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 20th 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 1st 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 28th February 2020. This means that any new starters from the 29th 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 28th 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 28th 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 1st 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 28th 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 1st 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