Coronavirus assistance for the workforce – further details on furlough and the challenges ahead

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On Monday, we published an article setting out basic details of the new Coronavirus Job Retention Scheme (the “Scheme”) announced by the Government on 20 March, under which businesses have been promised grants to cover the costs of 80% of salary (up to a maximum of £2,500 per person per month) for “furloughed workers” who are kept on the payroll but not required to work during the Coronavirus outbreak. The picture continues to evolve and we have summarised some of the key developments over the last week in this article.

Further guidance issued on furloughing staff

Employers up and down the country have spent the past week grappling with time-critical decisions regarding the future of their businesses and workforces, such as who can be furloughed, whether employees who have already been laid off or made redundant are covered, and precisely what employment costs will be recoverable in relation to them, without knowing the full picture and understanding the full ramifications of any actions they have taken.

Last night (26 March 2020), the Government published further guidance on the matter, for both employers and employees.  The following has now been clarified:

  • Being “furloughed” means employees who have been “placed on a leave of absence” – those who are undertaking no work at all for their employer, but who have been kept on payroll. There is still no legal definition or clear explanation of this term. However, the new guidance reinforces the fact that the usual employment law principles will apply (meaning that the contractual variation must be agreed and collective consultation rules could, in certain circumstances, be engaged) – and recommends caution when making decisions about who to furlough to avoid falling foul of equality and discrimination laws.
  • The reimbursement from HMRC will cover the lower of 80% of an employee’s regular wage or £2,500 per month. In addition, employers will be able to recover the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions (i.e. 3%) on the subsidised wage only. Other financial benefits such as fees, commission and bonuses should not be included in the claim.
  • The minimum period of time an employee can be furloughed for is three weeks.
  • The wages of employees on zero-hour contracts and those who work part-time or variable hours can be included in the claim. The Scheme is also open in respect of agency workers who are paid through PAYE.
  • Normal maternity, paternity, adoption and shared parental leave rules apply, but if the employer offers enhanced contractual pay for these types of leave, this is included as wage costs that can be claimed through the Scheme.
  • For salaried employees, their salary as at 28 February 2020 will be used to calculate the 80% subsidised wage. For employees with variable pay, employers seemingly have an option to either use average monthly earnings for the last tax year (or, if they have been working for less than a year, their average earnings since they started), or the earnings the employee received in the same month in the previous tax year.
  • Employees must have been on payroll as at 28 February 2020. The Scheme also covers employees who were made redundant since 28 February 2020 – if they are rehired by their employer.
  • The National Minimum Wage rules will not apply to employees who are furloughed (as they are not undertaking work) – however, if individuals undertake any training while on furlough leave, this will be classed as work and the NMW rules will apply.
  • The guidance confirms that employees on sick leave or self-isolating should get Statutory Sick Pay, but states that they can be furloughed after this. As such, those off sick should still be considered as part of the analysis when deciding who to furlough – but it does not appear that any claim can be made for the time they spent off sick. Those who are suffering from certain prescribed medical conditions and are shielding in line with Government advice can, however, potentially be furloughed (but it is wise to exercise caution over furloughing people just because they are worried/don’t think it’s safe to work).
  • – In terms of the documents required to make the claim, the guidance states that to be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of this communication. No reference has been made to providing evidence of any financial means test, nor any “business case” for furloughing. However, see our comments under “The challenge ahead” below.

There are, however, still a number of aspects of the Scheme that remain unclear.  And of course the biggest question of all – when will grants to cover the salary costs of furloughed workers land in bank accounts – is still up in the air. The Government has indicated that the Scheme will be up and running by the end of April, and given that HMRC are having to build appropriate systems from scratch to facilitate the Scheme, it’s not surprising that there will be some delay. But for cash-strapped businesses facing two payroll runs with substantially reduced incomes in the meantime, this may provide inadequate comfort. In the interim, to deal with any short-term cash-flow issues, businesses are being pointed towards alternative loan facilities. Please see our earlier briefing on these.

The key challenge for employers at this stage is to ensure that any decisions to furlough they are taking now are fully compliant with the rules of the Scheme when they are published, so they don’t find themselves falling foul – we have added our thoughts as to what the key questions and pitfalls may be under the section “The challenge ahead” below.

Particular care must be taken when dealing with those who don’t fall neatly into the “employee” or “worker” categories we understand to be covered under the Scheme.  Individuals on zero-hour contracts, for example, include a wide spectrum, from individuals who undertake work on a regular basis and are paid through payroll, to individuals who only work sporadically, on assignments.  Where such an individual did receive some income via payroll in the month of February 2020, but may have had varying or no income in the preceding months, it seems that employers could in theory claim under the Scheme, although this is potentially contrary to its purpose.

Relief for the self-employed?

For self-employed individuals, there was finally some welcome relief yesterday when the Chancellor announced the Self-employment Income Support Scheme (“SEISS”). The announcement will no doubt also have been welcome news for businesses who engage self-employed individuals directly, who may otherwise have faced employment status claims from those seeking to remain engaged but furloughed for the salary protection afforded to employees and workers. It does, however, mean employers need to be vigilant about including the correct category of individual in the Scheme, otherwise they could still be open to claims around status.

