07 Apr Coronavirus Job Retention Scheme Explained by HHBA member Victoria Thomson
Are you worried about your business?
Do you want to understand the new Furlough scheme available to companies?
Do you want to claim on it?
More details regarding the Coronavirus Job Retention Scheme will be released but below is what we know so far. Please contact your local HR Dept for advice on furlough and how the below might apply to your business.
Q. What’s the difference between furlough and lay off / short time?
Employers can impose short time working or lay off if they have a clause in the employee’s contract. Or, in these difficult times, with the employees agreement. The rules around lay off are complicated and allow the employer to give no work to the employee so they are ‘laid off’ for an indefinite period. The employee is entitled to a statutory payment of £30 per day but only for the first five days.
With furlough, the consenting employee can do no work but will receive 80% of their salary which the business can claim back from the Government. Furlough will be a much more attractive proposition to the employee than lay off.
Q. Can an employee work from home and still claim the 80%?
The guidance states that employees must not do any work for their employers whilst furloughed. It states:
Q. Can an employee do volunteering?
Yes, furloughed employees can take part in volunteer work as long as it does not provide services to, or generate revenue for, or on behalf of, your organisation.
Q. We want to provide online training to employees on furlough. Is this allowed?
Yes and it is a good idea to keep staff up skilled. You must ensure that furloughed employees receive at least National Minimum Wage/ National Living Wage for their time spent training.
Q. Can an employee who is furloughed check emails to just forward on anything that needs doing to their colleagues who are working?
This might be deemed “providing services” so our advice is not to allow your employees to do any work whilst they are furloughed.
We hope to receive further guidance and clarity on these points and will publish here if that happens.
Q. My employee is off sick with COVID-19 at the moment, can I furlough them instead to get 80% of their costs paid?
No. If they are off sick you should pay statutory sick pay and that can be reclaimed from the Government. This can be reclaimed for the first 2 weeks only and is eligible for businesses with up to 250 employees. If their contract allows for company sick pay, that is your responsibility and is not eligible for reimbursement under the Job Retention Scheme.
Q. Is every business eligible for the furlough grant?
Yes. It applies to all businesses who employ staff through PAYE.
Q. How do I designate employees as furloughed?
This depends on whether or not the employee has a lay-off clause within their employment contract. If there is a lay-off clause then an employer can make the decision to furlough or lay-off an employee.
If there is no lay-off clause in the employment contract then the employer will have to agree with the employee to be furloughed. You must put this in writing, we can guide you through this process and provide templates where appropriate. The agreement must be kept for five years.
If the employee does not agree then there are other options but you should contact your local HR Dept office to discuss.
Q. How do we furlough a company director?
Salaried directors can receive support through the scheme and can continue to fulfil duties to their company as set out in the Companies Act 2006. The Board need to decide which directors should be furloughed, and this should be formally adopted as a board resolution with appropriate records made and communicated in writing to the director concerned. This must be kept for five years. Your accountant can help you here. Furloughed directors must not do work of a kind that they would carry out in normal circumstances to generate commercial revenue providing services to, for, or on behalf of their company.
Q. How do I decide who to furlough if have enough for one person in a team of five (for example)?
You would keep your best, most productive, efficient person and furlough the rest. Think about how you would apply a redundancy criteria. It will also help justify your selection if you need to make redundancies further down the line. Your local HR Dept office can help you with this
You may also ‘rotate’ furlough leave so that employees are treated as equally as possible. As long as each period of leave is for a 3 week minimum.
Q. Can I furlough my nanny and my cleaner?
If you pay them through a HMRC scheme, then yes, you can furlough these individuals.
Q. How much can I claim?
The guidance states a maximum of £2500 per furloughed employee plus employment costs such as pension and employers NI. We advise you speak with your accountant for clarity.
As of 4th April 2020 the guidance states that, as well as wages, past compulsory overtime, fees and commission payments are included, but not discretionary bonus or tips.
Q. What does “past overtime” mean?
This is unclear – we imagine that this means overtime that has already been done that you now need to pay to your employees. Employees can’t be doing overtime whilst furloughed.
Q. What does ‘fees’ mean?
This is not clear. Contact your local HR Dept office if you believe that you pay ‘fees’ and we can discuss the best way to approach it.
Q. What does ‘compulsory commission payments’ mean?
We think that this means contractual commission payments based on commission that has already been earned and that you are contractually obliged to pay.
