Coronavirus Job Retention Scheme
This briefing was updated on 22 June 2020.
- What is the Coronavirus Job Retention Scheme?
- What period does the Scheme cover?
- Who is covered?
- When did the Scheme go live?
- What does "furlough" mean?
- Is there a deadline for furloughing under the Scheme?
- Does the employer need to show that a furloughed employee would otherwise be made redundant?
- Can the employer choose to furlough some but not other employees?
- Is there a minimum or maximum amount of time an employee can be furloughed?
- Can the employer place an employee on furlough more than once?
- What can employers claim under the Scheme?
- What about employers national insurance and pensions?
- Do employers need to top up employee's pay to full pay?
- How does this interact with sick pay?
- How does the funding work?
- How do we designate someone as a "furloughed worker"?
- What if an employee refuses to go on furlough?
- Are employees on furlough protected from being made redundant?
- What about employees who have already left, been made redundant or placed on unpaid leave?
- Must employers keep records?
- What does this mean for employees on sponsored visas?
- Can the employee do any work or training while on furlough?
- Can employees take holiday during furlough?
What period does the Scheme cover?
The Scheme will run for eight months from 1 March 2020 until 31 October 2020. The Scheme was originally due to run for four months ending on 30 June 2020 but has since been extended to 31 October 2020. From 1 August 2020, employers will be required to contribute to the wage subsidy under the Scheme on a phased basis (see below).
Who is covered?
All employers (of all sizes and in all sectors) in the UK are eligible for the Scheme, provided they created and started a PAYE payroll scheme on or before 19 March 2020. The Scheme covers part of the wages of anyone who was an employee for tax purposes and was on the PAYE payroll (i.e. was notified to HMRC on an RTI submission) as at 19 March 2020. That means it covers not only salaried employees but also casual and zero-hours employees on the payroll as at 19 March 2020. It also covers workers, office holders, salaried LLP members, directors and apprentices who are paid via PAYE. However, the Government has announced that the Scheme will close to new entrants from 30 June 2020. To be eligible for funding under the Scheme, the employer must have placed the employee on furlough on or before 10 June 2020.
When did the Scheme go live?
The Scheme was first announced on 20 March 2020 and employers have been able to furlough employees since then. However, the HMRC portal for making claims under the Scheme opened on 20 April 2020 and payments are being made by HMRC within six working days of an employer submitting a claim on the online portal.
What does "furlough" mean?
The word furlough is not a term of UK employment law, but in other jurisdictions it is used to describe a leave of absence. To be a furloughed worker during the period 1 March to 30 June 2020, an employee must remain employed but do no work for their employer. An employee on reduced hours or days cannot be a furloughed worker during this period and the employer would not be entitled to funding under the Scheme. However, the requirement that employees do no work while on furlough is changing from 1 July 2020 so that employees will be permitted to do some work during furlough. This is to allow for a gradual tapering of the Scheme as businesses begin to reopen. Employers will be responsible for paying workers' wages while at work, with the Government subsidy only applying when workers are not working. Employers must also agree any working arrangements with the employee and confirm this in writing.
Is there a deadline for furloughing under the Scheme?
Yes. The Government has announced that the Scheme will close to new entrants on 30 June 2020. Beyond this date, employers will only be able to furlough staff who have been on furlough for at least three weeks prior to 30 June 2020. This means the deadline for placing an employee on furlough is 10 June 2020 (to allow at least three weeks prior to 30 June 2020).
Does the employer need to show that a furloughed employee would otherwise be made redundant?
No. Furlough is available whenever the employer has no (or reduced) work for an employee to do because of the Covid-19 crisis.
Can the employer choose to furlough some but not other employees?
Yes. The employer does not need to furlough the entire workforce. It has a measure of discretion over which employees are placed on furlough. To avoid employee relations issues and allegations of victimisation or discrimination, employers should identify fair and objective criteria for deciding which employees to furlough.
To be eligible for funding under the Scheme, the employee must have been placed on furlough on or before 10 June 2020.
Is there a minimum or maximum amount of time an employee can be furloughed?
Yes. To qualify under the Scheme, any furlough during the period 1 March to 30 June 2020 must be for at least three weeks. The maximum length of furlough is eight months (which is the maximum length of the Scheme). From 1 July 2020, there will no longer be a minimum three-week period for furlough and employers will be able to agree part-time working arrangements with furloughed employees.
Can the employer place an employee on furlough more than once?
Yes. The employer can furlough an employee more than once either for consecutive or non-continuous periods (where the employee has returned to work in between). Prior to 30 June 2020, the furlough must be at least three weeks each time. From 1 July 2020, there will be no minimum furlough period as employers will be able to agree any working arrangements with previously furloughed employees.
What can employers claim under the Scheme?
For any period of furlough between 1 March and 31 July 2020, the employer can claim 80% of a furloughed employee's 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. For salaried employees (whether full-time or part-time), the employee’s actual salary before tax in their last pay period prior to 19 March 2020 should be used to calculate the 80%.
In terms of calculating monthly wage costs for employees whose monthly pay varies, including zero hours workers and casuals, the employer can claim for the higher of either the amount the employee earned in the same month last year or the employee's average monthly earnings from the 2019/20 tax year. The Scheme covers regular payments such as overtime, fees and contractual commission (not just salary) but tips, non-cash benefits, discretionary bonuses and discretionary commission are excluded.
From 1 August 2020, employers will be required to make a contribution to the subsidy under the Scheme, to ensure that, through the combined efforts of Government and employers, workers continue to receive at least 80% of their regular monthly wages, up to £2,500 a month while on furlough. In terms of how the funding will work:
- For August 2020, the Government will cover 80% of wages up to the £2,500 per month cap but employers will have to pay the associated employer NICs and pension contributions on those wages themselves.
- For September 2020, the Government will cover 70% of wages up to a cap of £2,187.50 per month. Employers will have to pay the additional 10% of wages to make up a total of 80% up to the cap of £2,500 (plus employer NICs and pension contributions on the total wages).
- For October 2020, the Government will cover 60% of wages up to a cap of £1,875 per month. Employers will have to pay the additional 20% of wages to make up a total of 80% up to the cap of £2,500 per month (plus employer NICs and pension contributions on the total wages).
From 1 July 2020, employees will be able to perform work while on furlough. Employers will be responsible for paying workers' wages while at work, with the Government subsidy only applying when workers are not working.
What about employers national insurance and pensions?
For furlough up until 31 July 2020, employers national insurance contributions can be claimed under the Scheme on top of 80% of wages and the £2,500 monthly cap. Pension automatic enrolment requirements continue to apply during furlough and the employer can also claim the minimum employer pension contribution of 3% on salary paid between the automatic enrolment 'qualifying earnings' threshold (£520 per month from 6 April 2020) and the 80% (capped at £2,500 per month) figure. However, if the employer chooses to top up the employee's pay (see below), it cannot claim the employers national insurance or pension contributions on the top up element of pay. In addition, whether or not the employer tops up, any voluntary automatic enrolment contributions above the minimum mandatory employer contributions cannot be claimed. From 1 August 2020, no employer NICs or pension contributions will be reimbursed under the Scheme and employers will have to fund these costs themselves.
Do employers need to top up employee's pay to full pay?
No. It is up to the employer to decide whether it pays the additional 20% so that the employee receives full pay during furlough. Likewise, for employees earning over the £2,500 cap, it is up to the employer to decide whether to top up pay so the employee receives full pay. From 1 July 2020, the employer will have to pay the employee as normal for any work done during furlough. This would normally be at full pay unless the employer agrees otherwise with the employee.
How does this interact with sick pay?
Employees on short-term sick leave or those who are self-isolating can be placed on furlough if there are reasons other than the sick leave or self-isolation to do so. The statutory sick pay would have to end and such employees would therefore move from statutory sick pay to furlough pay. Employees on long-term sick leave or who are shielding in line with Government guidance can be placed on furlough even if there is work for them to do (and it is up to the employer whether to place them on furlough).
If someone becomes ill during furlough, it is up to the employer to decide whether to keep them on furlough (on furlough pay) or move them on to statutory sick pay, but moving someone on to statutory sick pay would mean they are no longer eligible for funding under the Scheme. Whether an employee could move onto company sick pay during furlough will depend on the employer's sick pay policy and what the parties have agreed at the outset of furlough but it would also bring the furlough to an end, meaning the employee is no longer eligible for funding under the Scheme.
How does the funding work?
The employer will need to designate relevant employees as "furloughed workers". The employer then continues to pay wages (either at the reduced 80% rate or at full pay) and deducts tax and national insurance contributions in the usual way. The employer must then submit a claim for reimbursement under the Scheme via an HMRC online portal.
Clearly this creates cashflow issues for employers who are already in financial difficulties. Some employers have delayed payroll (or partial payroll), taking the view that whilst the employer is technically in breach of contract, employees are likely to understand the situation (and by the time any claim for loss of pay was lodged, the employer would have paid them the money, so this is only really a concern if the employer is worried someone may resign and claim constructive dismissal). Under the Scheme, employees must either have been paid before the claim is submitted by the employer or be paid in the next payroll after the claim is made.
