Further guidance on Coronavirus Job Retention Scheme
This latest, 9th April update to the Guidance on the Scheme continues to add detail to how the Scheme will operate and, most importantly for those affected, the circumstances in which it will pay out. It contains several important changes – for example, clarifying the rules on furloughing workers who are on sick leave, being shielded (or become sick) and confirming that employers can furlough employees who joined them after 28 February following a TUPE transfer.
The 9/4 Updated Guidance now includes the following additional clarifications:
Coronavirus – sick leave/self-isolation
Previous guidance stated that staff on sick leave or self-isolating could not be furloughed until they were no longer sick and receiving SSP.
The 9/4 Updated Guidance now expands upon this and provides:
“Short term illness/self-isolation should not be a consideration in deciding whether to furlough an employee. If, however, employers want to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees.”
The ability to furlough for business reasons therefore applies to employees on short and long term sick leave and those who are self-isolating. In these cases, the employee should no longer receive sick pay and would be classified as a furloughed employee.
In contrast, if a currently furloughed employee become sick, the 9/4 Updated Guidance states that they retain their statutory rights (in this context, to SSP). However the employer can decide whether to place them on SSP or keep them on furlough pay. The 9/4 Updated Guidance does not expressly refer to the employee’s contractual rights being retained (in addition to their statutory rights) but it is believed this is implicit and must be the case unless the contract is varied.
Employers can claim back furlough pay under the Scheme and the SSP rebate scheme in respect of the same employee but not in respect of the same period of time. For example, if a furloughed employee becomes sick and is moved onto SSP, an employer can no longer claim for the furloughed pay.Please remember SSP rebate scheme only applies to furlough related conditions and is valid for the 1st 14 days only. For all other sickness normal SSP rules apply.
This is an important clarification. Whilst in many cases the furlough pay will be at least equal to (if not higher) than the applicable sick pay, this will not be the case for those employers with generous full pay sick pay terms. Employers will therefore wish to deter employees from seeking to switch from furlough leave to sick pay if the employee could then receive pay that cannot be claimed back under the Scheme.
Furthermore, where the sick pay terms are a matter of discretionary policy, it is now clear that the employer’s discretion can be exercised (in a non-capricious way) to apply the terms of the sick pay scheme so that the sick pay will be SSP or no greater than the prior furlough pay (and ideally, from an employer’s perspective, whichever is the lower).
Where sick pay terms are contractual, of course, a variation will need to be agreed with the employee, as applicable, for example to state that, during furlough leave, sick pay will not apply. This is best done at the same time as seeking agreement to furlough leave. Employers who have already placed employees on furlough leave will find it more difficult to agree those changes with the furloughed employees and may therefore need to rely on the argument that the furlough leave itself overrides any contractual entitlement to sick pay.
Coronavirus – statutory leave, including sick, maternity, paternity, adoption and parental leave
The 9/4 Updated Guidance states:
“In line with other employees, claims for full or part time employees returning from statutory leave after 28 February 2020 should be calculated against their salary, before tax, not the pay they received whilst on statutory leave.
Claims for those on variable pay, returning from statutory leave, should be calculated using either the:
- same month’s earning from the previous year
- average monthly earnings for the 2019-2020 tax year.”
The 9/4 Updated Guidance does not say so expressly but we believe the higher of these two alternatives can be used. More generally, it is helpful to have clarification that the furlough pay of returners should be based on their so called substantive pay rather than the pay they received during the period of leave. The position of calculating, say, maternity pay, for those placed on furlough and who then commence maternity leave is not addressed. Our view is that maternity pay (for example) should be based, also, on the substantive pre-furlough pay, notwithstanding that there is an argument that, strictly, furlough pay may be used where it falls at/within the relevant reference point/period.
It is now clear that this group, i.e. those who are shielding for health reasons, or those who need to stay home with someone who is shielding in accordance with public health guidance, can be furloughed. The previous conditions that “… they are unable to work from home” `and that the employer “would otherwise have to make them redundant” have been removed. These words had created confusion about the test for this group being furloughed and the clarification that there is no qualification or condition on the employer’s ability to furlough them is welcomed.
Previous guidance confirmed that those with caring responsibilities resulting from CV19 (e.g. for children not able to attend school) can be furloughed, whether or not there is work for them, and this remains unchanged.