Q. How do I claim?
Submit information to HMRC and individuals earnings via an online portal which HMRC are in the process of setting up. We expect this to be live by the end of April 2020.
Q. What do I claim if my employees’ pay varies?
If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either:
• the same month’s earning from the previous year
• average monthly earnings from the 2019-20 tax year
If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions that you are entitled to claim.
Whoever processes your payroll can help you with this, but if in doubt, we advise that you contact your accountant.
Q. Do I have to pay the extra 20% to top up employees pay to 100%?
It depends on the terms of your employment contract with your employee. Many of our clients will have a lay off clause in their employment contracts and so are not obliged to top up to 100%. If there is no contractual right to lay off, then you may have to top up to 100%, it is important to negotiate this with your employee and have a written agreement in place. Please contact us for advice regarding your particular circumstances.
Q. We always action pay rises from 1st April each year because it is the start of our financial year – I had already communicated 5% pay rises to all staff across the business to take effect from 1st April 2020. What do I reclaim and what do I do about the pay rises with furloughed staff?
The 80% that you pay to your employee is based on the pay rate on 28th Feb 2020. National Minimum Wage does not apply because the individual is not working. If you want them to do any training, then their pay should be their usual hourly rate as per the employment contract.
Q. Can an employee choose to be furloughed on 80%?
No. The employer has to agree so only furlough an employee if this is appropriate for the business.
Q. We have made redundancies already, can we reinstate the employee and bring them back to take advantage of the scheme?
Yes you can.
Q. How long is the scheme open for?
Three months but could be extended depending upon the circumstances.
Q. How long does an employee have to be furloughed for?
The minimum period of furlough leave is 3 weeks per employee.
Q. Can I furlough an employee more than once?
Yes, as long as the furlough leave is for a minimum 3-week period.
Q. Do I have to keep documentation about the furlough scheme?
Yes, you must confirm in writing that you have designated an employee as furloughed. You must keep this for a minimum period of 5 years.
Q. What do I do if my employee does not return the furlough agreement?
As we have to have their agreement in writing you need to inform the employee that they cannot be furloughed and as such you cannot furlough them.
Q. We have a parent who can’t work from home but they have to be at home with their child, they are currently on indefinite unpaid leave. Can we furlough them instead?
Yes, provided the caring responsibility is related to coronavirus, you can furlough them and backdate it to when they were first unable to work – anytime from 1st March.
Q. Can an employee return early from maternity leave and benefit from being furloughed?
They would need to give 8 weeks’ notice as per the normal maternity leave rules but could be on return if this situation is ongoing. Normal maternity rules will still apply.
Q. My employee has a letter from Public Health England telling them to shield and that they need to self-isolate for 12 weeks. They can’t work from home. What do we do?
Furlough them. Only those who receive a letter advising them to ‘shield’ or those who are caring for a dependant who is shielding can be furloughed in these circumstances.
Q. Can an employee retract their resignation and be furloughed?
The guidance does not specify what happens in the circumstances of a resignation from an employee. If you allow this, there are a couple of points to consider:
– This might be a loop-hole that HMRC determine is a fraudulent claim because the employee’s job was not at risk of redundancy because they had already resigned.
– The reinstated employee will continue to accrue holiday pay.
– This might cause cash flow issues as you should pay the employee the 80% but will have to wait some time for the reimbursement to be paid to you.
– Without a specific date of the end of the furlough scheme, this could cause issues later if the employee decides that they don’t want to leave and the appropriate paperwork has not been completed confirming what happens.
– This could cause resentment if you need to bring employees off furlough, and the ‘resigned’ employee is not included in the furlough rotation.
In short, our view is that this could become complicated and add confusion to an already difficult situation.
Q. If an employee has more than one job, can I furlough them?
Yes you can furlough them for the job they have with you.
Q. What happens to holidays when employees are on furlough?
Follow the ACAS guidelines. We advise this in the absence of any guidance from HMRC, but keep checking our site for updates in case HMRC do release rules around this.
Our view is that these continue to accrue, unless HMRC specifically state otherwise which we doubt that they will.
We also don’t believe that an employee can be on two periods of leave at the same time, so if you want employees to use up their holidays then we advise that you furlough for a 3 week period and then they use holidays and then back on furlough leave again. If you assume that holidays ‘break’ a furlough leave period, then this should be fine.