people of work in offices

Support for employers during the COVID-19 pandemic

Caroline Harwood, Partner, Head of Employment Tax and Share Plans
21/07/2020
people of work in offices

In unprecedented times, a key focus for government has been to ensure that the economy is in a fit state to recover once the current global health crisis is over. In order to do so, a priority is keeping people in their jobs. With supply problems, forced closures and significantly less customer activity in many sectors, employers may not have sufficient cashflow to keep paying salaries where income has been slashed. Therefore, a package of measures were announced in March and on 24 September 2020 the Winter Economy Plan included further support for UK business.  

We have set out the key points below but it will be important to consider the employment law implications of the provisions. Therefore we do recommend liaising with your legal advisors as well as your accountants before taking action.

Coronavirus Job Retention Scheme (CJRS)

What is it?

This measure, managed by HMRC, provides for grant payments of 80% of the employment costs of certain employees designated as ‘furloughed workers’, capped at £2,500 per month, up until 31 July 2020. From 1 July 2020, furloughed individuals can return to work on a part-time basis.

On 29 May 2020, the Chancellor announced further important changes to the furlough scheme which affect which employees you can furlough and the amount of their wages that you can claim.

Key points to note include:

  • employees cannot be furloughed for the first time under CJRS after 10 June 2020 – you need to plan for your staffing needs now
  • furloughed employees can return to work part-time from 1 July 2020 while employers can still claim a proportion of their wages through the scheme
  • the amount that you can claim back from the government will reduce month-by-month from 1 August 2020 until 31 October when the scheme ends
  • claims for periods up to 30 June 2020 must be made by 31 July 2020.

Full details can be found in our insight Changes to the furlough scheme announced.

On 24 September 2020, the government also announced the introduction of the Jobs Support Scheme, which will be introduced from 1 November 2020 for six months. More details on this scheme can be found in our insight here.

Who can participate in the CJRS?

It is aimed at employees of any employer with a UK bank account, enrolled for PAYE online and who had created and started a PAYE payroll scheme on or before 19 March 2020. 

This includes most organisations with employees in the UK, as well as individuals who operate PAYE for their staff, such as nannies.

Payments will be made in respect of employees who are designated as ‘furloughed workers’, i.e. broadly they would have otherwise been available to work but the employer cannot provide any work for them, and have been kept on rather than made redundant.

Claims can only be made for employees furloughed under the scheme by 10 June 2020, effectively closing it to new entrants from 30 June 2020.

What about non profit organisations?
The scheme can be used by charitable and non profit organisations.

In general the government does not expect that the scheme will be used by public sector organisations. Most public sector employees provide essential public services or contribute to the response to the coronavirus outbreak.

Employers (both public sector and non-public sector) who receive continuing public funding for staff costs are expected to continue to pay staff as usual and not furlough them.

Organisations who are receiving public funding specifically to provide services necessary to respond to COVID-19 are not expected to furlough staff.

In a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate for some staff.

Which employees are eligible?

The scheme is only available to those employees who were added to payroll and included in an RTI submission to HMRC on or before 19 March 2020. by the employer making the claim and who were first furloughed by 10 June 2020.

This will include those on zero hours or flexible contracts and agency workers paid through PAYE.

If you made employees redundant, or they stopped working for you on or after 28 February 2020, you can re-employ them, put them on furlough and claim for their wages from the date on which you furloughed them, even if you do not re-employ them until after 19 March 2020. This applies only if they were on your payroll as at 28 February 2020.

The scheme does not stop a company from making individuals redundant while on furlough or immediately after, at which point grant payments cease. There is no requirement to bring the employee back to work after the period of furlough. Normal redundancy procedures and consultations are required.

Employees are eligible for the scheme if they are shielding in line with public health guidance (or need to stay home with someone who is shielding), if they are unable to work from home and the employer would otherwise have to make them redundant. 

Similarly, employees who are unable to work because they have caring responsibilities resulting from COVID-19 can be furloughed, for example, employees that need to look after children and cannot work from home.

