10 Key Facts and Q&A about the “Coronavirus Job Retention Scheme”

Following the coronavirus (Covid-19) crisis, many workplaces were closed and employees were asked to work from home if they could. However, some jobs could not be done at home, so some employers considered layoffs and job cuts due to the drying up of work.

On 26 March 2020, the UK government announced details of the Coronavirus Job Retention Scheme for coronavirus victims.

Employers can use this scheme to keep people in work until their workplace reopens, rather than dismissing them. This is, of course, a system of short-time working similar to those in place in many European countries.

The main aim of this system (which is unusual in the UK) is to keep people at home while allowing employers to retain the staff that will be needed when they start to rebuild their businesses. This will enable them to return to work with a critical core of people who have the necessary knowledge.

The "Coronavirus Job Retention Scheme" is a temporary scheme open to all UK employers for at least three months from 1 March 2020. It is designed to support employers whose operations have been severely affected by the coronavirus (COVID-19).

Employers will be able to use a portal to claim reimbursement of 80% of the usual monthly wage costs of employees on leave (or suspended - "Furloughed"), up to a maximum of £2,500 per month, plus associated national insurance contributions and automatic enrolment employer pension contributions on that salary. Employers may make use of this scheme at any time during this period.

The scheme is open to all UK employers who set up a PAYE scheme before 28 February 2020.

The 10 key facts about the Coronavirus Job Retention Scheme are:

1) The plan is available to employees on payroll as of 28 February 2020.

2) An employee must be furloughed for a minimum period of 3 weeks.  They can then return to work and resume their leave later if necessary.

3) Employees on furlough must not work for the employer during the leave period.

4) The furlough period is set no earlier than 1 March 2020 and can therefore be retroactive. The plan will last at least 3 months and will be extended if necessary by the government. If the scheme is retroactive to the beginning of March (as it is intended to support all persons employed at that date) a company will only be eligible for the subsidy once it has agreed the leave with its staff and the staff has ceased to work for the employer.

5) All UK companies are eligible, "any employer in the country, large or small, charitable or not-for-profit" (in the words of the Chancellor).

6) The scheme provides a grant and not a loan to the employer.

7) The maximum grant will be calculated per employee and will be 80% of an employee's 'normal salary', considering a maximum salary of £2 500 per month (this is the maximum possible salary to be taken into account).

8) The employer will pay the employee through payroll and report payments to HMRC using the Real Time Information System (RTI) as usual, as provided for in the employment contract. This contract may be renegotiated, but this is a matter of employment law.

9) The plan will be managed by HMRC:
- Affected employees must be designated as employees on leave.
- Employers will submit their applications to HMRC through a new online portal.

10) The subsidy will be paid to the employer through a new online system that is being constructed for this purpose. There are no details on the application process at this time. Information is to come in April 2020.

Questions and Answers on the "Coronavirus Job Retention Scheme":

  • How do you “furlough” somebody?

The employee must agree to be put on leave (furloughed). It is in their interest, as the other options for them could be to be dismissed as redundant or laid off.

The guidelines state that, in order to qualify for the subsidy, employers must write to their employees to confirm that they have been placed on leave and keep a record of this communication.

It is best to have a meeting or email with each employee informing them of the use of the scheme, followed by a letter or email that allows the change to the temporary scheme under the Coronavirus Job Retention Scheme to be contracted out (subject to written feedback from the employee).

  • Can employees suspend themselves?

No. As an employer, you must designate them as being furloughed.

  • Does the scheme apply to self-employed people?

No. It only applies to employees, not to sole traders or contractors who get paid on invoices.

  • What about workers on fixed term contracts?

Workers on fixed term contracts can be furloughed and their contracts can be renewed or extended during the furlough period without breaking the terms of the scheme.