Under the SEISS, the Government will provide self-employed individuals and partnerships a taxable grant worth 80% of their average monthly profits over the last three years, up to a cap of £2,500 per month. The SEISS will be open to those for whom the majority of their income comes from self-employment and who have trading profits of less than £50,000 per annum.

HMRC will use the average profits from tax returns from the past three years to calculate the size of the grant, except where less than three years’ returns are available. Crucially however, as a measure to reduce the possibility of fraud, the individual must have filed a tax return for 2018-19 in order to be eligible, which will automatically exclude some newly-formed start-ups. Those who have not yet submitted their tax return for 2018-19 have four weeks to do so and become eligible.

Like the Scheme, the SEISS will be open for an initial three month period, and will be extended if necessary. It is anticipated that the SEISS will be accessible by the beginning of June, with grants being backdated to March – the lengthy wait has been widely criticised by self-employed individuals who cannot go to work and need the money now. In the meantime, the self-employed will be eligible for other government support including universal credit and business continuity loans.

In contrast to the Scheme applicable to furloughed workers, which is premised on the worker carrying out no work for their employer during the period covered by the grant, the SEISS grant can be claimed whilst the individuals continue to do business. Therefore businesses could benefit from continued productivity from self-employed individuals during the coronavirus outbreak, without putting their claim for a grant in jeopardy.

The Coronavirus Act

The Act (also in the same week!) introduces a number of emergency measures in response to the pandemic.  It contains provisions for the changes relating to statutory sick pay (SSP), whereby SSP is payable from the first day of sickness or self-isolation, where an employee whose incapacity for work is related to coronavirus.  The Act also gives HMRC the power to fund employers’ payments of SSP in respect of coronavirus-related incapacity – once regulations are made, the assumption is that they will cover the Chancellor’s promise to fund 14 days’ worth of SSP for employers with fewer than 250 employees.

In addition, a new concept of ‘emergency volunteering leave’, has been introduced in the Act, which requires employers to give employees unpaid time off if they wish to volunteer in health or social care.  Employers with greater than ten employees cannot refuse such a request.  Employees are required to provide their employers with three working days’ notice and produce a certificate from an “appropriate authority” (local authority, an NHS Commissioning Board or the Secretary of State for Health and Social Care) to confirm they have been accepted to act.  The period of volunteer leave must be either two, three or four weeks long.

Employers should be mindful that an employee on emergency volunteer leave will be entitled to the benefit of all of the terms and conditions of employment (except remuneration) that would have applied if the employee had not been absent – they are also entitled to return from leave to the job in which they were employed before the absence on no less favourable terms and conditions.

Although the Act has now become law, the SSP rule changes and the emergency volunteering leave provisions both require secondary legislation, and so will only take effect on a date appointed by the Government.

The challenge ahead

Legislation is changing rapidly and updated guidance is being published frequently.  There are, therefore, no doubt many unanswered questions which businesses will have, including:

  1. How exactly does employment law apply to designating an employee as furloughed (and when might collective consultation rules apply)?
  2. How do you ensure that your claim under the Scheme is valid? While there is no mention of documentary evidence being required of the business case to furlough workers, the employee section of the guidance refers to the Scheme being available to employers who “cannot cover staff costs” in order to “avoid redundancies” – therefore what evidence should employers be keeping, and should this include evidence of the financial damage the coronavirus outbreak has had on the business?
  3. What are the risks associated with making a claim? It is unclear what the implications are if a business is deemed to include furloughed workers who don’t technically fall into the Scheme.  It’s also not particularly clear whether an employer’s “business case” and/or “financial means” to pay staff (despite a reduction in work) will be relevant or not to eligibility to claim.  The guidance reiterates that HMRC has the right to retrospectively audit all aspects of the Scheme with scope to claw back fraudulent or erroneous claims.  Therefore how do employers reduce the risk of having to foot the bill for furloughed workers’ salaries (and any associated penalties and fines) that can’t be claimed back?
  4. Claims can be backdated to 1 March 2020 – does this mean that employers who sent employees home on full pay without work prior to officially designating them as “furloughed” and making the requisite changes to their contract can claim for the period prior to that “official” designation?
  5. How can you re-hire a redundant employee and then place them on furlough leave? Will the redundant employee be required to repay any statutory or enhanced redundancy pay as a condition of being furloughed?
  6. The updated guidance makes it clear that the Scheme does not apply to those working reduced hours, or for reduced pay, therefore for businesses who have already gone down these routes as a means of avoiding redundancies, what action can they now take to try to benefit from the Scheme?
  7. How do you ensure that your decision about who to furlough is not discriminatory?

At Walker Morris, we are closely monitoring developments which will impact businesses’ ability to protect their workforce in the long-term, and crucially, to ensure they are ready to do business at their pre-coronavirus pace once the current crisis is over. We are ready to answer clients’ queries, including the above.  Please get in touch with your usual contact or the members of the Employment Team below.