FAQs - Third update to furlough scheme guidance
The Government has further clarified some details of the Job Retention Scheme.
On 9 April, HMRC published the third update of its guidance on the Coronavirus Job Retention Scheme (the Scheme). We outline below some of the key clarifications. Questions and answers arising in light of previous guidance may be found here.
The government plans to have the scheme in place from 1 March to 31 May 2020 and it may be extended beyond that date. The government recognises businesses will be affected by Coronavirus in different ways and they may access the Scheme at any point during the three months duration. The stated purpose of the scheme is to assist employers to retain their employees and protect the UK economy; again the updated guidance confirms the employer does not have to demonstrate a redundancy situation to access the scheme.
Yes. You can furlough employees on any type of employment contract, including full-time, part-time, agency, flexible or zero-hour contracts, together with other classes of workers not normally referred to as employees, providing they are paid through PAYE. Likewise foreign nationals employed through PAYE are eligible to be furloughed. Grants under the Scheme are not counted as ‘access to public funds’ and you can furlough employees on all categories of visa.
Employers can apply for a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and pension contributions (up to the level of the minimum automatic enrolment employer pension contribution i.e.3%) on that subsidised furlough pay not on normal salary. See also "Can we use any of the grant claimed through the scheme to pay for benefits in kind?" below.
The guidance makes it clear organisations in receipt of public funding are not expected to furlough employees on the assumption that either the organisation is providing essential public services or it is contributing to the response to Coronavirus. Even if this is not the case, for example in some schools which are completely closed, where funding is continuing employers are expected to use that money to pay staff in the usual way and not furlough.
The government does recognise there may be some organisations that are not primarily funded by the public purse and whose staff cannot be redeployed to assist with the fight against Coronavirus, such as where part of an organisation may be funded by commercial income, and in such cases the Scheme may be appropriate in respect of some employees.
Furloughing employees may be an option for administrators dealing with an insolvent business. However in reality, and as recognised by the updated guidance, this is only likely to be an approach taken by administrators if there is a reasonable likelihood of rehiring the workers; for example if the business could be sold. Unfortunately this is not the case in a large proportion of administrations.
The updated guidance confirms furloughed employees must not undertake work for, or on behalf of, their employer which includes providing services or generating revenue. This may extend so far as providing voluntary services to the employer. It also confirms a practical point that, subject to agreement or contractual right to vary duties, the tasks of furloughed employees may be reallocated to employees who are not furloughed.
The new guidance goes further to confirm furloughed employees may not work for any organisation linked to or associated with the employer. There is no definition of linked or associated organisations; the obvious targets are group structures, holding companies and subsidiaries. However, if a layman's approach is taken the definition could be very wide and apply to joint ventures, consortia and other less formal arrangements.
Likewise the guidance around volunteering has been extended and the updated guidance confirms furloughed employee can take part in volunteer work, if it does not provide services to or generate revenue for, or on behalf of your organisation or a linked or associated organisation.
Yes. However the Scheme is not intended to replace SSP for short term absences from work due to illness and furlough leave must be for a minimum of three weeks. Beyond that if you need to furlough employees due to a business need and any of the affected employees are on sick leave they may be furloughed and placed in receipt of furlough pay rather than sick pay. Unsurprisingly employers can not claim under the Scheme and the SSP rebate scheme for the same employee at the same time although they can claim for the same employee at different times under both schemes.
Employees who are shielding under government guidance or on long term sick leave may also be furloughed. However some employees who are shielding may be able to work effectively from home and employers should not automatically furlough them on the grounds they are shielding.
Again, yes. Employers may keep employees who become sick while furloughed on furlough leave so long as their pay is at least equivalent to what they would receive if paid SSP.
Furlough leave must be for a minimum of three weeks and therefore an employer would not be able to access the Scheme in relation to an employee who leaves after two weeks. However the guidance confirms fixed term contracts can be renewed or extended during the furlough period without breaking the terms of the Scheme. Employees on fixed term contracts that have expired since 28 February may also be rehired and placed on furlough leave. Employers should give careful thought to the duration and terms of any extended fixed term (and ensure this is recorded in a written agreement) taking into consideration the likely needs of their business going forward.
The usual rules on dismissal at the end of a fixed term contract still apply and will apply once the furlough ends if the employee is not to be further retained.
The most recent government guidance has clarified the position where there is a transfer of a business or a service provision change under TUPE Regulations or other form of business succession after 28 February. A business succession is when the ownership of a business changes from one legal entity to another and the new owner takes responsibility for the pay records. In such circumstances the new employer (the transferee) will be eligible to furlough transferring employees. Likewise where there is a payroll consolidation in a group of companies the organisation running the new PAYE scheme will be eligible to furlough affected employees and claim the grants available under the Scheme.
No. The updated guidance confirms no part of the grant can be siphoned off to fund benefits. The entire 80% (up to cap of £2500) claimed must be paid to the employee and not used to pay administration charge, fees or other costs in connection with the employment.
Employers can claim employer pension contributions on the subsidised furlough pay set in line with the minimum automatic enrolment employer contribution of 3% of qualifying earnings provided they pay the whole amount claimed to a pension scheme for the employee as an employer contribution. Employers can additionally claim employers NICs on the subsidised furlough pay not on normal salary or topped up pay.
For advice on the impact on salary sacrifices schemes specifically in independent schools read here.
If your employees are furloughed and in receipt of furlough pay this does not mean you automatically have to terminate a salary sacrifice scheme. However HMRC agrees that Coronavirus counts as a life event that could warrant changes to salary sacrifice arrangements providing the contract allows and/or agreement is made with the employee.
If, when placed on furlough leave, the employee who has sacrificed salary falls below NMW this will not matter unless the employee undertakes training while on furlough leave in which case the employer must top up salary to the relevant NMW level for the time when training is undertaken.
When calculating 80% of salary to claim a grant under the Scheme employers should use the sacrificed salary as the benchmark and not include the value of the sum sacrificed. None of the grant paid to the employer may be used to pay for benefits provided through a salary sacrifice scheme.
Although our questions are being answered over time there continue to be uncertainties on how the Scheme will work. For example, we continue to see opposing views from commentators on whether employees will be able to take annual leave during furlough without breaking the minimum three week furlough period. It is also unclear whether annual leave during furlough will need to be paid at the full rate of pay.
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The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.