The Job Retention Scheme – 6 April 2020 update

Week three….more answers, and a few more questions

Last Monday, I posted the top ten questions our clients were posing about the Job Retention Scheme. Over the weekend, a revised and expanded set of guidance notes were published by HMRC. Which provides us with an opportune moment to re-visit our top ten questions and see how many have been answered.

Employers continue to take advantage of the arrangement – and as each week passes they can do so with more certainty and greater understanding. To be clear, therefore, answering every question is not a pre-condition to using the scheme – but understanding the detail does help manage risk and cost exposure. 

How many of our top ten questions have been answered?

1.      What about the Apprenticeship Levy?

We now know that the Apprenticeship Levy should continue to be paid as usual. A grant from the Job Retention Scheme does not cover this. This additional cost to business should therefore form part of an employer’s overall cost modelling – particularly if they wish the scheme to operate on a zero cost basis.

2.      Overtime for salaried employees

Even with the additional guidance, this remains an issue open to a level of interpretation.

Where an employee is paid a regular amount every month, I believe you should only claim for “80% of the employee’s salary, as of 28 February 2020, before tax”. This is clear. 

However, there is a newly inserted additional section that now reads “You can claim for any regular payments you are obliged to pay your employees. This includes wages, past overtime, fees and compulsory commission payments.” Logically, this adjusts the definition of salary to include these additional items. 

Therefore, if over the course of a year, an employee regularly does overtime such that their pay every month looks similar, I believe you should include this overtime in your 80% calculation. For a salaried employee, therefore, the 28 February calculation would be inclusive of regular overtime paid for that pay period (but not irregular overtime paid for that period).   

 3.      Shift premiums and other allowances

Like the overtime point, above (and with the same caveat) – the new wording appears to be our friend in this respect. The sentence, “You can claim for any regular payments you are obliged to pay your employees”, tells us that certain regular forms of pay other than salary should be included. The key is the regular and non-discretionary nature of the pay. For example, where an employee is in receipt of a regular contractual (non-discretionary) commission, you would include this commission in your definition of salary. And therefore, the 28 February calculation would be inclusive of such commission.

4.      Pay for variable hours workers

Again – with a health warning around interpretation….

Pay for employees whose pay varies is calculated in a different way. But, logically, the definition of what is included in the definition of pay should be the same as for salaried employees.  The key for an employer, therefore, is to establish who is in receipt of regular pay and who is not. The definition of “what is pay?” for each employee should be undertaken on the same basis for both groups. 

5.      The treatment of benefits?

Employees often receive more in pay than a regular wage and a basic auto enrolment pension contribution. The revised guidance has provided additional clarification in this regard:

“The reference salary should not include the cost of non-monetary benefits provided to employees, including taxable benefits in kind. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included in the reference salary.”

Helpfully HMRC has confirmed its agreement to the current environment amounting to a “life event” that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly. More broadly, we should expect to see furlough agreements continuing to contractually vary benefit rights to manage the cost envelope within which furloughing takes place.

The conundrum around holiday remains. I think employers will continue to make specific provision as to the treatment of holiday in their furloughing arrangements.  It is now clear(er) that it is possible to take holiday whilst furloughed. But it is not quite as clear what you should be paid if you do so. Therefore, to avoid all risk, such provision may lead to allowing holiday to cease to accrue during the furlough period, holiday being paid at pre furlough rates and some carry over of unused holiday where relevant.

6.      What about Troncs?

Not all will be familiar with the term – but within the leisure and hospitality sector the arrangement whereby tips or gratuities are distributed to employees forms a material portion of some employees’ wages. Unfortunately, the revised guidance tells us that tips should not be included in the definition of pay. Which is a considerable blow to the restaurant and broader hospitality sector.

7.      New joiners?

The revised guidance (re)confirms that employees must have been on the PAYE payroll on the 28 February to qualify to be furloughed. So, employees “hired” after this date cannot be furloughed/claimed for under the Scheme. This poses a difficult question for employers with new hires. It also poses a question as to what the expression “being on the PAYE payroll” means? There is a big difference between, on the key date, having had PAYE operated on earnings and being set up such that PAYE could be operated on earnings as and when the next relevant payroll run occurs. I believe the latter view offers the most sensible basis on which to proceed. The key will be evidencing the position – with a view to managing the queries arising from any subsequent audit.

Conversely, however, there is now scope for a previous employer to agree to re-employ an individual and place him or her on furlough. They will still be able to claim a grant – but only if such an individual were on the previous employer’s PAYE payroll on 28 February 2020.

This addition would appear to be of limited use in practical terms (an employee who has left will have some effort to expend in getting back on the payroll of their ex-employer) – but the sentiment behind it is welcome. That said, it would be much more welcome if new employers were able to offer such a commitment to people they had just hired – but happened not to have been on the payroll on 28 February 2020. 

8.      Burden of proof

Is there a level of proof that an employer will ever have to meet, to show (a) that furloughing was the right course of action to take and (b) the decision was driven by the current environment?  The revised guidance offers some additional (albeit benign) comfort in this regard, “The scheme…is designed to help employers whose operations have been severely affected …. to retain their employees and protect the UK economy. However, all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts….”. It suggests to me that the evidential bar will not be set too high.

 9.      Taking other jobs?

Employment contracts permitting, it has been confirmed that it is open to an employee to take another paid job elsewhere without impacting the (re)payment of 80% of their wages in respect of a different employer by the state.

10.  Time lag

There remains some nervousness as to the funding time lag between paying furloughed employees and receiving a grant via the scheme to refund this outlay. The revised guidance now states at the very beginning, “The online service you’ll use to claim is not available yet. We expect it to be available by the end of April 2020.”. Clearly, there is a big difference between the facility to claim existing and the reimbursed funds hitting an employer’s bank account. Prudent employers should factor this time-lag into their cash flow forecasts.

What else has been covered?

There is a completely new section on ‘Eligible individuals who are not employees’. The guidance explains that as well as employees, the grant can be claimed for other groups, if they are paid via PAYE - for example, office holders (including company directors) and salaried members of Limited Liability Partnerships (LLPs).

It is now clear that individuals can furlough employees such as nannies provided they pay them through PAYE and they were on their payroll on, or before, 28 February 2020. 

We can also see some useful clarification that you do not appear to need to be a UK entity to claim (but you do need to have had a UK payroll in operation prior to 28 February 2020). This will be important to global businesses with UK employees, but no UK subsidiary or other registered UK entity. Logically employees on the UK payroll, but working overseas may also be furloughed. These two points will be critical for organisations with a sizeable globally mobile population.

Finally, there is new detail released which confirms the potential to furlough company directors – which will be good news for small businesses. Albeit news which will need to be considered alongside the requirements of UK company law to ensure directors duties continue to be fulfilled.

Conclusion

All in all, we are some steps closer to clarity. And as noted previously, the desire of HMRC to provide guidance quickly is very welcome. As always, we will keep close to the emerging picture as seen by our clients and ensure the dialogue with HMRC is reflective of what is happening in real time.