Furlough Guidance

The current Coronavirus crises has required some quick changes to UK Legislation in order to cope with the scale of disruption.  One of the changes is the notion of “Furloughing” employees, which is in effect a change to someone’s employment contract to not require them to work, and not pay them, whilst still maintaining the employment relationship.  A Furlough is designed to be temporary, allowing employees to return to work once it has finished, whereas a lay-off, although potentially temporary, can be permanent.

Coronavirus Job Retention Scheme

On the 20^th March, the Government announced the Coronavirus Job Retention scheme, offering employers grants to cover 80 per cent of the wages costs for furloughed employees up to a cap of £2500 per worker for up to 3 months from the 1^st of March 2020.  Since the legislation is new, there is no specific “test” to prove you are facing hardship, however a good rule of thumb is the following:

“Would that worker or employee have been otherwise laid off or made redundant? If the answer is yes, then you qualify for the scheme .”

The business case for applying for the scheme must be genuine as HMRC will be on the lookout for businesses abusing it and profiteering from the scheme.

How do I furlough workers?

As this is a change in employment status, it is governed by employment law and therefore required consultation.  You will need to agree the change in status with your employee and once agreed,  write to them officially informing them of the date that furlough applies.  If your employment contracts do not allow for lay-offs ordinarily, then you will need to include a clause to amend the contract to allow this.  APS can provide templates for you to use in either case.

Which workers can be furloughed?

The worker must have been on your payroll on the 28^th February 2020.  This means that any new starters from the 29^th February onwards will not qualify and cannot be furloughed.  If you do not have any work for them, they will need to be laid-off or made redundant.  If you made your employees redundant after the 28^th February 2020, you can re-engage with the worker and put them on immediate furlough.

Furloughing can apply to full time, part time, zero hour and temporary workers, as long as they were on the payroll from 28^th February 2020.  If the employee has more than one job with different employers, they can be furloughed from one or all jobs. Each job is treated separately and the cap applies individually to each employer.

Do I have to furlough all my workers?

No.  You only need to furlough workers where you have no work for them to do.  It is possible that you may (for example) need to furlough shop staff, but accounts staff will not be furloughed because you still need them to process supplier invoices and make payments.  It may be that you need that your company provides emergency call outs and so you only need to keep a few workers on and furlough the rest.

Can my employee still work for me whilst being furloughed?

No.  To qualify for the scheme, staff cannot continue to work for the employer while furloughed.  The grant does not cover people working reduced hours.

Your employee can complete training during furloughed time, as long as it doesn’t generate any economic activity.  For example, they could complete a course in Excel to improve their skills, however if they did a course in internet marketing and issued marketing communications as part of the training, this could generate income for the company and therefore invalidate the furlough. However, any time spent training must be paid at a rate of at least the National Minimum Wage, even if this means it is more than the 80%. As the employer you will need to top up the wages in this case.

Your employee can work for someone else during a period of furlough, however must be able to return to work as soon as furlough ends.

Can I furlough employees receiving SSP?

Employees in receipt of SSP due to self isolation should finish the self isolation first and then be furloughed on their return to work.

Can I furlough shielded or vulnerable workers?

You can. If they are in receipt of SSP, they should “return to work” and be furloughed from their first day back. However, you can only furlough shielded workers where they would otherwise have been made redundant. You cannot furlough staff just because they are shielded.

Can I furlough workers back to 1^st of March if I decide to close at the end of March?

No.  You can only furlough workers from the date you originally informed them they were furloughed.  If they have worked for you on any days, you cannot backdate the furlough.  The only exception to this is if you have already made employees redundant, or laid them off, in which case you can re-engage them and furlough them from the original date.

Can I furlough employees receiving SMP/SPP/ShPP etc?

Employees on statutory parental leave are protected and you will still be liable to pay the full (for example) 39 weeks of SMP.  However, as long as a mother has taken the statutory minimum leave required (2 weeks, or 4 if in a factory or workshop) then she can return to work and be furloughed.  Again, this would need to be discussed with the employee, as if she returns to work and furlough ends, she will be expected to resume working, even if that is before the end of the 39 weeks.

As a Company Director can I furlough myself?

You can, on the proviso that you will be doing no work for the company at all during the furlough period.  This may be difficult if you are a Single Director Company as you may still need to chase customers for payments, or continue marketing your business etc.  If this is the case, you cannot furlough yourself.  However, if you are not working and are not performing any income generating tasks, then it is possible to furlough yourself.  The amount you will receive will be based on your PAYE earnings however, and not include any dividends.  HMRC will investigate any sudden spikes in pay prior to claiming furlough grants by comparing the payroll submissions. Anyone found gaming the system will most likely have to pay the grants back.

