significant changes
- Eligibility to the CJRS has been extended to those employees on the pay roll as of 19 March 2020 and who were notified to HMRC on an RTI submission on or before 19 March 2020
Whilst this amendment was presumably intended to benefit employers of employees who started work between 29 February and 19 March 2020, it excludes employees who joined before 19 March 2020 but whom the employer had not added to its RTI submission by that date (perhaps because they were due to be paid for the first time at the end of March).
Most previous references to 28 February 2020 in the Guidance are amended to 19 March 2020, for example, in relation to the calculation of an employee’s wages.
- an employer making their first CJRS claim in respect of a salaried employee may make that claim as if the key date was 28 February 2020 instead of 19 March 2020; and
- where in respect of an employee with variable pay the employer (in anticipation of making its CJRS claim in respect of such an employee, and before the publication of the Direction) determined the employee’s reference salary as if the key date was 28 February 2020.
The only other reference to 28 February 2020 which remains relates to employees who were on unpaid leave or ceased working for their employer after that date. If an employee started unpaid leave after 28 February 2020, an employer can put them on furlough instead and make a claim through the CJRS – but if an employee was on unpaid leave on 28 February 2020, an employer cannot furlough them until the date on which it was agreed they would return from unpaid leave.
- Employee’s consent to not working during a period of furlough now required:
The Direction states that, for an employer to be able to claim under the CJRS, the employer and employee must have agreed in writing (which can include electronically, such as by email) that the employee will cease all work.
All forms of the Guidance only required the employer to notify the affected employees that they were on furlough, so many employers only sought written agreement in situations where they were not topping up to 100% of usual pay (as paying 80% of wages required agreement from the employee to change their contractual terms).
This change would appear to have retrospective effect.
What this means for employers is that, where they are not holding written consent from a furloughed employee that they will not do any work during the furlough period, they should contact the affected employees to seek that consent, before they submit a claim in respect of those employees.
It seems from the wording of paragraph 6.7 of the Direction that this can be done by email (or even text).
Clarity has been provided in the following areas:
- Eligible employees:
It now seems clear that employers do not have to demonstrate that there was a redundancy situation in order to be able to furlough employees, or even that the employer itself was in financial difficulties – the focus of the Direction now appears to be on where the employee is furloughed “by reason of circumstances arising as a result of coronavirus or the coronavirus disease”. This would appear to cover employees who are unable to work for a reason relating to Covid-19.
Employees who transfer from one employer to another pursuant to TUPE after 19 March 2020 can be furloughed by the new employer despite them not being on the new employer’s payroll as of 19 March 2020. The TUPE or PAYE business succession rules must apply to the change of ownership.
- Sick leave:
- The CJRS is not intended for short-term absences from work, as there is a three week minimum furlough period. If an employee is on sick leave or self-isolating, they will be entitled to Statutory Sick Pay (SSP), subject to eligibility.
- Short-term illness or self-isolation should not be a consideration in decisions as to whether to furlough or not.
- Where an employee is eligible for SSP, they cannot be furloughed until their SSP eligibility has come to an end (unless there is a subsequent period of SSP eligibility which starts after the employee has been furloughed).
- Visa eligibility:
Grants under the CJRS are not counted as “access to public funds” and employers can furlough employees on all categories of visa. This means that those with certain work visas will not be regarded as breaching their visa conditions if they receive payments under the CJRS.
- Linked/associated organisations:
Whilst on furlough, an employee cannot undertake work for or on behalf of their employer or any organisations linked to or associated with the employer. By way of reminder, “work” is defined to include providing services to or on behalf of the employer, and generating revenue for the employer.
- Payroll consolidation:
Where a group of companies have multiple PAYE schemes and there is a transfer of all employees from these schemes into a new consolidated PAYE scheme after 19 March 2020, the new scheme will be eligible to furlough those employees and claim the grants available under the CJRS.
- NI and pension contributions:
Employers can claim for National Insurance and employer pension contributions (at the auto-enrolment mandatory rate of 3%) for furloughed workers, based on the employee’s furlough salary, not normal salary. Employers cannot claim for additional National Insurance or pension contributions if the employer chooses to top up the employee’s salary by 20% to the employee’s normal wages. Employers cannot claim for pension contributions above the mandatory employer contribution.
- Benefits / salary sacrifice:
The reference salary used to calculate the grant to be claimed under the CJRS should not include the cost of non-monetary benefits, and should not include benefits provided through salary sacrifice schemes. This means that it is the “post salary sacrifice” salary which should be used for the calculation. This is important to note, as letters seeking agreement to change salary to 80% must refer to 80% of the post sacrifice salary. In addition, unless agreed otherwise, employers must continue to provide the benefit in relation to which the salary was sacrificed. For example, additional pension contributions under a pension salary sacrifice scheme. Don’t forget to factor this in when calculating ongoing costs when furloughing staff.
All of the grant paid to the employer under the CJRS must be paid to the furloughed worker. No part of the grant can be used to pay for the provision of benefits or a salary sacrifice scheme.
Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.
- Statutory leave:
Where employees return from statutory leave (maternity leave, shared parental leave etc.) and are then furloughed, employers should calculate the employee’s salary for CJRS purposes against the employee’s normal salary, before tax, not the pay they received when on statutory leave.
- National Minimum Wage:
As long as a furloughed employee is not training, they do not need to be paid at the appropriate national minimum wage rate as they are not working. However, a word of caution is needed here as an employee may have a contractual right (express or implied) to have their pay increased in line with the minimum wage annual increases, which may impact their furlough pay.
- Contractors with public sector engagement in scope of IR35 off-payroll working rules:
Contractors who are deemed employees according to the off-payroll working rules might be eligible for the CJRS.
- What Directors can do during a period of furlough:
The Direction clarifies that all that furloughed Directors can do is to file company accounts or provide other information relating to the administration of the director’s company. This is narrower than had been hoped.
Further clarity required
We had thought that employers could take into account in their calculations of the base wages for variable pay employees regular contractual payments such as commission and regular overtime. The way in which paragraphs 7.4 and 7.5 of the Direction has been drafted now casts doubt on that issue.
The latest version of the Guidance, and the Direction, both say nothing about annual leave (as discussed here).