We expect that you will be inundated with guides on the CJRS. Each will be similar in many ways but you may find there is some differing of opinion. That is because the right of “furlough” is new to the UK. It never previously existed here. The term furlough already exists in other jurisdictions (e.g. the US) but that right is different to the new right in the UK and so we cannot take any learning from other countries.
Furthermore, the guidance issued by the government on 26 March 2020 (namely: Link to guidance for employers (Click here) and Link to guidance for employees (Click here)) is sparse and lacking in worked examples.
For those reasons, employment lawyers like us are having to interpret the new rules for ourselves and apply a “common sense” approach.
In addition, the new rules have been brought in with such speed (and are intended to be temporary in nature to deal with the crisis before us) that little, or no thought, has been given to how they fit in with already existing UK employment laws. Moreover, these may be new rules but we don’t see it as new law- no new regulations have been produced, for example- and so it is, essentially, just a new payment scheme between HMRC and employers. This may explain why the application of it is clunky and does not play out perfectly. Like you, we also have several questions (the “known unknowns”) and we have included some of those in this note.
It is not easy to apply new rules (at such speed) and so we hope that this note will help you to understand what has been introduced and how to apply it in practice. Please do get in contact with us if you need any assistance in applying the law to your specific situation.
Key aspects of the CJRS
It is a temporary scheme set to run for at least 3 months from 1 March 2020 to 30 May 2020 (but may be extended).
The key aim is to allow businesses to keep hold of their staff and talent pool during the crisis and avert mass redundancies. The thinking is that, without the scheme, employers could not afford to do this (given the down turn in work and consequent lost revenues) and so this is why the government has stepped in to help. In time, if and when the work picks up again, the idea is that businesses can then call upon those they have furloughed and won’t need to commence fresh recruitment processes. If the work does not pick up again (or to the levels that it once was) then we expect there will be a need for redundancies at that point. Hopefully, that will not be the case of course.
The CJRS is open to all UK employers who had a PAYE payroll scheme running on 28 February 2020 and whose operations have been severely affected by coronavirus.
Employers will have access to a portal so that they can claim 80% of furloughed employees’ monthly wage costs, up to a maximum of £2,500 per month plus employer’s NICs and employer’s pension contributions. See further detail below.
The CJRS is expected to be up and running by the end of April.
Frequently Asked Questions
- All UK employers (regardless of size or sector) who have been operating a PAYE payroll system on or before 28 February 2020 and that have a UK bank account can apply.
- Businesses, charities and public authorities* are all included.
(* Public authorities are not envisaged to furlough staff, especially as the majority receive public funding and would be providing essential services in light of the coronavirus outbreak. As long as those employers receiving public funding for staff costs continue to do so, they would not need to furlough their staff. However, there may be a small number of organisations who receive some degree of public funding and provided that their staff cannot be redeployed in order to assist with the response to the outbreak, they may benefit from the CJRS by furloughing those employees).
- Recruitment agencies who pay their agency workers through PAYE are also eligible.
- Where the company has gone into administration, the administrator will be able to access the CJRS.
- All furloughed employees that have been on an employer’s PAYE payroll on 28 February 2020 are eligible. This includes:
o all full and part time employees (whether permanent or fixed term)
o employees on agency contracts
o employees on flexible or zero hour contracts
o employees who are “shielding” in line with Public Health Guidance (Click here)
o employees made redundant since 28 February 2020 and who have been rehired (but question if they need to repay their redundancy payment and/or whether it can be offset against furlough payments?)
- We expect that the scheme also covers “workers” so long as they were on the PAYE payroll on 28 February 2020 (since the guidance says the scheme covers employees “on any kind of contract”) but the term “worker” is not used in the guidance. We are expecting clarity on this.
- Employees hired after 28 February 2020 cannot be furloughed and are, therefore, ineligible to be claimed for under the CJRS. We understand that there has been some disquiet about this and a request for change has been made. However, this was an anti-avoidance measure (to prevent, for example, businesses putting family members on the payroll and then furloughing them). It may be that a change is made such that those on the payroll between 28 February 2020 and 26 March 2020 (when the guidance was released) will be covered. We will update you if so.