 

How is the 80% of pay calculated?

For employees on a standard amount of contracted hours (whether full or part time), the amounts will be 80% of the actual salary received as of the 28^th February.  Fees, bonuses and commissions will not be included in this, with the exception of regular contractual amounts (such as a monthly bonus – irregular and one off bonuses will be excluded).

For employees whose pay varies, if they have been employed for over 12 months, the figure will be the higher of:

• The same period’s earnings in the previous tax year (i.e March 2019)
• The average earnings in the 2019-20 tax year.

Where an employee has been employed for less than a year, an average since they started work would apply.  If the employee started part way through February 2020, this will be grossed up to a full pay period.

80% will then be calculated on this and will be subject to a cap of £2500.00.  Employer’s NI and minimum auto-enrolment employer pension contributions (3% on earnings between the Lower and Upper Earnings Limits) will be reclaimed in addition to the 80% where applicable.

HMRC would like employers to top up the wages to 100% of pay, but recognises that some employers will not be in the position to do this.

The payments are classed as earnings and are subject to tax, national insurance and pension.  Student/Postgraduate Loans will also be deducted from the pay as usual.  DWP have confirmed that DEA Orders will be suspended for April to June, and will be writing to employers to notify them of this.

Our pension scheme is more generous than the Auto-Enrolment minimum scheme. Can I claim the additional?

No. The grant only covers the basic.  You will need to maintain pension contributions at the usual level as this is part of the terms of the employment contract, however you will only be able to reclaim the AE minimum.  APS Global will calculate that for you.

What about the National Minimum Wage?

As the employee is not working, the NMW regulations do not apply.  The will only apply if the employee is engaged in any training as previously mentioned.

How long will the furlough last?

Employees must be furloughed for a minimum of 3 weeks.  If business picks up and you ask employees to return to work after 2 weeks, you will not be able to reclaim any of the payments made to the employees.  Initially the scheme will run from 1^st March 2020 for 3 months, but may be extended at the discretion of the Government.

Currently it looks possible to furlough staff for an initial period of 3 weeks, and then extend it by 3 weeks each time.  If you still require a workforce, it certainly seems possible to furlough 1 group of workers for 3 weeks, and then they come back to work and you furlough a second group of workers for the next three weeks etc.  This may prove prudent where employees may resent working for 20% more pay than the people who are at home are getting.  However:

What happens when the Government ends the furlough scheme?

If the furlough scheme ends, and you are still unable to find work for your employees, the ones on furlough will need to either be laid off again (if your contract permits it) or be made redundant (with the usually provisions of redundancy applying).

How do I claim the refund?

APS Global will do this for you.  HMRC is still designing the portal, and it is expected that the first claims will be processed at the end of April (although with all things at the moment, this is subject to change).   We will need to make a manual submission to HMRC including the employee details, the amounts reclaimed and your company bank details for HMRC to make the refund.  We will double check  any account details we hold on record before making any reclaim.

What if I can’t afford to pay the 80% before getting a refund?

If your small-or medium-sized business in England is facing cash flow issues as a result of Covid-19, please read the following information:

• a new temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, will launch at the start of next week to support businesses to access bank lending and overdrafts
• the government will provide lenders with a partial guarantee of 80% on each loan to give lenders further confidence in continuing to provide finance to SMEs
• the government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £5 million in value. The first 6 months of these loans will be interest-free, as the Government will cover these payments
• businesses will be able to get finance under the scheme from a large number of providers, including the main high street banks, as of next week
• businesses will remain responsible for repaying any facility they take out
• for further information, please visit: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/

If you are a large business facing cash flow issues as a result of Covid-19, you may want to read the following information:

• companies commonly sell short term debt (‘commercial paper’) to the market. This is a quick and cost effective to raise working capital
• the new COVID-19 Corporate Financing Facility means that the Bank of England will buy short term debt from companies
• this will support companies which are fundamentally strong, but have been affected by a short-term funding squeeze, enabling them to continue financing their short-term liabilities. It will also support corporate finance markets overall and ease the supply of credit to all firms.
• further details can be found here in the exchange of letters between the Governor of the Bank of England and the Chancellor, found here: https://www.gov.uk/government/publications/launch-of-covid-19-corporate-financing-facility-ccff

If you are unable or unwilling to get this funding to pay the 80% in lieu of receiving the grant, you will need to have conversations with your employees about taking unpaid leave, or potentially going ahead with redundancies.  We would recommend getting specialist Employment Law advice if this is the case.