  • How much can the company claim from HMRC?
  • - HM Revenue & Customs (HMRC) will reimburse 80% of the usual wage costs of suspended workers, up to a maximum of £2,500 (gross) per worker per month, plus associated national insurance contributions and minimum automatic enrolment employer contributions on that salary.
  • - Fees, commissions and bonuses cannot be claimed.
  • - For employees, the actual pre-tax earnings must be used from 28 February
  • - For employees whose wages vary, the employer can claim the higher of the two:
    • the salary for the same month of the previous year
    • the average monthly salary from the 2019-20 year
  • - If a variable pay employee has been employed for less than one year, an average of his or her monthly earnings since starting work can be requested. If the worker only started work in February 2020, a pro-rated approach should be used.
  • Does the assistance have to be supplemented up to a full salary?

No. You can top up the scheme if you wish, but you are not obliged to do so. For employers who top up the subsidy, a key question is how to maintain a fair differential between employees on the furlough scheme and those still working.

If you do not wish to top up the subsidy, it is recommended that you obtain the employee's agreement in writing.

  • What about the payment of pension contributions?

You can recover the mandatory minimum employer pension contribution from the subsidy. This can be claimed in addition to the £2,500 limit.

The minimum contribution under the auto-enrolment regulations is 3% of an employee’s income above £520 per month (since 6 April 2020). Pension contributions over and above this cannot be claimed through the scheme but you will need to maintain them, unless you have agreed something else with your employees.

  • What about benefits like gym memberships, private health insurance, etc.?

They will have to be maintained, unless you agree otherwise with employees on leave.

It does not appear that employers can claim the cost of benefits through the subsidy (except for pension contributions). In any event, many employers will choose to continue benefits as a simpler option, especially if they have already paid the cost.

If you offer extended health insurance or death in service benefits to your employees covered by the plan, you will need to check with plan beneficiaries to find out what salary would be used in the event of a claim (i.e. a normal annual salary or the salary during the leave).

  • Will the payment be taxable?

Yes, the payments you make to furloughed employees will be subject to PAYE and NIC (National Insurance contributions).

  • Can employees still work for the company during their suspension?

No. Employees cannot work for or on behalf of an employer who has placed them on leave (furlough). The guidelines state that this includes "the provision of services or the generation of income". If they do work for you, you may have to repay the subsidy.

It is important that they do not do anything that might compromise your ability to apply for the subsidy.

Draw the attention of any furloughed employees to this point, who might otherwise be doing work from home. Perhaps a bold mention in the communication sent to each employee should be considered.

  • Can the employee be asked to take training while suspended?

Yes, an employee on leave (furlough) may take training if it does not involve the provision of services or the generation of income. The government's provisions stress that if workers are required, for example, to take online training courses while on leave, they must receive at least the national subsistence wage/national minimum wage for the time spent on training, even if this is higher than the subsidy.

  • Can a furloughed person work for other employers?

It is possible. The guidelines make it clear that temporary agency workers will only be able to benefit from the scheme if they are not working. The wording of the guidelines suggests that working elsewhere may not be an absolute barrier to laying off other types of employees, but this is not entirely clear.

You should be able to impose restrictions on employees working elsewhere. You might want to prevent suspended employees from working for a competitor. Obviously, the employee's underlying employment contract will remain in force for the duration of the leave. You may allow employees on leave to do additional work, for example in the health services or in essential social services.

  • Can furloughed employees volunteer?

Yes, this is allowed.

  • How long can employees on leave be kept on the scheme?

The minimum length of furlough is three weeks. However, an employee may be suspended several times, subject to the minimum three-week period, as often as the employer and employee agree.

The plan will be open for an initial period of three months (1 March to 31 May 2020), but may be extended.

It is likely that employers will want to reserve the right to recall employees after a period of leave if business conditions improve.

  • Can we rotate employees on furlough?

Yes. Some companies have work for some staff, but not enough work for all of them. The question is whether employers could rotate employees on furlough or if they would have to choose some employees to be furloughed while others stayed at work.

The latest guidance states that employees can be furloughed multiple times. Each separate instance must be for a minimum period of three consecutive weeks and when employees return to work, they must be taken off furlough. This indicates that employers can rotate employees on furlough, so long as each employee spends a minimum of three weeks on furlough.