- What we do not know, though, is whether it is enough for employees to have been added to the payroll on 28 February 2020 or must their work have started? For example, if an employee accepted an offer of employment on 20 February 2020 and are added to the payroll on 22 February 2020 (in anticipation of them starting soon) but they did not start work until 1 March. Are they eligible? This is unclear.
- Also, what if they TUPE transferred into the employer’s employment after 28 February 2020- are they eligible? One would expect so but, again, it is not clear. There is a contrary view (by a well-known barrister, Daniel Barnett) that as TUPE only operates to transfer all “rights, duties, powers and liabilities” under the employment contract between employer and employee- and not third parties (such as between HMRC and employer, as here), TUPE may not transfer furlough leave- it just transfers continuity of employment.. That said, we have heard that HMRC have announced on a webinar that they would regard TUPEd employees as being eligible for the scheme and so this is clearly an area of confusion.
- It is clear, however, that the following people are ineligible:
o employees absent on sick leave or self-isolation (but they can be furloughed once their sick leave/ self-isolation has ended- see below)
o self-employed contractors (see the separate support available for them (Click here)
o employees working “short-time” hours than their contract provides for (e.g. shorter days or reduced days per week).
- Another question we have is what happens if a furloughed employee falls sick during a furlough period- will they swap to SSP from the furlough pay? If so, do those days count towards their minimum 3-week furlough period? There is currently no guidance on this and, in reality, will employers ever know!
- In short, yes and yes. The government scheme does not create a “right” to furlough.
- As per the Employer and Employee guidance (see links at the top of this document), employers who want to put people on furlough leave need to “discuss” this with their employees and seek their “agreement” to be furloughed as it involves a change to their employment status (albeit temporary) and contract of employment. The best way to evidence “agreement” is through express written consent (i.e. a signature confirming agreement).
- Even where there is a contractual “lay-off” clause in a contract of employment, our view is that express written consent to be furloughed is still required since the concept of “furlough leave” is new to the UK and is, technically, different (and wider) to the already existing concept of “lay-off” that we had in the UK. Of course, if there is a contractual lay-off clause then this can be referenced and we would expect that consent from those people will be more readily given.
- There is no specific consultation process laid down in the guidance and so our view is that it does not need to be lengthy. A written notification of the desire to place them on furlough and a request to return their signed consent is maybe all that is needed. A follow up call may be required for those that do not agree to being furloughed but we do not expect that this is necessary in every case. Time is, of course, of the essence and so the quicker that employers can obtain their employees’ consent the better. In addition, the alternative to furlough may also be less appealing (e.g. redundancy) and so whilst it is not what they want to happen, it may be the best of the options available.
- In addition to obtaining consent to being furloughed, a risk-free approach would be to obtain their consent to receiving only 80% of wages (up to a cap of £2,500 per month) at the same time, to prevent any subsequent claims for unlawful deduction from wages for the “top up” part. Of course, employers may choose to pay the shortfall in which case this second element of consent is not required.
- A question that we have been asked several times is what happens if there are more than 20 employees who need to be furloughed: will this trigger collective consultation since the alternative to being furloughed is likely to be (a) redundancy or (b) dismissal for “Some Other Substantial Reason (SOSR)” and re-engagement as a furloughed employee (such change to terms and conditions being caught by the wider definition of redundancy under EU law)?
o Practically speaking, the answer lies in not how many people need to be furloughed but in how many people refuse to be furloughed after you have asked for their express consent as per the answer to the Question above. If the number of that latter group is 20 or more then, yes, collective consultation obligations will come into play.
o Those obligations will involve employers having to elect employee representatives (if there is no trade union or already existing employee consultative body in existence) and notifying the Secretary of State using an HR1 form. There is then a minimum number of days that those representatives need to be consulted with (30 days if there are 20 or more but under 100 not consenting and 45 days if there are more than 100 not consenting) before the first dismissal for redundancy or SOSR.
o Given the unprecedented situation that we find ourselves in, however, there is a chance that employers will be able to avail themselves of what is called the “Special Circumstances” defence which give employers some flexibility here- but legal advice should always be sought on this.
