In response to the threat to employers and their workers posed by Covid-19 the Chancellor has announced an unprecedented package of measures designed to support organisations during this period. One of the key measures announced is the Coronavirus Job Retention Scheme.
The aim of the scheme is to cover 80% of the salary of employees (up to a cap of £2,500) who are furloughed (i.e. laid off) as a result of the downturn in business which so many employers are now experiencing.
Some employers may have a contractual ability to lay-off staff without pay (see our previous guide on Business Measures here) and the scheme will now assist employers to cover the wage costs of those employees. The scheme will also assist employers to cover the costs of employees who are laid off where the employer does not have a contractual right to lay off. There are however additional employment law considerations for employers in both these circumstances (see How does an employee become a furloughed worker? below).
This is a potentially vital measure for employers who are facing financial difficulty over the coming weeks and months. The objective is to enable employers to retain their staff so that they can pick up the pieces when “normal” life resumes. Unsurprisingly, whilst the policy is clear, there is currently very little detail around the scheme and how employers can move from where they are to where they need to be. In particular, how to achieve those cost and job saving objectives without falling foul of the many potential legal pitfalls that making major changes to employment terms and conditions in relation to work and pay present.
Here are answers to the key questions employers need to know about the operation of the scheme:
Who is eligible for the scheme?
All UK businesses are eligible for the scheme.
What does the scheme do?
HMRC will reimburse employers for 80% of furloughed workers wage costs up to a maximum cap of £2,500 per employee per month.
The scheme will cover wage costs back dated to 1 March 2020. Clearly, backdating is only relevant where employees were furloughed prior the scheme being announced on 20 March 2020.
How does an employee become a furloughed worker?
The employer will need to designate affected employees (i.e. employees who would otherwise be laid off) as ‘furloughed workers’. In other words, the employer needs to decide which employees are affected if the business closes or, if there is simply a downturn in demand, how many fewer employees are needed and how should they be selected or designated.
The government’s guidance acknowledges that such a change in status remains subject to existing employment law and, depending upon the employment contract, will almost certainly need to be negotiated and agreed with the employees.
This is a potential pitfall for employers who need to be aware of the fact that unless the contract of employment includes the right to lay-off without pay; or any change to furloughed status and a reduction in pay is agreed with employees, the employer remains liable to pay the employees in full for any period in which they are laid off, despite any contribution made by the scheme.
It is also unclear at present what the position is in relation to tax, employer National Insurance contributions and statutory pension contributions required under the auto-enrolment regime. These may be additional factors employers will need to consider in relation to furloughed employees.
We anticipate that further guidance will be given in due course as to the mechanism for payment and exactly what will be recoverable by employers.
Employers should also note that a key requirement of employees being designated as ‘furloughed workers’ is that they do not do any work for the employer during the period of lay-off.
Why would an employee agree to be furloughed?
An employee is only likely to agree to be furloughed if they understand that their job is at risk as a result of the present situation. It is likely that faced with the prospect of redundancy, or simply the employer being unable to pay their wages or redundancy pay, staff will see the benefit of this safety net and will agree to be furloughed temporarily with a contribution to their wage costs being covered by the scheme.
How does an employer access the scheme?
Once the ‘furloughed workers’ have been selected by the employer (and the change of status agreed by the employees) this information and information relating to their earnings needs to be submitted to HMRC through a new online portal. HMRC will set out further details on what information will need to be inputted in due course.
Will zero hours workers be covered?
The scheme covers anyone on payroll, paid through PAYE, as at 29 February 2020 who is subsequently designated as a furloughed worker. Any staff on zero hours contacts of employment who fall into that category will be covered.
It is likely that HMRC will cross reference the real time information submitted by employers for February, against any claim under the Job Retention Scheme. Employers may have issues in showing that zero hours workers who did not receive wages in February are ‘active’ workers capable of being furloughed, however an “averaging over a reference period” approach may be adopted, similar to that used to calculate “a week’s pay” for other entitlements such holiday pay. How this issue will be dealt with may become clearer when we know what information will need to be provided to HMRC in order to claim under the scheme.
What is meant by wages/salary?
The government has used both ‘salary’ and ‘wage costs’ in the terminology in the guidance produced thus far. ‘Salary’ suggests that it will be 80% of the furloughed worker’s pay that will be covered by the scheme, on the other hand ‘wage costs’ could be interpreted more broadly to cover employer National Insurance contributions and even statutory pension contributions. Some further guidance would be helpful to give employers clarity in this regard. Is it important for employers to note however that in any event, the maximum cover per furloughed worker will be £2,500 per month.
How can employers protect themselves from redundancy claims and other tribunal claims?
This scheme is undoubtedly going to provide a welcome lifeline for struggling employers across all sectors. Employers will need to act fast. It is vital therefore for employers to navigate the intricacies of the scheme and the legal requirements correctly. Doing so will ensure that employers are accessing the grants as quickly as possible to cover wage costs. However, it is essential that employers ensure that they have the necessary legal requirements in place to avoid the risk and worry that liabilities have simply been stacked up and will become future claims.
The Geldards Employment Team has the expertise to assist you with all of the aspects outlined above. For more information please contact a member of our Employment Team