  • When can we start using the system?

The subsidy applies from the moment an employee is placed on leave. The possibilities for backdating are not clear.

The sooner you inform/obtain their consent, the better. Of course, the employee must no longer be working. Be careful not to backdate to a period when the employee was working!

  • What if there have been redundancies?

If you have dismissed employees since 28 February, it is possible to give these former employees the opportunity to be re-employed and then benefit directly from the scheme.

  • Can some people be furloughed and others laid off?

Yes, the guidelines clearly state that it is not necessary to furlough all your employees.

  • How do you choose which employees should be furloughed?

Employees who cannot work from home and currently have no work to do will be obvious candidates for furlough.

Otherwise, employers may need to consider a process of calling for volunteers, pooling and screening - similar to a termination process. There is a risk of complaints (including discrimination) if the process is not managed properly.

  • Is it possible to take partial leave to reduce a person's hours of work?

No. A person cannot work for you at all if they are furloughed.

If you have work for a person, but not enough, you can always discuss with them the possibility of reducing their work week. He or she will have to agree, except in the unlikely event that you have reserved the right to give him or her a pay cut for reduced work, and he or she will not benefit from the scheme.

  • What is the procedure for claiming payment from HMRC?

The employer will need to submit information to HMRC about the workers who have been furloughed and their relevant wages via a new online portal. This portal is expected to open in April.

  • Can employees benefit from the scheme if they are on sick leave?

The guidelines state that "employees on sick leave or self-isolation must receive statutory sick pay but may be suspended after that". This means that you cannot suspend an employee until they have completed their sick leave.

The guidelines do not explicitly deal with employees who become sick while on leave, but they do state that employees will retain their rights to sick pay (sick pay). However, since the SSP is likely to be less than the leave pay, they will have no incentive to report sick.

Employers will have to decide what to do about company sick pay. It may be preferable to agree to a suspension of company sick pay.

  • What about employees on maternity or other family leave?

The guidance says that employers can claim for enhanced maternity pay through the furlough scheme. This suggests that employers can furlough employees on maternity leave.

If an employee on maternity leave agrees to be furloughed, then you will be able to reclaim their SMP in the normal way. You will then be able to claim for any enhanced contractual pay on top through the furlough scheme.

The same principles apply to other types of family leave.

  • Will workers continue to accrue holiday while on furlough?

Yes as they remain your employees. You can agree that no contractual leave (beyond the legal minimum of 5.6 weeks per year) will be accumulated during the leave, but employees will retain their right to accumulate annual leave under the Working Time Regulations.

  • Can individuals take their vacation during their suspension?

This is not entirely clear. You can refuse requests for leave during periods of suspension if you wish, but you may prefer that employees use their vacation pay rather than bank it. To require employees to take vacation (if allowed), you must give them twice as much notice as the length of vacation you want them to take (for example, ten days' notice for five days' vacation), unless the contract stipulates otherwise.

  • Will employees continue to accumulate continuous service during the leave?

Yes, the underlying relationship will continue if an employee is suspended, so their period of continuous employment will continue to accumulate throughout and will be recognised in full once the furlough is over.

  • What happens at the end of the leave?

The idea is that employees will be able to return to work. The plan is designed so that employers do not have to lay off employees and then hire a new workforce once the crisis is over.

However, if business conditions have not been good enough for you to take back all suspended employees at the end of the plan, you will be able to lay them off, subject to the usual rules on layoffs.

  • Can foreign nationals with a visa be covered by the leave scheme?

There is nothing to suggest otherwise. It appears that the scheme will cover all workers as long as they are UK contract workers, working in the UK and paying their wages in the UK.

 

Lydik Grynfeltt, Founder & Director at HR Bridge Consulting, a boutique consultancy firm based in London which specialises in French and British Human Resources and strategy management. They are a small team of approachable and passionate consultants who bring expertise in international HR operations, UK & continental employment laws and project management, particularly in business transformation.

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