The guidance published on the Job Retention Scheme (JRS) was updated on 4th April and clarifies certain issues. It leaves room for speculation on a number of matters also however, most notably in relation to the interplay between holiday and furlough (see Outstanding Questions). We hope to have further guidance issued shortly as the portal for claims is set to open by 20 April 2020.
As Accountants and Tax Advisors we are used to providing information to clients on the basis of legislation, case law and accepted practice – we are now in the position of relying on information published on an ad hoc basis with no force of law and no associated definitions. View the published information on the gov.uk website. What we have presented below are the notable clarifications and changes and where we include our own commentary this is highlighted.
1. HMRC have softened the wording of the eligibility criteria by stating that you can apply for the grant ‘if you cannot maintain your current workforce because your operations have been severely affected by COVID-19’, as opposed to the previous wording which stated that you were only eligible if the alternative to support was to make redundancies.
2. Employees can be furloughed multiple times during the three months, provided each period of furlough is at minimum 3 weeks.
3. If you have made an employee redundant after 28 February 2020 you can reemploy them and retrospectively put them on furlough from the point of original redundancy.
If you potentially have several ex-employees in this situation, consider the risk of selective re-hiring as it may expose you to a discrimination or victimisation complaint.
4. If you have put an employee on unpaid leave after 28 February 2020 you can now furlough them retrospectively from the date the leave began.
5. If an employee is on sick leave or self isolating, they are eligible for Statutory Sick Pay (SSP). You cannot claim to furlough an employee until they are no longer receiving SSP.
6. If an employee is shielding in line with government advice they can be furloughed (or if they are caring for someone who is shielding) however the guidance now states that they are eligible only if they cannot work from home and would otherwise be made redundant.
It will be prudent for an employer to ask for a copy of the shielding letter received by the employee/household for payroll files.
7. If an employee is unable to work because of caring responsibilities resulting from COVID-19 they can be furloughed (for instance parents needing to look after children).
8. Employees on fixed term contracts can be furloughed. The furlough pay will cease once the contract ceases. The employer can renew or extend the contract without affecting the furlough period.
Renewing contracts in the current crisis may be a generous gesture but think carefully about whether it will take the employee over a two year period of contract and into unfair dismissal protection. Are you sure of your commercial outcome post JRS and aware of the redundancy obligations if you extend the contract.
9. Apprentices can be furloughed and they can also continue to train during furlough, but if they are training their pay must comply with National Minimum Wage/ National Living Wage rules.
10. Nannies and other staff used by individuals can also be furloughed.
DETAIL ON FURLOUGHING COMPANY DIRECTORS
The guidance confirms that a salaried company director is eligible to be furloughed whilst continuing to fulfil their statutory obligations under Companies Act 2006, provided they do no more than would reasonably be judged necessary for that purpose. It expressly states that they should not do work of a revenue generating nature or provide services to or on behalf of the company.
To ensure eligibility a company board must make the decision to furlough, the decision should be formally adopted by the company with relevant minutes and communication should be sent to the director in writing to notify them of their furlough commencing. This documentation should be kept for 5 years.
Follow this link to the relevant section of the Companies Act 2006 dealing with directors duties.
THE PROCESS OF AGREEING TO FURLOUGH WORKERS
The employee must be notified in writing that they are being/have been furloughed in order to be eligible for the scheme. The furlough claim starts on the date that the employee finished work, rather than on the day that the furlough letter is written/received or the day that the decision to furlough is made.
The employee does not need to confirm their agreement to furlough in writing, but you should keep a copy of the letter issued to them for a 5 year period.
The employee does have to agree in writing to any variation of their contract. This is imperative where you are not intending to top up the 80% grant. Again, the agreement of the employee should be kept on file. It is strongly recommended that employment law advice is sought in any further variations to employee contracts as the employee retains all of their normal statutory rights.
CALCULATION OF THE FURLOUGH PAYMENT
As noted in previous publications the furlough payment is to be calculated as 80% of employees wages up to a maximum of £2,500 per month, plus employers national insurance and minimum automatic enrolment pension contributions.
