My learnings so far on the Job Retention Scheme

Adapting to change comes with the territory for an HR professional, but never in my career have I had to learn so much so quickly! In mid-March I supported business owners who had to close their doors due to the coronavirus outbreak to make difficult decisions around redundancies, however by the evening of Friday 20th March it was all change! The chancellor announced the Job Retention Scheme – where 80% of wage costs will be covered by the government for workers who would otherwise be laid off or made redundant. This scheme has already enabled me to work with many of my clients to save hundreds of jobs, retaining their team’s knowledge and expertise ready for when they can resume work. 

With more detailed guidance appearing over the last few days, I would like to share answers to common questions from employers who are considering using this scheme. 

1) What steps do I need to implement to use the Job Retention Scheme?

 ·       Firstly, consider which roles are affected. You may be shutting down completely for a period, or there may be some work which needs doing. If you are considering furloughing part of a team, you will need a fair way of doing this which may potentially mean rotating who is on furlough and who is working (the minimum period for a furlough is three weeks and there is nothing currently in the guidance to suggest staff cannot be rotated).

 ·       Check your contracts and see if you have a lay-off clause (these are quite old-fashioned so it may be unlikely!) and if so, you may be able to use this to introduce the furlough scheme

 ·       If you don’t have a lay-off clause, you will need to consult with staff and gain their consent to being furloughed and the terms around this (especially if you are not topping up the 80% pay) because it is a temporary change to their contractual terms. It’s a good idea to write to employees setting out your proposal to furlough them, how it would affect their terms and conditions and asking for their consent.

 ·       Confirm details of furlough arrangements in writing and agree how you will keep in touch with employees, particularly if you are currently unclear on how long the furlough period will last and when you will next consult with them (note that the scheme is currently available until 31st May 2020 but may be extended). 

·       Stop employees from working during the furlough period

·       Calculate the amounts you are claiming from HMRC

2) Who can be put on furlough?

Workers on your PAYE scheme as at 28th February 2020 are eligible, which include full time, part time, and zero hours staff. The are eligible for furlough if you would otherwise be considering laying them off or making them redundant. Limited company directors can be furloughed (for the PAYE earnings, not dividends), and whilst they cannot do any work during this time, they can still comply with their statutory duties as directors.

The self-employed are not eligible for furlough but a similar support scheme has now been announced by the government which they can claim directly based on their profits declared on their tax returns over the last three years.

3) How is the 80% figure calculated?

For salaried staff with fixed hours, you can claim up to 80% of their salary (up to a cap of ￡2,500) as at 28th February 2020, excluding bonus/commission payments.

For staff with variable hours (such as zero hours or guaranteed hours workers), the 80% figure is based as follows:

·       You can either use the same month’s earnings from the previous year, or their average monthly earnings from the last tax year, whichever is higher

·       If they have been working for less than a year, just average their earnings for the time that they have worked for you

·       If they joined during February 2020, you can use their February earnings on a pro-rata basis

4) Does the employer have to put in the remaining 20% of the wages?

No. You can choose to do so, but this is not mandatory. Employees may be able to claim universal credit whilst their pay is reduced. If you are topping up to 100%, you will only be able to claim the associated pension and NI costs related to the subsidised 80% of the wage. If you are considering paying the additional 20%, it would be worth thinking about giving yourself the right to withdraw the voluntary top-up if it becomes financially unviable (add this into the furlough letter as part of the consultation), especially as we don't yet know how long the pandemic will last.

5) Does the furloughed period count towards continuous service?

Yes. Furloughed workers remain employed, and should remain available to return to work when needed.

6) What about tax, pensions and national insurance?

The furlough pay is subject to the usual deductions.

As well as being able to claim up to ￡2,500 to cover up to 80% of a worker’s pay, you can also claim for the related employer’s national insurance and minimum pension contribution (3%). If you are continuing to pay an enhanced contractual pension amount, this element is not reclaimable.

7) What about holiday on furlough? [*SEE UPDATE BELOW 04/04/20*]

Annual leave continues to accrue whilst on furlough and you cannot be on annual leave whilst on furlough (unless further guidance states otherwise - see update*). As part of your consultation with staff, if you offer enhanced contractual annual leave, you may consider whether to negotiate on reducing annual leave to the statutory amount during the furlough period, which would need their agreement.

Some clients have expressed concern that staff will have an excessive amount of annual leave to take right at the point that they are ready to reopen and get business back up and running. The government has announced that at least 4 weeks of the untaken leave (more by employer agreement) can be carried forward and used over the next two years. Remember that annual leave requests can be declined if there are genuine business reasons and you can also require employees to take annual leave at a specific time (such as a summer shutdown) if you give the right notice. Also, it's worth stating in your furlough consultation letter that you propose any pre-booked annual leave (including paid bank holidays) will be automatically cancelled during the furlough period so that staff can take the equivalent time off another time (it is likely to be economically unviable and administratively complex to take them off furlough for their holidays, and you can't be on holiday and on furlough at the same time). 

You will need to plan for covering the cost of the holiday pay that has accrued during the furloughed period as this cannot be claimed under the scheme.

8) I've already made redundancies/ lay offs before the scheme was announced. Can these be retracted?