The guidance makes it clear that workers paid through PAYE but not necessarily employees for employment law purposes are eligible for the purposes of the scheme. These include:

  • apprentices
  • office holders
  • salaried members of Limited Liability Partnerships
  • agency workers
  • limb (b) workers.

Employers can furlough an employee, restart their work and then restart furlough at a later date, provided that each period of furlough lasts at least three consecutive weeks.

What can and can't eligible employees do?

A key point of the rules up until 30 June 2020, is that furloughed workers must not be doing any work during this period, simply reducing hours for some will not result in their being treated as furloughed. However, furloughed workers can undertake volunteer work or training, provided that this does not involve the manufacture or creation of an item or part thereof that can yield revenue for the company, or the provisions of services to the employer.

Firms can require workers to undertake training from home provided it meets the above. However they must be paid at least the National Living Wage/National Minimum Wage for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

Directors who are furloughed may undertake their statutory responsibilities, such as filing accounts, but must not undertake any activities which would produce revenue for their business.

The workers must remain furloughed for at least three weeks for the scheme to apply. Employees can be furloughed multiple times, but each separate instance must be for a minimum period of three consecutive weeks.

Employees placed on unpaid leave before 28 February 2020 cannot be furloughed.

Employees on sick leave or self-isolating can get Statutory Sick Pay or employers can opt for them to be furloughed instead. Where employees are on maternity leave, or receiving contractual adoption pay, paternity pay or shared parental pay the interaction of the rules with furlough can be complex and should be considered on a case by case basis.

From 1 July 2020, the rules will be changed to allow claims to be made while employees are transitioning back to work. Employers will be required to fund their employment costs for the time they are working but will be able to make claims in respect of a portion of their wages relating to non-working time. Full details can be found in our insight Changes to the furlough scheme announced.

What is covered by the grant?

Until 30 June 2020, the amount of the grant for a furloughed worker is 80% of that individual’s usual monthly wage costs, up to £2,500 a month, plus the associated Employers National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.

From 1 July 2020 the scheme will change. Full details can be found in our insight Changes to the furlough scheme announced.

The apprenticeship levy should continue to be paid as usual, but the grant does not cover this.

How are the usual monthly wage costs calculated?

The usual monthly wage is determined as follows:

  • Full and part-time employees – the employee’s gross salary in the last pay period before 19 March 2020.
  • Employees with variable pay employed for 12 months prior to the claim - the higher of:
    • the same month’s earning from the previous year
    • average monthly earnings from the 2019-20 tax year.
  • Employees with variable pay employed for less than 12 months - the average of their monthly earnings since they started work (prorated if they commenced employment in March 2020).

The grant will cover 80% of the employee’s usual monthly wage, up to £2,500 per month. This changes from 1 July 2020 full details can be found in our insight Changes to the furlough scheme announced.

Payments can be backdated to 1 March 2020. However all claims for periods up to 30 June must be made by 31 July 2020.

Usual monthly wage costs can include any regular payments the employer is obliged to pay the employees. This includes wages, non-discretionary overtime, non-discretionary fees and non-discretionary commission payments. It excludes payments made at the discretion of the employer or a client - where the employer or client was under no contractual obligation to pay, including tips, discretionary bonuses and discretionary commission payments. Non-cash payments and non-monetary benefits (including salary sacrifice schemes) should be excluded.

Do employers have to make up the difference?

There will not be a requirement for employers to fund the remaining 20% or more to top up to usual basic pay, though they can top up payments if they wish.

However, Working Time Regulations require holiday pay to be paid at the employee’s normal rate of pay or, where the rate of pay varies, calculated on the basis of the average pay received by the employee in the previous 52 working weeks. Therefore, if a furloughed employee takes holiday, the employer should pay their usual holiday pay in accordance with the Working Time Regulations and would have to fund this from the business. If an employee usually works bank holidays then the employer can agree that this is included in the grant payment. If the employee usually takes the bank holiday as leave then the employer would either have to top up their usual holiday pay, or give the employee a day of holiday in lieu.