Employers can only submit one claim for all of their staff for each claim period (typically a month but from 1 July 2020, the minimum claim period will be one week to reflect the additional flexibility under the Scheme).
How do we designate someone as a "furloughed worker"?
The employer must write to the employee confirming that they are being placed on furlough.
If there is any reduction in pay or benefits during the furlough, this would constitute a change to terms and conditions and the normal rules about changing terms and conditions would apply (i.e. the employer must seek the employee's consent and an employer looking to impose the change unilaterally could well trigger a duty to consult collectively with recognised trade union or elected employee representatives).
What if an employee refuses to go on furlough?
The employer could make the employee redundant if there is no work for the employee to do. The employer would have to follow the normal rules on redundancy and employees with at least two years' service would be entitled to redundancy pay.
Are employees on furlough protected from being made redundant?
No. The employer may make employees redundant during the furlough period or afterwards if there is a genuine redundancy situation. The employer would have to follow the normal rules on redundancy and employees with at least two years' service would be entitled to redundancy pay.
What about employees who have already left, been made redundant or placed on unpaid leave?
Where employees have been made redundant after 28 February 2020, the employer can agree to re-employ the employee and place them on furlough instead, provided this is done by 10 June 2020. Such agreement should include an obligation on the employee to repay any redundancy pay received. Employers can also rehire any employee who was on the payroll as at 28 February 2020 but left for any other reason (not just redundancy) and place them on furlough, again provided this is done by 10 June 2020. The employer can then claim reimbursement under the Scheme from the date of furlough, subject to the applicable cap. Similarly, employees placed on unpaid leave since 28 February 2020 can be reclassified as "furloughed" prior to 10 June 2020 and will be covered by the Scheme.
Must employers keep records?
Yes. HMRC will retain the right to retrospectively audit all aspects of the Scheme with the scope to claw back amounts claimed fraudulently or in error. Employers should therefore keep records of their communications with employees about furlough, wages paid and associated employment costs, and any agreement about working arrangements during furlough. The communication with employees about furlough must be kept for five years until at least 30 June 2025. Employers should also keep a record of their rationale for furloughing employees or furloughing some and not others. This will be helpful in the event of a later HMRC audit.
What does this mean for employees on sponsored visas?
Normally, employers who are sponsors cannot reduce the salary of a sponsored employee if this would take the employee's pay below the rate set by the Home Office for the employee's particular role. However, the Home Office has issued guidance which, exceptionally, allows sponsored employees to be placed on furlough and have their salaries reduced to 80% or £2,500 per month (whichever is lower). Such reductions must be temporary and be part of a company-wide policy to avoid redundancies, and the employer must treat all employees on furlough the same. The employer must also report the furlough, its expected duration and any reduction in pay to the Home Office in order to comply with its sponsorship duties.
Can the employee do any work or training while on furlough?
For the period up until 30 June 2020, the employee must not undertake any work for the employer while on furlough but can undertake training or volunteer work for another organisation so long as they are not making money for the employer or providing services to the employer. The employer must ensure the employee is paid at or above the national minimum wage for any training undertaken during furlough. Employees can also take a second job during furlough, provided the employer agrees and the employee does no work for the original employer or an associated entity. Directors who are placed on furlough can also continue to fulfil their statutory duties to file company accounts or provide other information in relation to the administration of the company, provided they do no other work for the employer.
From 1 July 2020, employees will be able to undertake work while on furlough. Employers will be able to agree any working arrangements with previously furloughed staff. Such agreement must be confirmed in writing. The employer will be responsible for paying wages as normal for any work performed and will only be able to claim under the Scheme for periods when the employee is not working.
Can employees take holiday during furlough?
Yes. Furloughed employees continue to accrue holiday and can take holiday whilst on furlough. However, such holiday would need to be paid at the employee's normal full pay prior to furlough. It is up to the employer whether to allow employees to take holiday during furlough or not. For bank holidays falling during furlough, the employer would either have to top up the employee's pay to their normal full pay or give the employee a day of holiday in lieu.
The Government has said that it is keeping the position on holiday pay during furlough "under review" so it is possible that it could change in the future.
For further information on the government support measures available for business, please see our briefing note on the COVID-19 resources page of our website. If you would like to discuss any aspect of the Scheme or its impact on your business, please get in touch: