Last Friday, 20th March 2020, the Chancellor announced the new Coronavirus Job Retention Scheme to help support people, jobs and businesses – an unprecedented step that will be massively welcomed by employers and employees alike during these uncertain times.
Here, we've provided the key information based on current guidance. We expect that more detail will follow in the coming days and weeks – so we’ll keep you updated.
What is the Coronavirus Job Retention Scheme?
In a nutshell, this offers any employer (large or small) a grant to cover 80% of the salary of employees who would otherwise have been laid off, up to a total of £2,500 a month for each retained employee - referred to as “furloughed workers”.
The scheme will cover the cost of wages backdated to 1st March 2020 and will be open initially for three months, unless the government decides to extend it.
How does your business qualify for the Scheme?
To qualify and obtain the grants, the employer will have to:
- Designate affected employees as “furloughed” and notify them of the change (see below under “What steps must your business take?”)
- Submit information to HMRC about the furloughed employees and their earnings, through a new online portal. Further information on the portal has yet to be made available
What does “furloughed” mean?
The term “furloughed” is not commonly used in the UK, nor used in UK employment law, and no express definition has been set out in the Chancellor’s announcement or the government guidance on support for businesses.
It’s clear that the employee must remain on payroll rather than being dismissed for redundancy. However, it’s not clear whether anything can (or will) be done in respect of employees who have already been dismissed as redundant or given notice of redundancy.
The concept of furlough seems similar to "lay off", in that the individual remains an employee, but is provided with no work, with no entitlement to pay. However, there is a key difference, "furlough" is being used here to describe a situation where the employee is provided with no work but will nevertheless receive some or all of their pay.
To be “furloughed”, it’s also clear that employees must not carry out any work during a period of furlough.
What steps must your business take to put employees on furlough leave?
Employers will need to:
- Decide which employees to designate as furloughed employees.
- Notify those employees of the intended change.
- This change cannot be imposed on employees. Their agreement to be furloughed and the change in pay arrangements needs to be agreed with the employee – we recommend some consultation and agreement, with the change confirmed in writing.
- Ideally, your business should advise how long it expects furlough leave to continue, however, this may be difficult in the current climate. Employers may wish to put employees on furlough leave for an initial period, subject to review.
It’s expected that the majority of employees should consent to being furloughed, because it’s a better alternative than unpaid leave, lay off, or redundancy.
Does it apply to all “types” of workers and the self employed?
We understand that the scheme will apply to all those on the payroll (subject to PAYE), so will apply to both workers and employees (including those on zero hour contracts).
As for those treated as self employed for tax purposes, they will not be covered by this Job Retention Scheme.
However, the government is currently proposing a separate scheme to support the self-employed and freelancers, in what will be called “Statutory Self-Employment Pay”.
If accepted (and we think it will be), it compels the government to introduce Regulations providing that "freelancers" (undefined) and "self-employed people" should receive guaranteed earnings of:
- 80% of their monthly net earnings, averaged over the last three years; or,
- £2,917 per month
whichever is the lower.
The purpose of this change is to make the government ‘top up’ self-employed workers’ earnings to the lower of 80% of their net monthly earnings or £2,917 a month.
Can employees that are working ask to be furloughed?
They can ask, but you don’t have to agree. The scheme is designed to assist and support those who would otherwise be laid off, or lose their jobs through redundancy.
To add, potentially redundant employees do not have a right to require your business to place them on furlough leave as an alternative to redundancy. However, it is hoped that many employers will see the new scheme as preferable to business closure and making redundancies.
The scheme is not designed to support those staff that are self-isolating, looking after dependents (including child care – now the schools and nurseries are closed) or sick.
How much will workers receive?
In terms of the maximum £2,500 that is recoverable per person per month, it’s currently unclear whether this refers to net or gross pay, or if only basic salary costs are included, as opposed to overtime, bonuses or any benefit related costs.
Employers can top up salaries with the extra 20% (to 100% of salary) but the government makes it clear that this is optional and employers can choose. We recommend that if you do top up, but don’t do it for everyone you will need a good, non-discriminatory explanation should anyone complain.
Is there a limit to the amount of funding available and when is it available?
Currently, no limit has been placed on the amount of funding available under the scheme, or the number of jobs it will support.
HMRC is working urgently to set up a system for reimbursement, and expect to be able to pay out the first grants within a matter of weeks. The aim is for the system to be up and running before the ned of April.
Will employers or employees have to pay the money back?
At this stage, we don’t know. The Chancellor referred to the scheme as a “grant” rather than a loan, which suggests that it may not have to be paid back, but this may change as further detail is provided.
As mentioned at the start of this note, the current information and guidance has just published by the government and there remain a lot of unanswered questions around the workings of this scheme, which we hope will be clarified in the coming days and weeks.
We’ll be closely monitoring the developments regarding this Job Retention Scheme and other measures being announced, which may impact on the work force to keep you updated.
If you have any questions and need advice on the above, or on how the coronavirus pandemic is affecting your business, please get in touch.
Mike Patterson is Head of Employment at Berwins Solicitors and has a wealth of experience in supporting businesses and individuals on HR and Employment matters.