On 4 April 2020 HM Revenue and Customs published updated guidance in relation to the Coronavirus Job Retention Scheme ("the Scheme")

The 26 March Guidance entitled "Claim for wage costs through the Coronavirus Job Retention Scheme", has now been replaced by two separate guidance notes:

The revisions to the Guidance are extensive. The 'no work while on furlough' remains a key feature suggesting there is no de minimus exception. The Employee Guidance does provides some added clarity in some regards, for example, furloughed employees can take up new employment with a another employer who is not linked or associated with the employer if their contract permits. The sections in the Employer's Guidance on 'employees you can claim for' and 'how much you can claim' have also been expanded including clarifying the position on past regular overtime. However, there are still areas where clear guidance is lacking.

IMPORTANT UPDATE: 

At the Treasury Select Committee session on 8 April, Jim Harra, First Permanent Secretary and Chief Executive, HMRC confirmed

  • The system for employers to submit their claim will be live on 20 April with payments under the Scheme to employers by end of April. 
  • The aim is for payments to be in employers' bank accounts 4 to 6 days after the claim is received. 
  • Later this week there will be published new operational guidance for employers on how to compile and submit their claims.

Also, on 7 April, ACAS made significant amendments to its Coronavirus (COVID-19): advice for employers and employees. See revised section 6 of this alert for the latest from ACAS.

When reading the HMRC Guidance it is important to remember that the guidance is for what employers can claim via the Scheme not guidance on employee rights.

Below we look at the revised new two sets of guidance (what they say and how they interact) and highlight some of the employment law issues raised as a result:

  1. What is the Scheme and what period will it cover?
  2. Who can claim?
    • Basic requirements
    • Administrators
    • Public sector organisations
  3. Who can be furloughed? (General)

1. What is the scheme and what period will it cover?

1.1. The revised Employer's Guidance explains the Scheme is to help:

"If you cannot maintain your current workforce because your operations have been severely affected by coronavirus (COVID-19), you can furlough employees and apply for a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage."

It is a temporary scheme in place for three months starting from 1 March 2020, but it may be extended if necessary and employers can use this scheme anytime during this period.

Point to note: The revised Employer's Guidance goes on to also state that it is "to help employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy. However, all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus." This suggests not only that there is no requirement that employers demonstrate they had no other option than to make employees redundant, but that employers will also not need to establish that they have been "severely affected by coronavirus" - in other words it is open to all employers meeting the basic requirements (see below).

2. Who can claim?

2.1. Basic requirements

The claim under the Scheme the employer must have:

  • created and started a separate guidance on how payments to suppliers of contingent workers impacted by COVID-19 should be dealt with where the party receiving the contingent worker's services is a Central Government Department, an Executive Agency of a Central Government Department or a Non-Departmental Public Body.

    • 5. Agreeing to furlough employees

    5.1. Need to notify employees

    1. The Guidance remains that "employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way."
    2. However, the revised Employer's Guidance now requires:
      1. Employers must confirm in writing to their employee that they have been furloughed (previously "should" now "must"); and
      2. A record of this communication must be kept for five years (previously no required time period).

    Point to note: The period of furlough leave can start from a date after 28 February that the employer sent the employee home on paid leave to do no work, NOT when the decision is made to utilise the Scheme, or when the employee was written to confirming their furloughed status.

    5.2 Can an employee request furlough leave?

    The Employer's and Employee's Guidance does not expressly address this, but is predicated on the basis that while there is nothing to prevent an employee requesting to be put on furlough leave, the employer does not have to agree. It is the employer's decision which employees to place on furlough leave, if any.

    Points to note:

    1. Potentially redundant employees do not have a right to require their employer to place them on furlough leave as an alternative to redundancy. However, it is hoped that many employers will see the new scheme as preferable to business closure and making redundancies. It is unclear whether refusing to place an employee on furlough leave and making them redundant could amount to an unfair dismissal.
    2. It may seem to some employees that it is unfair that they will be required to continue working, potentially increasing their risk of infection if they are unable to work from home, and others will be permitted to receive a substantial proportion of salary and not be required to do so. However, provided the employer has used appropriate, non-discriminatory criteria to choose who is placed on furlough leave, it is possible for an employer to lawfully choose to furlough only part of the workforce. Some employees may look at this issue the other way and prefer to continue to receive full pay so the employer may find that seeking volunteers for furlough identifies the preferences of individual employees and avoids a feeling of unfairness.