Potentially, yes. The scheme can be backdated to 1st March 2020, so if you have already put people on temporary lay-off on statutory guarantee pay since then, you could switch them to the furlough scheme which would mean the staff are better off and you could claim back the 80% of wages. If you have already made redundancies since 1st March 2020, it may be possible to retract them but do seek professional advice about the specific circumstances, especially if you have already made redundancy payments. The redundancies would also have had to be specifically related to the coronavirus outbreak, not for other business reasons. Redundancies can still continue to be made for non-coronavirus related reasons. 

9) What about staff who are paid at or close to the national minimum wage rate?

Furloughed workers can receive less than the national minimum wage because being on furlough does not count as working time. So, if their 80% furlough pay dips below the statutory minimum, this is not unlawful. The only exception is if they are doing training whilst furloughed, in which case, they must receive the minimum wage for this time.

Do remember that the minimum wage increases in April, so if your contracts are worded to state that pay tracks the minimum wage increases, you will need to reflect this in the furlough pay calculation. Otherwise, there is not an obligation to increase the rate to reflect the minimum wage rate until they actual work.

10) What is the difference between a redundancy and a lay off?

A redundancy is a permanent arrangement where you no longer need a specific role in your business, whereas a lay-off is where there is a temporary lack of work and typically, depending on contractual provisions, during this time someone is put on statutory guarantee pay (￡29 a day rising to ￡30 a day from April for 5 days, then unpaid). After being on lay-off for 4 weeks, a worker can ask to be made redundant.

Further information about layoffs is available here: https://www.gov.uk/lay-offs-short-timeworking

11) What about staff who are sick or self isolating?

Employees who are on sick leave are entitled to Statutory Sick Pay (or whatever contractual sick pay arrangements you have), including when they are self-isolating in line with public health advice.

Where a vulnerable person is self-shielding for twelve weeks due to a specific health condition or their age profile, they can be put on furlough for this period. People with specific health conditions who are most vulnerable to coronavirus have received a letter to advise them to self-shield. This is different from a situation where someone chooses not to come to work because of their health concerns, but have not specifically been instructed to self-shield (in which case you may agree a period of paid or unpaid leave or holiday).

12) What about staff who can't work due to childcare? [*UPDATED 06/04/20*]

Originally, the government's guidance stated that employees struggling with childcare could not be furloughed (unless their job was also at risk) which would have meant relying on changing working patterns or unpaid parental leave. However, on 4th April 2020, the Government guidance changed and now states that "Employees who are unable to work because they have caring responsibilities resulting from coronavirus (COVID-19) can be furloughed. For example, employees that need to look after children can be furloughed."

Note it would not be mandatory for an employer to offer furlough to working parents and they would need to balance business needs and be fair to all. If there is still some work to be done, an option may be to rotate who is on furlough for 3 week periods.

13) Can grants under the Job Retention Scheme be used to top up earnings for people working reduced hours (short time working)?

No. People who are furloughed must not do any work for the employer. They are allowed to do training whilst furloughed (such as an online course), and volunteering (but not providing services or generating revenue) but no work. One idea I read about recently was a company holding voluntary online coffee breaks so employees could maintain the social aspect of work whilst furloughed, which can support positive mental wellbeing.

14) How do I claim a grant under the Job Retention Scheme?

To work out the amounts they are claiming employers will have to work out the employer’s NI and minimum automatic enrolment employer pension contributions for all furloughed employees.

When the portal is operational (anticipated late April 2020) employers will apply with their PAYE reference number, bank account number and sort code and specify the number of employees being furloughed, claim period (start and end date), amount claimed (the minimum length of furlough is three weeks) and the  employer’s contact name and telephone number.

The government advises employers to claim in advance of an imminent payroll or at the point when they run their payroll.

15) What alternatives are there to the Job Retention Scheme?

There may be some situations where the Job Retention Scheme is not suitable, for example for employees who started after 28th February 2020, or when there is only a very minimal decrease in workload. Alternatives to consult with your employees about could include:-

 ·       Temporary reduction in hours (short time working)

 ·       Using a combination of paid holiday or unpaid leave

Finer details of the Job Retention Scheme are still being finalised so it is vital to take up to date professional advice before using a furlough arrangement, and to keep up to date with any further changes over the coming few weeks. The above information is provided for general information purposes and should not be taken as specific legal advice for your business. To discuss your individual situation, please get in touch on 01249 701486. 

Written on 29th March 2020

* UPDATE REGARDING HOLIDAY - 04/04/20

On 2nd April 2020, ACAS updated its guidance regarding holidays and furlough. Their revised guidance states that you CAN be on holiday or take bank holidays in the usual way whilst furloughed (previously it stated this was not the case) - however, in the following paragraph it appears to contradict itself by giving examples of when you can carry over untaken holiday for 2 years, including when prevented from taking holiday whilst on furlough! So until the definitive legislation is published, treatment of holidays is a "known unknown". I suggest when consulting with staff, you build in flexibility to review treatment of holidays once more is known. It could be risky to allow staff to take holidays and break the three-week minimum furlough period until we know for sure whether this would affect your ability to claim a grant under the Job Retention Scheme. Watch this space...