For workers with variable pay (who have been employed for more than 12 months) the calculation is the higher of:
• Same months earnings from the previous year and
• Average monthly earnings for the 19/20 tax year
If the employee has been employed for less than 12 months you can claim for 80% of their average monthly earnings since starting work.
The following points have been clarified:
1. The updated guidance confirms that you can claim for any ‘regular’ payments that you are ‘obliged’ to pay, and this includes ‘past overtime’, ‘compulsory commission’ and fees. Discretionary bonuses, tips, discretionary commission and non-cash payments are to be excluded.
Past overtime is not defined. Our understanding is that employees with a regular pattern of overtime on a monthly basis would be eligible to receive 80% of their base plus overtime, calculated in line with the rules for workers receiving variable pay. We cannot, however, guarantee this and hope that guidance will be issued very shortly to clarify the matter.
Compulsory commission is assumed to mean commission which is contractual but again this is debatable, and we hope this issue will also be clarified shortly.
2. Benefits in kind and salary sacrifice schemes are not included in the reference salary for the calculation.
An employer has an obligation to continue to maintain these benefits during furlough to avoid breach of contract claims, unless the employee agrees otherwise as part of furlough arrangements.
3. Although salary sacrifice arrangements are usually unalterable HMRC have agreed to include COVID-19 as one of the ‘life events’ that could warrant changes to salary sacrifice arrangements.
Some workers may wish to alter arrangements to increase their take home pay.
4. For workers paid on a weekly or four weekly basis the guidance clarifies that the relevant salary is capped at £576.92 per week or £2,307.69 per 4 weeks.
5. The scheme will not cover Student loans or Apprenticeship levy, and these will require to be paid as usual.
6. The information provide to HMRC will include the number of furloughed employees, the furlough period and the amount being claimed but does not appear that it will include a breakdown of the calculation or any detail identifying specific employees or sick or holiday leave. HMRC reserve the right to audit the claim of any employer within a 5 year period.
7. There has been no guidance issued in relation to the payment of holidays during furlough or whether they will interrupt a minimum 3 week furlough period. See Outstanding Questions for more information in relation to holidays.
HMRC has avoided the issue of how holiday leave and sick leave interact with furlough.
Updated ACAS guidance states that if an employee is furloughed, they can still request and take their holiday in the usual way. It also states that employees may be required to use a day’s paid holiday for bank holidays ‘including when they are furloughed’, which seems to imply that employers will still have the right (under the Working Time Regulations 1998) to require employees to take holiday when furloughed. However they do not offer a view as to whether this should be paid at 100% or 80% but we are of the opinion that this should be paid at the employee’s normal rate of holiday pay to avoid a breach of Working Time Regulations and claims for unlawful deductions.
Also ACAS’ view about the right to take holidays does not necessarily correlate with HMRC agreeing to pay for it through the scheme. There is some debate as to whether or not holidays will interrupt a 3 week minimum furlough period. We would advise that holidays be taken either before or after a furlough period to avoid making a period ineligible.
Employees will continue to accrue holidays during the furlough period.
It is open to employers to seek to agree the suspension of accrual of non-statutory holidays and other benefits.
Employers also have the right to tell employees when to take holidays if they need to, for instance, an employer could shut for a week and tell everyone to use their holiday entitlement.
Due to COVID-19 it may not be possible for employees to take holidays (due to self-isolation, sickness or having to continue working) therefore the government has introduced a temporary new law which allows employees to carry over up to 4 weeks paid holiday over a 2 year period.
If an employee wants to take time off that they had previously booked the employer may still tell them to take the time off. If the employee wants to change when they take this time off, they’ll need to get agreement from their employer.
Sick Pay and Leave
We do not yet know the impact of an employee becoming sick during a period of furlough and transferring to SSP, nor do we know if HMRC will scrutinise cases where an employee self certifies as being well in order to obtain an increased monthly payment.
It may be wise to take employment law guidance on this or to consider expressly excluding any entitlement to contractual sick pay for furloughed employees to try to avoid that becoming an additional complexity to consider.
‘Past Overtime’ and ‘Compulsory commission’
We look forward to receiving more information or definition of these terms in due course. In the meantime, we recommend a prudent approach to furlough pay calculations.