    5.3 Can an employee refuse to go on furlough leave?

    Yes, but that does not mean you cannot dismiss them. The Employee's guidance states "if your employer asks you to go on furlough and you refuse you may be at risk of redundancy or termination of employment, depending on the circumstances of your employer. However, this must be in line with normal redundancy rules.

    5.4 Why is it important to have a written Furlough Agreement?

    The revised Employer's Guidance continues to stress that "employers should discuss with their staff and make any changes to the employment contract by agreement. Employers may need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment."

    Points to note:

    1. It is not the case that employers can simply place employees on furlough and their pay is then reduced to 80%. The terms of the employee's contract of employment remain in force unless varied.
    2. Some employment contracts (relatively few) will contain an express right for the employer to lay off an employee or put the employee on short-time working. Where there is no express contractual clause on lay off, the contract of employment will need to be varied to avoid potential claims for breach of contract and unlawful deduction of wages. Under normal circumstances, a general variation clause contained in a contract of employment will only assist with variations of a minor nature. It would not allow an employer to make significant changes (but these are unprecedented times so whether a tribunal would take a different view in light of current circumstances is impossible to predict).
    3. The safer course is for employers to enter into a Furlough Agreement with furloughed employees setting out the amended terms and conditions that will apply during any period of furlough. Faced with the alternatives, which are likely to be unpaid leave, statutory lay-off, or redundancy, the majority of affected employees are likely to agree to be placed on furlough on amended Ts & Cs.

    6. Can employees be placed on holiday leave instead? Updated 8 April

    The Employer's and Employee's Guidance from HMRC does not address this question. However, on 7 April, ACAS Guidance: Coronavirus (COVID-19): advice for employers and employees which had been published on 2 April was updated. It now states:

    Using Holiday

    "If an employee or worker is temporarily sent home because there’s no work and the employer intends to claim for their wages under the Coronavirus Job Retention Scheme ('furloughed'), they can still request and take their holiday in the usual way. This includes bank holidays.
    Employees and workers must get their usual pay in full, for any holidays they take."

    Bank Holidays

    "Bank holidays are usually part of the legal minimum 5.6 weeks’ paid holiday. Employees and workers must get their usual pay in full for bank holidays. Employees and workers may still be required to use a day’s paid holiday for bank holidays, including when they’re furloughed. If bank holidays are given on top of the 5.6 week’s paid holiday, employees and workers should check their contract or talk to their employer about taking this holiday. If employees and workers usually work on bank holidays but are currently furloughed, they should check with their employer to see if they have to take holiday on that day or if they can take the time off at a later date.

    If employees and workers cannot take bank holidays off due to coronavirus, they should use the holiday at a later date in their leave year. If this is not possible, bank holidays can be included in the 4 weeks’ paid holiday that can be carried over. This holiday can be taken at any time over a 2-year period."

    Previously booked holidays

    "An employee may no longer want to take time off they'd previously booked, for example because their hotel cancelled the booking. Their employer can insist they still take the time off, but it’s best practice to get agreement from the employee. If the employee wants to change when they take this time off, they'll need to get agreement from their employer."

    Points to note:

    1. The Scheme does not appear to contain any provisions which prevents the taking of holiday leave during furlough. In a separate measure, the Government has amended the Working Time Regulations 1998 (WTR) to allow carry over of up to four weeks accrued holiday leave. This will allow leave to be taken sometime in the following two years but only where the holiday leave was not taken in this current holiday year as a result of the effects of coronavirus on the worker, the employer or the wider economy or society. See our alert, COVID-19: How Coronavirus is impacting the taking of UK holiday leave - permissible carry over.
    2. While carry over is now permitted, workers who are not on sick leave or statutory family related leave (maternity, paternity etc…), can still be instructed by their employer to take statutory annual leave on particular dates, provided that they are given the required amount of notice. The amount of notice will be that contained in the contract of employment. If the contract is silent, the default position is that twice as much notice as the period of holiday leave to be taken must be given by the employer.
    3. With regard to the amount to be paid to an employee taking leave during a period of furlough, unfortunately uncertainty persists. The revised ACAS Guidance states that the employee should be paid usual pay in full. What does this mean?