Please note that from 1 July employers will be expected to fund the portion of a furloughed individual’s time spent working for their business.

What about other employment rights?

Employees will retain their employment rights and continue to accrue holiday entitlement, as well as pension contributions etc. 

How do employers apply for funding under the CJRS?
1.  The first step is to identify those employees whom the business wishes to furlough. This should include a consideration of the eligibility of those who are on sick leave, parental leave, unpaid leave or have already been laid off.
2.  The amount of the claim should be calculated and the employer should determine whether they are able to offer any top up payments.
3. The employer should then agree the change in writing with those employees to be furloughed. Most employment contracts will not permit an employer to unilaterally reduce an employee's pay, not provide them with work, and change their employment status without agreement. However, in current circumstances it is likely that employees will accept the change rather than risk losing their job.

4.

Employers will then need to submit information to HMRC about the employees that have been furloughed and their earnings through the new online portal

The information required will include:

  • PAYE reference number
  • the number of employees being furloughed
  • National Insurance numbers for the employees you want to furlough
  • names of the employees you want to furlough
  • payroll/works number for the employees you want to furlough
  • the claim period (start and end date)
  • amount claimed (per the minimum length of furloughing of three weeks)
  • employer bank account number, sort code and billing address
  • employer contact name
  • employer phone number.
5.  HMRC advise that, once verified, amounts will be advanced to the employer via BACS transfer within six working days from the day the claim is made. Claims cannot currently be amended (although this is being worked upon) after they have been submitted. As such we strongly recommend that you consider using your advisors to assist with calculating and submitting your CJRS claim to ensure its accuracy. Employers should also note that file only agents, including Payroll Bureau, will not be able access the service due to data protection restrictions.
6. HMRC have also indicated that they will scrutinise claims to verify grants are valid and may also undertake checks of claims at a later date.
  
What do employers need to do to access the funds?

In order to access the funds, you will need to:

  • identify those employees affected who have no work to undertake as a direct result of coronavirus;
  • change the legal status of workers to furloughed workers (with the agreement of the employee);
  • log in to the new online portal to make the claim and notify HMRC (or authorise your agent to do so).

Employers should discuss the employment law impact including contractual issues with their legal advisors when placing employees on furlough leave.

How we can help

We would be very happy to partner with your employment lawyers to help collate the information you will need to make the job retention scheme claims and agree the change of status with employees. We can assist you with all stages of the claim process, summarised into four key areas:

  1. Advice and support relating to identification of employees to furlough and support through the furlough process including any supporting employment agreements.
  2. Providing support on how the CJRS rules work in practice. Calculating the amount an organisation can claim under the CJRS or performing sample checks of their own calculations.
  3. Payroll support (extraction of data or running payroll on furlough pay).
  4. Making claims: either making the claims on your behalf if we are or can be appointed as your PAYE agents or providing support if we are file only agents (which includes Payroll Bureau).

When the scheme ends?

On 8 July 2020, the government announced a package of new measures to help support and create jobs. One of these measures is the Job Retention Bonus (JRB). 

The JRB is a payment by the government to employers of £1,000 for each furloughed employee that is continuously employed from 1 November 2020 to 31 January 2021.

To be eligible for the bonus, the employee must:

  • have been part of a furlough claim at any point from March 2020 to October 2020
  • earn above the Lower Earnings Limit (£520 per month) on average between 1 November 2020 and 31 January 2021.

Employers will be able to claim the bonus from February 2021. Further guidance will be published by the government at the end of September.

On 24 September 2020, the government also announced the introduction of the Jobs Support Scheme, which will be introduced from 1 November 2020 for six months. More details on this scheme can be found in our insight here.

Please speak to your usual Crowe contact if you require any assistance.

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Caroline Harwood
Caroline Harwood
Partner, Head of Share Plans and Employment Tax
London