- Remember that if there is a trade union involved, there may be additional requirements that need to be met under relevant collective agreements.
- There are no specific rules in the government guidance for deciding who to furlough. Employers therefore have discretion who they choose to furlough. However, employers must be aware that discrimination and equality laws will continue to apply. That said, we consider that it will not be necessary to carry out redundancy style selection procedures to make the decision- employers just need to ensure that there is no discrimination.
- It is thought however, given the official guidance in relation to vulnerable workers, that prioritising those deemed vulnerable (those over 70 years of age and / or with underlying health conditions) for furlough would not necessarily constitute discrimination and/or could be justified. For example, if you choose to furlough those with underlying health conditions from the group to be furloughed, then there will be no claim that the “healthy” non-furloughed employees could bring for discrimination based on their wellness to work. We would also hope that the employee population would want employers to help those in need first above others.
- This should be done in writing (or if verbal, confirmed in writing) so that employers can keep a record of communication with their employees.
- As set out above, we suggest that employers should send employees a letter to be signed by the employee which confirms that they understand they are being furloughed and what this entails (including the length of the furlough and the pay they will receive, and when). Employees would then need to return the signed letter to their employer which can then be kept on file as evidence of their consent.
- Please get in touch with a member of the Employment team at Knights if you require a template letter for use and we can assist you further with this.
- If eligible, employers can claim up to 80% of “wage costs” (defined below) up to a monthly cap of £2,500 per employee, plus employer’s NICs and minimum employer’s auto-enrolment pension contributions applicable to the wage (currently 3% of income above the lower limit of qualifying earnings on the subsidised wage only). This is paid to employers by way of a grant (that does not need to be repaid).
- Fees, commissions and bonuses are not included and cannot be claimed under the scheme. Any additional pension contribution above the minimum are also excluded.
- Upon receipt of the grant, employers must pay their furloughed employees a minimum of 80% of their usual wage or £2,500 a month (whichever is lower) and can choose to top up the remaining 20% themselves (though this is optional under the scheme).
- More guidance will be provided by HMRC relating to how employers should calculate how much employer’s NICs and pension contributions they will need to claim.
1. Work out how much of the employee’s salary you can claim for:
How to work out what you can claim
For full time and part time employees
For employees with variable pay
2. Next, work out how much employer’s NICs and minimum automatic enrolment pension contributions you will be entitled to claim for.
- As mentioned above, HMRC will be issuing more guidance on this before the scheme goes live.
- Note that if an employer decides to top up an employee’s pay over the amount that the grant will cover, they will not be able to claim for the associated employer’s NICs and pension contributions in respect of the top up amount under the scheme.
- For the avoidance of doubt, voluntary automatic enrolment contributions will also not be funded through the scheme.
NOTE: Once grants are received for each furloughed employee, employers need to deduct income tax and employee NICs and other deductions in the normal way and then pay the net amount to the employee.
WORKED EXAMPLE: Given the cap on the scheme, a furloughed employee who is earning up to £37,500 per annum (gross) would receive 80% of their actual pay. Anyone earning over £37,500 will experience not only the 20% shortfall caused by the cap but an additional shortfall too. The employer can choose to top these people up but there is no obligation to do so. If employers do not want to pay the top up then, as suggested above, employers should seek their employees’ consent to receive reduced pay whilst on furlough leave (to avoid any subsequent unlawful deduction from wages claims).
- Employees are only entitled to the NLW / NMW for hours that they have actually worked.
- While on furlough, employees will not be working and so furloughed employees must be paid the lower of 80% of their usual salary or £2,500 a month. This will be the case even where based on their usual hours, this amount would take them below the NLW / NMW threshold.
- However, if furloughed employees are required to undertake training while on furlough leave, they should be paid NLW / NMW for the time spent undertaking training. This will be the case even where this amount exceeds 80% of their usual pay which would be covered by the scheme.
- Once employers have agreed which employees will be furloughed and have made changes to their employment contracts to confirm they are furloughed, employers will need to have the following in order to process their claim:
o their ePAYE reference number
o the number of employees being furloughed
o the claim period (start and end date)
o the amount claimed (per the minimum length of furloughing of 3 weeks)
o their bank account number and sort code
o their contact name
o their phone number.
- The guidance states that employers “will also need to calculate the amount it is claiming” and so it is sensible for employers to start to draw together all of this information now so that an application can be made as soon as the portal launches.
- Further information about the online portal and the process for claims should follow soon before the system goes live. Note: HMRC reserves the right to audit claims.
- Employers will only be able to submit 1 claim every 3 weeks.
- Claims should be made at the time at which employers usually run their payroll (or shortly in advance of running their payroll) in accordance with actual payroll amounts. Our view is that this means employers cannot delay payment of wages to furloughed employees until the grant from the Government has been received. If employers need assistance to cover the gap between paying staff and receiving the grant, they should look into what loans are available.
- Claims can be backdated to 1 March 2020, where necessary.
- Provided the employer is eligible for the grant under the scheme, HMRC will make payment to the employer’s UK bank account via BACS.
- The scheme is intended to last 3 months initially, though this may be extended if the government decides. As such, the current maximum that employees can be furloughed is 3 months from 1 March 2020. Therefore, if employees are furloughed today (30 March 2020) then that period of furlough must end on 30 May 2020 (subject to government extension).
- Employees can be furloughed for a minimum of 3 weeks.
- An employee must not undertake any work or provide any service for or on behalf of their employer while on furlough leave or do anything which generates revenue for the employer. This is because the CJRS is only intended to apply in circumstances where there is no work to do for the employees that have been furloughed.
- What we do not know is if there is a de minimis principle e.g. if those still at work need to do a handover of work before they go on furlough, does that count as work? Something that is not covered by the guidance and so we expect employers will take a common sense approach.
- If an employee is working reduced hours (i.e. they have already consented to “short-time” working), employers will not be able to claim for them under this scheme and such employees will need to be continued to be paid their salary via payroll in accordance with the terms of their employment contract.
- In respect of agency contracts, as above, the scheme is only intended to apply in respect of employees who are not working.
- Can a furloughed employee work for anyone else during the furlough period? Given that the guidance refers to an employee working for a number of employers, then we are of the view that a furloughed employee could go and work for another employer during the furlough period e.g. a supermarket (subject to primary employer consenting to them working for someone else) in order to top their wage up. The cap under the CJRS applies individually to each employer. If they then split their time 50/50 between the two jobs and the workload in their second job increases during the furlough period so that they are working full-time, do they cease to be eligible under the CJRS? Again, something that is unclear.
- There is no explicit requirement in the guidance- that just talks about furloughing people to avoid mass redundancies- but is there perhaps an implicit requirement given if there was no redundancy situation, they would be working (albeit maybe reduced hours)? This is unclear. We know that there certainly does need to be a downturn in work caused by the COVID-19 pandemic- we expect that the difference with a redundancy situation is that the downturn is a temporary one, and not a permanent one.
- On this basis, employers might be able to avoid their collective consultation obligations kicking in if they can demonstrate that the alternative to furlough is not redundancy but some other option e.g. a requirement that they take paid annual leave (utilising the rights under the WTR) or a requirement to take unpaid leave, or a unilaterally enforced period of furlough (bearing in mind that would, technically, be a breach of contract) for example.
- Our view is that an employer can still make redundancies (subject to the normal rules on redundancy, unfair dismissal and discrimination) if (a) it can show that the particular downturn in work is unlikely to return (i.e. it is a permanent downturn) or, any return of work is likely to be long way off, or if the downturn in work had already taken place and/or is not connected to the COVID-19 pandemic and (b) as part of the redundancy consultation exercise, it has properly applied its mind to whether furlough is a suitable alternative to avoid the redundancy (as part of the normal consideration of alternatives).
- Yes; this is because the employee’s contract of employment still remains in place. They are not being dismissed or being made redundant. While on furlough, employees are still being retained by their employer.
- Rights and benefits such as entitlement to SSP, maternity / paternity rights etc. will continue to exist. Equally, rights to protect the business, such as confidentiality obligations continue to exist too.
- Below are some worked examples:
If an employee is on unpaid leave…
If an employee is on sick leave / self-isolating or is ‘shielding’…
If an employee is on maternity leave / adoption leave / paternity leave or shared parental leave…
- As long as the volunteer work or training does not entail providing services to or generating revenue for or on behalf of the employer, the employee can still be furloughed.
- As mentioned above however, if employees are required to undertake training while being furloughed, then they should be paid NLW / NMW as a minimum.
- As the guidance currently stands, it looks like this may be possible to share the burden of actual work provided employees are each furloughed for a minimum of 3 weeks each time.
- However, the guidance does not currently state if there is any minimum period an employee must work for before being ‘re-furloughed’ so some detail is required on this before it can be confirmed.
- Also, the practicalities of rotating employees on furlough would be an additional burden for employers to consider.
- Yes - holidays will continue to accrue during the furlough period. Equally, employees can take holidays during the furlough period. Employers can also require employees to take holiday during the period of furlough (subject to either a contractual right to do that or the rights under the Working Time Regulations, which require an employer to give notice that is at least double the amount of leave they want them to take).
- Employers should also be aware of the amendment to holiday accrual rules that was released on 27 March 2020 which allows all employees (in all sectors) to carry forward up to 4 weeks leave (i.e. not the full 5.6 weeks leave in the UK) for 2 years. Here is a link to further guidance on that amendment: Click here. Practically, employers should consider how they will then deal with employees having a potentially large number of holidays left to take next year (when you add on the 2021 entitlement) and the same in 2022.
- Some of the “known unknown” questions, however, are:
o If an employee takes holiday leave whilst furloughed, will they receive their normal pay for this holiday leave or will they just receive 80% of wages that is received form the government? We would expect it to be the former but this is unclear.
o If an employee takes holiday whilst furloughed, does that bring the furlough period to an end? If so, would employers then have to refuse holiday requests until the employee has been furloughed for at least 3 weeks (since that this the minimum allowed under the scheme)?
- The guidance does not provide any information on this point. However, our view is that an employer could continue with a disciplinary or grievance procedure involving an employee on furlough leave, in the same way as it could with an employee on other types of leave (save for, in the circumstances, these meetings may need to be on the telephone or using Zoom or Skype etc.). This would, arguably, not involve the employee undertaking “work” for or on behalf of the organisation although employees are normally paid (full pay) when attending these kind of meetings normally. Therefore, you might want to pause all non-essential meetings for now and only deal with ones that can’t wait e.g. those for gross misconduct.
- The CJRS is currently due to end on 30 May 2020. At the end of that period (subject to it being extended by the government), employers will need to decide if they still need their furloughed employees. If the work has not sufficiently picked up by that point, then they may need to terminate their employment on the grounds of redundancy (subject to following a correct redundancy process).
- The guidance is clear that furloughed employees can be made redundant either during a period of furlough leave or afterwards. One question we have is whether any period of redundancy consultation that takes place during furlough leave is on their normal full pay or on the reduced furlough wage? Also, the same question applies to any notice period that they work whilst furlough. We would expect that it should be paid at their full normal pay but until further guidance is published, we expect that many employers will pay it at the reduced furlough wage.
- It is important to remember that HMRC retains the right to retrospectively audit all claims made under the CJRS and so it is important for employers to keep an audit trail of any decisions they make.
- Also, payments made to employers under the scheme are designed to offset deductible revenue costs and therefore must be included as income in calculating the business’ taxable profits for Income Tax and Corporation Tax purposes.