      The revised ACAS Guidance suggests any period of holiday leave taken in a furlough period should be paid to the employee at their pre-furlough salary regardless of any contractual variation agreed to accept 80% of pay during the furlough period (though employers will still be able to reclaim 80% under the Scheme.

      However if the employee agreed to furlough leave with the consequential  pay cut  then arguably that would be the usual pay for any leave taken during the furlough period (even though leave may have accrued pre-furlough).

      Similarly, for  leave accruing during the furlough period, if the leave is taken at a later time then the pay will be whatever is usual pay at the time it is taken (so full pay) it is the usual pay at the time the leave is taken that applies.

      Whether holiday pay should be based on pay pre-furlough or as applies during furlough is therefore hard to call. While the ACAS Guidance suggests the former, it is only guidance which tribunals can and have in the past ignored (for example calculating holiday pay for term time only workers). Paying at furlough rate will carry a risk of future claims for unlawful deduction of wages (for the underpayment of wages). Of course those claims could be settled in the future if and when further guidance becomes available.

    These remain unprecedented times.

    7. How much cany you claim?

    7.1 What can be claimed?

    What can be claimed by the employer under the Scheme remains:

    1. 80% of your employees' wages, up to a maximum of £2,500 (see wages below).
    2. Minimum automatic enrolment employer pension contributions on the subsidised wage and associated Employer National Insurance contributions (see more below).

      Point to note: The revised Employers Guidance now makes it clear that this applies even for employees on NMW.

    3. Employers can choose to top up a furloughed employee's salary, but employers do not have to claim under the Scheme. But remember employees must not work or provide any services for the business while furloughed, even if they receive a top-up salary.
    4. Grants will be prorated if the employee is only furloughed for part of a pay period.
    5. Claims should be started from the date that the employee finishes work and starts furlough, NOT when the decision is made, or when the employee was written to confirming their furloughed status.

    7.2 How to work out the 80%?

    The way to work out your employees' wages is different depending on what type of contract they're on, and when they started work. The Guidance remains:

    1. Full or part time employees on a salary
      Claim for the 80% of the employee's salary, as of 28 February 2020, before tax.
    2. Employees whose pay varies
      If the employee has been employed for 12 months or more, you can claim the highest of either:
      1. the same month's earning from the previous year; or
      2. the average monthly earnings for the 2019-2020 tax year

        If the employee has been employed for less than 12 months, claim for 80% of their average monthly earnings since they started work.

        If the employee only started in February 2020, work out a pro-rata for their earnings so far, and claim for 80%.

    Point to Note: Salary as at 28 February is to be used to make the calculation. When reading the HMRC Guidance it is important to remember that the guidance is for what employers can claim via the Scheme not guidance on employee rights. To claim under the Scheme the starting point is salary as at 28 February 2020, but if a salary cut has been agreed since then, that is the salary that would otherwise be payable to the employee and so the revised salary would appear to apply. What you cannot use is any pay increase post 28 Feb (even if agreed before 28 Feb) to calculate the amount that can be claimed via the Scheme.

    7.3 Employer National Insurance and Pension Contributions

    As contained in the initial Guidance, employers still need to pay employer National Insurance and pension contributions on behalf of furloughed employees, and can claim for these too. The revised Employer's Guidance now clarifies that employers cannot claim for:

    1. additional National Insurance or pension contributions made because the employer chose to top up the employee's salary; and
    2. any pension contributions made that are above the mandatory employer contribution

    7.4 What should be included in 'wages'

    1. Past Overtime, Fees, Commission, Bonuses and non-cash payments

      The revised Employer's Guidance now states employers "can claim for any regular payments you are obliged to pay your employees. This INCLUDES wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments should be excluded."

