The Coronavirus Job Retention Scheme: support for employers during the COVID-19 pandemic

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 cash flow to keep paying salaries where income has been slashed. Therefore, a package of measures has been announced.

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

Coronavirus Job Retention Scheme (CJRS)

What is it?

This new measure will see HMRC making grant payments of 80% of the employment costs of certain employees designated as ‘furloughed workers’, capped at £2,500 per month. 

Who can participate in the CJRS?

It is aimed at employees of any UK employer with a UK bank account who had created and started a PAYE payroll scheme on or before 28 February 2020. This includes agency workers paid via PAYE.

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.

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 will only be available to those employees who were employed on 28 February 2020 by the employer making the claim.

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

Those who have already been made redundant since 28 February 2020 can be re-employed and furloughed. This 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.

A key point is that furloughed workers must not be doing any work during this period, simply reducing hours for some will not result in them 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.

The workers must remain furloughed for at least three weeks for the scheme to apply.

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

Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this. Employees who are shielding in accordance with government guidance can be placed on furlough.

Where employees are on maternity Leave, 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.

How is the grant payable calculated?

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.

• Full and part-time employees – 80% of basic salary at 28 February 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 February 2020).

Payments can initially be made for three months and will be available from the end of April and backdated to 1 March 2020. The government will consider extending the scheme if it is necessary to do so.

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.

Provided the employee is not undertaking training it is not necessary to top up to National Living Wage/National Minimum Wage.

What about pension contributions?

Employers remain liable for minimum automatic enrolment employer pension contributions on behalf of their furloughed employees. This is currently 3% of the amounts paid to your employees during the furlough period.

The minimum automatic enrolment employer pension contributions for furloughed employees are covered by the grant as part of the scheme.

Employers may wish to top up their employer pension contributions over and above the minimum amount. However, any additional employer pension contributions that are made will not be covered by the scheme. The terms of any pension scheme and the impact on future pension benefits should be considered.

What about other benefits in kind?

The provision of benefits will be required to continue, and the tax treatment followed, unless the employer agrees a different arrangement with their employees.

The treatment of benefits provided by the employer to employees in relation to the calculation of the grant are not yet certain. It is not clear whether the cost of benefits in kind (other than minimum level pension contributions under auto enrolment) or associated tax or National Insurance contributions will be covered by the grant. However, guidance should be provided before the scheme goes live at the end of April.

Employers who offer health insurance or death-in-service benefits should check with their scheme provider regarding what salary would be used in the event of a claim, e.g. their normal salary or their furlough salary.

What about employment rights?

Employees will retain their employment rights and continue to accrue holiday entitlement, as well as Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.  

Questions were posed to Ryan Diggory, Senior Policy advisor at BEIS, in discussions recently with the CBM on the application of the job retention scheme, and as a result he is ‘’taking questions back to the treasury’’ on flexibility in terms of whether employees can ‘job share’ furlough and whether someone can be furloughed, then restart work and then be furloughed again later. We will provide updates as further information is released.

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.

The employer should then agree the change 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.

3. Employers will then need to submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. We understand that the government intends to release the portal within days.

The information required will include:

• ePAYE reference number
• the number of employees being furloughed
• the claim period (start and end date)
• amount claimed (per the minimum length of furloughing of three weeks)
• employer bank account number and sort code
• employer contact name
• employer phone number

4. Applications will take a few days to be verified and amounts will then be advanced to the employer as a cash grant.

Note that the employer must calculate the amount of the claim and this may be audited by HMRC at a later date.

Summary

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 status of workers to furloughed workers (with the agreement of the employee)
• log in to the new online portal and notify HMRC.

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

Caroline will also be on our webinar panel later this week discussing how CJRS is changing pay and reward decisions and will be answering your questions on the scheme. Register to attend.

The authors are Caroline Harwood, partner, head of employment tax and share plans, and Nick Irvin, employment tax assistant manager, Crowe UK.

This article is provided by Crowe UK.