HMRC Guidance for the Coronavirus Job Retention Scheme

Statutory Sick Pay Guidance

The rules surrounding SSP have been relaxed for Covid-19 related illnesses, although some rules still remain.  Anyone claiming SSP still needs average weekly earnings at or above the Lower Earnings Limit (LEL – £118 for 2019-20 and £120 for the 2020-21 tax year). The average is taken from the 8 weeks preceding the sickness (or part thereof if the employee has not worked 8 weeks).  Employees also need to be off work for 4 continuous days to trigger a Period of Incapacity for Work (PIW).  This can include non working days.    For Covid-19 related illnesses, SSP will be payable from day 1. There is usually a 3 day waiting period for SSP, which is 3 working days.

If an employee doesn’t qualify for SSP due to earnings, they will be able to qualify for ESA or Universal Credit.  It is expected that as the minimum isolation periods for Covid-related illnesses is seven days, any illnesses that are less than this will likely not be considered as qualifying for SSP from day one.

 

When does an employee qualify for Sick Pay?

1. If an employee is showing symptoms of a high fever and/or a new persistent cough, they should self-isolate for 7 days. After the 7 days is over, if their conditions haven’t worsened, they can return to work. They will still possibly have a cough, but Government Guidance says they can return to work.
2. If an employee lives with someone who is showing symptoms, they should self-isolate for 14 days from the first signs of illness. If the employee shows no symptoms withing 14 days, they can safely return to work.  If they show symptoms as any point of the 14 day isolation, then the 7 day rule applies.  This could mean becoming ill on day 3, and then being able to return to work on day 11.  However, if symptoms appear on day 14, then the employee should stay off for a further 7 days.

 

What evidence do I need to get from employees?

Employers have been asked to exercise maximum discretion when asking for evidence of sickness.  Usually an employee can self certify for the first 7 days of sickness, and then requires a GP Fit note for any time above 7 days.  However, for anyone self isolating, NHS 111 online can now issue Isolation Notes to cover up to 14 days of illness.  This is because people self isolating are told not to attend their GP surgery and therefore would be unable to obtain the usual Fit Note.  Companies that have Occupational Sick Schemes should accept these Isolation Notes as evidence of sickness.

 

Can I claim any of the sick pay back from the Government?

If you are a small or medium business (classified as having less than 250 employees on your payroll as at the 28^th February, they you can claim back up to 2 weeks SSP per employee affected (£94.25 per week for 2019-20 and £95.85 for 2020-21).  Employers with over 250 employees will not be able to claim any funding.

 

How do I claim the Sick Pay back?

HMRC are in the process of developing a reclaim system through the HMRC Online Services portal. This is not live yet, and it is expected that the first claims will be submitted by the end of April, however, this is subject to change.  When it is working, HMRC will refund the value of the claims directly to the employer.  APS Global plans to process the refund claims on behalf of our clients.  We will be in touch when the reclaim facility is open, and where we deem that you are able to reclaim SSP. You should ensure that any Covid-related illnesses are notified to us so we can ensure the illnesses are properly marked in out system in order to track them later on.

 

What about shielded and vulnerable employees?

Shielded status is reserved for employees who would be particularly vulnerable should they contract Covid-19.  This includes people who have received Organ Transplants, have COPD or other serious respiratory conditions, certain types of cancers etc (full list here).  These people have been recommended to stay at home for 12 weeks with very little interaction with other people.  If your employees can work from home, then they should, and should continue Unfortunately, the guidelines on sick pay do not explicitly describe what should happen, however they do mention that “those who follow advice to stay at home and who cannot work as a result will be eligible for statutory sick pay (SSP), even if they are not themselves sick.”  It is our understanding that this clause applies to bother shielded employees who have received a letter from the NHS informing them to stay at home for 12 weeks, as well as other vulnerable employees (such as people over 70, pregnant women etc) who do not have the opportunity to work from home.  Should this be the case, then it should be possible to pay sick pay to the employee for up to 12 weeks.

 

What about employees who aren’t ill but just don’t want to come to work so they don’t risk getting ill?

Technically, if an employee isn’t ill, living with someone who is ill, is a shielded employee, or in a vulnerable category, cannot work from home, and cannot be furloughed (see separate guidance) then they would not be entitled to anything and would technically be on unpaid leave.  You could choose to allow the employee to use some annual leave, however you are under no obligation to pay if an employee chooses to take time of work voluntarily.  This also applies if the employee is a parent struggling to get childcare. This would be classified as unpaid parental leave.

 

This guidance is issued with the caveat that HMRC is constantly revising their guidelines in response to the actual results of the virus as it progresses and so you should always read this in tandem with checking the gov.uk website for the most recent information.  APS Global will try to update this guidance when we learn of any changes.

HMRC General Guidance for employers

HMRC Guidance for Shielded employees

HMRC Guidance for vulnerable employees