      Point to note: This is welcomed much needed clarification that REGULAR OVERTIME and commission payments usually worked/earned SHOULD BE INCLUDED being akin to the positon in relation to holiday pay.

    2. Benefits in Kind and Salary Sacrifice Schemes

      The revised Employer's Guidance now states that "the reference salary should not include the cost of non-monetary benefits provided to employees, including taxable Benefits in Kind. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee's taxable pay should also not be included in the reference salary. Where the employer provides benefits to furloughed employees, this should be in addition to the wages that must be paid under the terms of the Job Retention Scheme."

      Point to Note: While benefits provided through salary sacrifice are NOT included the Employer's Guidance acknowledges that "normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event". Importantly 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." How salary sacrifice amounts are to be treated should be addressed in any Furlough Agreement. This is welcomed much needed clarification.

    3. Both the Apprenticeship Levy and Student Loans should continue to be paid as usual. Grants from the Job Retention Scheme do not cover these.
    4. National Minimum Wage

      The Employer's Guidance now confirms:

      1. "Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW)/ Apprentices Minimum Wage (AMW) for the hours they are working or treated as working under minimum wage rules".
      2. "This means that furloughed workers who are not working can be paid the lower of 80% of their salary or £2,500 even if, based on their usual working hours, this would be below their appropriate minimum wage. However, time spent training is treated as working time for the purposes of the minimum wage calculations and must be paid at the appropriate minimum wage, taking into account the increase in minimum wage rates from 1 April 2020. As such, employers will need to ensure that the furlough payment provides sufficient monies to cover these training hours".
      3. "Where a furloughed worker is paid close to minimum wage levels and asked to complete training courses for a substantial majority of their usual working time employers are recommended to seek independent advice or contact Acas".

    Point to note: This is welcomed clarification of the positon is as most employment law practitioners had advised.

    8. Making a claim

    8.1 What you'll need to make a claim

    The Guidance is unchanged. To claim, employers will need:

    1. their ePAYE reference number
    2. the number of employees being furloughed
    3. the claim period (start and end date)
    4. amount claimed (per the minimum length of furloughing of three consecutive weeks)
    5. their bank account number and sort code
    6. their contact name
    7. their phone number

    Employers will need to calculate the amount they are claiming. HMRC will retain the right to retrospectively audit all aspects of the claim.

    Point to note: Ensure a paper trail of furlough agreement agreed and amounts claimed for at least five years.

    8.2 Claim submissions

    The revised Employer's Guidance now states that employers "should make their claim using the amounts in their payroll - either shortly before or during running payroll. Claims can be backdated until the 1 March where employees have already been furloughed. If appropriate, worker's wages should be reduced to 80% of their salary within the employer's payroll before they are paid. This adjustment will not be made by HMRC."

    It remains the position that employers can only submit one claim at least every three weeks, which is the minimum length an employee can be furloughed for.

    Point to note: Claims can be back dated until 1 March 2020. The period of furlough leave can start from a date after 28 February that the employer sent the employee home on paid leave to do no work, NOT when the decision is made to utilise the Scheme, or when the employee was written to confirming their furloughed status.

    9. What happens after claim submitted?

    9.1 The Guidance remains that

    HMRC will check the claim, and if the employer is eligible, will pay it by BACS to a UK bank account.

    Employers must pay the employee all the grant received for their gross pay, no fees can be charged from the money that is granted.

    HMRC will process all claims made before the scheme ends.

    9.2 Furloughed employees will still pay the taxes they normally pay out of their wages.

    This includes pension contributions (both employer contributions and automatic contributions from the employee), unless the employee has opted out or stopped saving into their pension.

    9.3 Employees that have been furloughed have the same rights as they did previously.

    That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.

    Point to note: The Employer's Guidance stresses that "grants cannot be used to substitute redundancy payments. HMRC will continue to monitor businesses after the scheme has closed".

    10. Tax Treatment of the Coronavirus Job Retention Grant

    The Guidance remains that

    1. "Payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business's calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles".
    2. "Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes".