On 4 April 2020, the HMRC provided some further guidance on how the Job Retention Scheme will be administered. We have noted the following points that employers need to be aware of if they are considering accessing the scheme.
Who is eligible?
All employers are eligible to claim reimbursement of wages for any of their employees- the scheme is not limited to those who would otherwise have been made redundant.
It is open to all employees provided their employer had/created a payroll scheme on/before 28 February 2020, the employees were on the payroll scheme on 28 February 2020 and the employer has enrolled for payroll online. This takes about 10 days to set up online, so it is advised employers to do this now. Also, to be eligible for a claim, employers must have a UK bank account for HMRC to pay the claim in to.
- Apprentices and Limb B workers can be furloughed.
- Both the Apprenticeship Levy and Student Loans should continue to be paid as usual. (Grants from the Job Retention Scheme do not cover these).
- Administrators can access the Job Retention Scheme. It is expected that administrators will only furlough employees if there is a reasonable likelihood of rehiring them at the end of the furlough period.
- Individuals can furlough their employees if they are paid through the PAYE system.
- Employees still have the same employment rights whilst on furlough (e.g. parental rights/ redundancy pay entitlement).
- Public sector organisations – where public sector employers receive public funding for staff costs and that funding is continuing, employers should use that money to pay staff in the usual fashion and not furlough them.
- Where the employer provides Benefits in Kind to furloughed employees, they will continue to provide these benefits in addition to wages.
- HMRC confirms that COVID-19 counts as a ‘life event’ that could warrant changes to salary sacrifice arrangements for employees if the relevant employment contract is updated accordingly.
If employers have made any employees redundant, or the employees have stopped working for the employer on/after 28 February 2020 (for any reason), employers can re-employ them and place them on furlough. For example, if someone resigned, comes back to their ex-employer and asks them to be furloughed, assuming that the employee resigned on/after 29 February 2020, so they were on payroll on 28 February 2020, the ex-employer can re-employ them and put them on furlough leave.
There are however several issues with this;
- Continuity of employment builds up;
- Risk HMRC may find a loophole, challenge the claim and not reimburse you
- Until the Scheme is up and running (estimated by end of April) you have got to fund their salary yourself, so there may be cash flow issues unless you agree to defer salary to when the Scheme is up and running.
The other danger is if an ex-employee asks to be re-hired and then furloughed if an employer was to say no, theoretically they could argue that they are being subjected to a detriment because of some protected characteristic, but this is a very small risk.
- If an employee is self-isolating or on sick leave, they receive SSP. Whilst getting SSP, such employees cannot be furloughed. Once the employee stops receiving SSP, they can be furloughed and claimed for under the Scheme.
- Employers can claim for furloughed employees who are “shielding” in line with public health guidance, or those who have caring responsibilities.
- If an employee has two jobs, they can be furloughed from each one, or one and not the other. The guidance states that both jobs are separate, so the Scheme’s cap of £2,500 per month applies separately to both roles – so an employee could receive £5,000 p/m if they have been furloughed under two jobs.
This is important – the guidance says that an employee who has been furloughed can and work for someone else whilst on furlough – so they could be earning 180% of what they were earning previously! This would be 80% of their original employer, then 100% of pay from the hours they are now working with their new employer. This is an unexpected windfall for employees when the purpose of the Scheme is to keep them in work. Arguably, that purpose is now undermined by this.
Company directors can be furloughed, if on salary, but can’t do any work other than complying with their statutory duties. E.g. very limited to filing an annual return with Companies House, attending the AGM.
If a director is to be furloughed, it must be a formally adopted resolution of the board, properly noted in company records and communicated in writing to the relevant directors.
Salaried members of limited liability partnerships (LLP’s)
Salaried members of LLP’s are eligible to be furloughed. Before a member can be furloughed, the partnership agreement may require a formal decision to be made by the LLP, e.g. a decision may need to be made to reflect the fact that the member will perform no work in the LLP for the period of furlough, and the effect of this on their remuneration from the LLP.
Furloughed employees can volunteer as long as it does not produce revenue for their employer. The organisation can, however, agree to find employees on furlough new work or volunteering opportunities, if in line with public health guidance.
A record of an employer’s furloughing communication must be kept for 5 years. It is very likely the HMRC will investigate the validity of claims in years to come. This means employees must be told in writing and a record of that communication kept.
The new guidance clarified that claims should be started from the date the employee finishes work and begins furlough – not the date they are notified of furloughed status (i.e. date of communication).
What can be included?
- The guidance originally excluded fees commission and bonuses.
- Grants will be pro-rated if the employee is only furloughed for part of their pay period.
It is however now clear what an employer can claim 80% of from the government – it includes wages, past overtime (more guidance is needed as to the type of overtime which can be claimed, but it will likely be for compulsory guaranteed overtime), fees (previous guidance excluded this) and compulsory commission payments. It does not include discretionary bonuses, tips, discretionary commission payments, benefits in kind (e.g. health insurance benefits/company car – the value of that not included in what can be reclaimed from HMRC).
Can employees be rotated on Furlough?
Employees can be furloughed multiple times as long as each period of furlough is for a minimum of 3 weeks.