With the Government being categoric over the date upon which an individual must be on payroll to be eligible for furlough under the Scheme, there was concern that staff who became employees of the organisation under a TUPE transfer after 28 February 2020 (thereby moving to a new payroll), may not be covered. This potential anomaly (given the statutory novation of the employment contract and the purpose of TUPE – to protect employees) has now been removed by the 9/4 Updated Guidance. Transferee businesses can continue any furlough leave started by the transferor or place transferring employees on furlough, within the rules of the Scheme.
The previous guidance confirmed that the reference salary for the wages claim under the Scheme should not include the cost of benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay.
The 9/4 Updated Guidance now states:
“All the grant received to cover an employee’s subsidised furlough pay must be paid to them in the form of money. No part of the grant should be netted off to pay for the provision of benefits or a salary sacrifice scheme.”
In short, the lower (‘true’), post salary sacrifice salary, should be used for the purposes of a claim under the Scheme and the employer must pay any ongoing benefits, including through a salary sacrifice scheme, itself.
No set off or deductions from pay can be claimed
It is confirmed by the 9/4 Updated Guidance that any monies claimed under the Scheme should be paid to employees in full. In line with the nature of the Scheme being a reimbursement mechanism of monies paid to staff, there is no scope for employers to make deductions (for administration or other costs) from the amount claimed and the applicable reference pay (subject to the cap).
The 9/4 Updated Guidance states: “Furloughed staff must receive no less than 80% of their reference pay (up to the monthly cap of £2500).” This means that employers cannot reduce wages below this level for employees who would be the subject of a claim under the Scheme.
Working for the employer during furlough leave
No work at all may be done for the employer during furlough (other than training). This is now extended by a clarification that the worker cannot work for a ‘linked or associated organisation to the employer’. Voluntary and paid work facilitated for the NHS, local authorities, charities or other community based activities is unlikely to be regarded as ‘linked or associated’ for these purposes.
Further detail has now been provided as to how employers claim under the Scheme. The following information should be provided:
- 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
- Self-Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number.
As was already made clear in earlier guidance, the following is also required:
- the claim period (start and end date)
- the number of employees claimed for
- employer PAYE reference number
- amount claimed (per the minimum length of furloughing of 3 consecutive weeks)
- bank account number and sort code
- contact name
- phone number
it is anticipated that the portal will require a confirmation that the information provided is complete and accurate – as is the case with other tax related submissions. As we have previously highlighted, employers will need to bear in mind that HMRC will also “retain the right to retrospectively audit all aspects of your claim.”
The HMRC claim portal will not be available until 20 April (at the earliest) and HMRC have said payment will be made within 4-6 working days of a claim. Given the need for claims to be processed (with new infrastructure and HMRC staff applying many new concepts) it is likely to be at least early-May before employers are paid under the Scheme. Employers therefore face further cashflow pressures. Please remember to retain all furlough related records for 5 years as it is anticipated that HMRC will retain the right to audit employers records
National insurance and pension contributions
The 9/4 Updated Guidance confirms that employer National Insurance contributions (NICs) are paid on the furlough pay and can be recovered under the Scheme. It also clarifies that employer pension contributions that are paid on the subsidised furlough pay can be recovered up to a limit – the maximum “level of grant for employer pension contributions on subsidised furlough pay is set in line with the minimum automatic enrolment employer contribution of 3% on qualifying earnings. Grants for pension contributions can be claimed up to this cap provided the employer will pay the whole amount claimed to a pension scheme for the employee as an employer contribution
Most disappointingly, given the current Easter and upcoming May bank holidays, the issue of whether annual leave may be taken during a period of furlough is not addressed at all in the 9/4 Updated Guidance. HMRC tweets on 9 April have indicated this may be addressed in the week commencing 13 April. Current Acas guidance is ambiguous as to whether furlough and holiday can be concurrent, so that holiday does not break furlough. it is now unclear whether an employee can be instructed to take leave when furloughed. However an employee forced to take annual leave would normally be entitled to be paid in full for that period rather than at the capped figure provided for in the job retention scheme, meaning you would have to top up their salary to 100%.
Given the uncertainty, employers will be wary of potentially breaking the minimum 3 week furlough period by allowing or imposing any annual leave. We continue to consider it prudent for employers to make clear to workers that, until further notice, no holiday is to be taken during furlough – e.g. bank holidays will be effectively added to accrued entitlement on return from furlough. Employers can, when setting out the terms of furlough leave, seek to reserve the flexibility to change their position, as they will hopefully be able to do soon when the guidance is further updated