On Friday 26 June 2020, the government released the latest version of the Treasury Direction (TD), dated 25 June 2020, made under Sections 71 and 76 of the Coronavirus Act 2020. This is the 3rd iteration of the TD - it was first released on 15 April 2020 and then updated on 22 May 2020. The latest version of the TD reflects the extension to the Coronavirus Job Retention Scheme (CJRS) to 31 October 2020 and the changes to the CJRS from 1 July 2020 onwards, announced by the Chancellor on 12 May 2020.
So, what is the difference between the TD and Government Guidance on the CJRS? As you may recall, the TD sets out the legal framework for the CJRS whilst the guidance is just, well, guidance. That said, it has been reported that, when HMRC come to audit employers that used the CJRS, the starting point will be to consider what is set out in the Government Guidance documents.
The TD has tended to follow several weeks after the Government Guidance is updated (the Guidance was last substantially updated on 12 June 2020) and, so, to an extent, has just clarified what we already knew. However, there have been some things mentioned in the TD this time that do not feature in the Government Guidance (for example, we see new definitions, algebraic equations and an expansion of certain provisions).
Version 3 of the TD split into two parts:
- Part 1 deals with claims made under the original TD of 15 April 2020 modified on 20 May 2020 (that is, claims made in the period 1 March to 30 June 2020). It is only short (a few paragraphs) and there is nothing of note in it and so we do not deal with it in this article.
- Part 2 deals with claims beginning on 1 July and ending on 31 October 2020. Given its relevance to future claims, this article focuses on the content of Part 2 of the TD. The main change post 1 July 2020 is to enable part work / part furlough or “flexible furlough” as it is referred to.
You might be forgiven for thinking that this all seems straight-forward but if you wish to enter the world of flexible furlough you do so at your peril and you may need to find a quiet space and a cold towel to work through the complex and, at time, impenetrable drafting of the TD. This article attempts to highlight the key points only, with cross references to the more detailed provisions which you can read in detail at your leisure.
B: Purpose of the CJRS (Paragraph 2 of the TD)
Paragraph 2 of the TD sets out the purpose of the CJRS.
- Paragraph 2.1 confirms that the purpose of the CJRS is to “provide for payments to be made to employers on a claim made in respect of them incurring costs of employment in respect of employees who are within the scope of the CJRS arising from health, social and economic emergency in the UK resulting from coronavirus and coronavirus disease.”
- This is no great surprise to us but it is helpful confirmation that the Government recognises that the emergencies employers are dealing with may not just be financial ones (or indeed financial at all, if they happen to have traded well throughout the pandemic) - they may also be encountering health and social emergencies too. For example, businesses may have employees that are clinically extremely vulnerable (and shielding) and/or those with childcare that mean they cannot work for as long as the schools and nurseries are shut (even if there is work to do if they were fit and able). These employers are also able to claim under the CJRS.
- Paragraph 2 contains some additional wording that we have not seen before and so it is worth setting it out in full here. It says:, “Integral to the purpose of CJRS is that the amounts paid to an employer pursuant to a CJRS claim are used by the employer to continue the employment of employees in respect of whom the CJRS claim is made whose employment activities have been adversely affected by the coronavirus and coronavirus disease or the measures taken to prevent or limit its further transmission [underline added for effect].”
- The wording, “to continue the employment of employees” is different to that which is mentioned in the Guidance and may lend support to the argument being advanced in some quarters that employers cannot use the grant towards furloughed employees’ pay during a period of redundancy consultation and/or their notice period. Whilst people undergoing a consultation and/or working their notice are, of course, still employed by the employer during that period (and arguably, therefore, continuing to be employed for longer than they would otherwise have been), can it be said that the amounts paid to an employer pursuant to a CJRS are really being used to “continue” the employment of employees, if they may, in fact, be about to be terminated? Most have assumed that employers cannot use the grant towards payments in lieu of notice (PILONs) but the feeling was that you could still use it towards furloughed employees’ pay during redundancy consultation and their notice pay if they were “working” their notice (or at home fully furloughed during their notice period). HMRC have been asked to clarify this point and so we will update you as and when that happens.
- It is also helpful that section 2.2 makes it clear that furlough is possible to “prevent or limit the further transmission” of coronavirus as that, once more, helps those employers that have sufficient work for employees to do but wish to protect them or others from harm if they are shielding or otherwise vulnerable.
C: PART 2: claims made under the CJRS from 1 July 2020 to 31 October 2020 (Paragraphs 7 - 43 of the TD)
D: Concluding thoughts
If you have made it this far, well done!
Having been drawn up in haste under extreme time pressure, the 3rd TD certainly lacks much of the clarity and precision we normally expect from parliamentary draftsmen. The intention was admirable - to allow businesses to “test the water” and resume usual duty, gradually over time, whilst still making use of the CJRS grant that is available until 31 October 2020. It will be a great shame if employers (small employers without large HR / payroll departments) are put off and deterred from bringing employees back to work by the complex provisions and calculations that need to be done.
Indeed, many businesses we have spoken to are not intending to make use of the flexible furlough arrangements for these reasons and, instead, are looking to do one of three things: (a) bring people back to work, in accordance with relevant H&S rules and guidance, (b) keep them on furlough 100% of the time, or (c) commence a redundancy consultation exercise with a view to quite drastic reductions in head count. Option (c) was what the Government was trying to avoid by introducing flexible furlough and we hope that is achieved.
Whilst there are still areas of uncertainty, we hope that this note is helpful. Do contact a member of our Employment Team if we can assist with any specific queries.
The law is constantly changing and the position set out in this note may not be current. You should not rely on this note as a comprehensive statement of the law. Please contact us if you require specific legal advice on your situation.
© Knights plc 29 June 2020