New Government Guidance on Furlough

Following the publication of the HMRC policy paper last week, the Government has released further guidance on the new extension to the CJRS. As a reminder, the HMRC paper and the Government guidance only apply to claims for the period from 1 November 2020 to 31 January 2021 inclusive. Guidance for CJRS claims from 1 February 2021 onwards will be published following a Government review in January 2021, which will decide whether economic circumstances are sufficiently improved to require an increased contribution from employers.

The recently released Government guidance is spread across approximately twelve different web pages. We have gathered together all the relevant information into this note, to help employers navigate the changes more easily!

CJRS RULES 1 NOVEMBER 2020 TO 31 JANUARY 2021

EMPLOYER ELIGIBILITY

*Must be a UK business, whether open or closed (due to local or national lockdowns).

*Must have a UK bank account and PAYE scheme.

y NO need to have previously used the CJRS.

*Should be a privately funded business (although partially publicly funded organisations may be eligible where their private revenues have been disrupted – such organisations should contact their sponsor department or respective administration for further guidance).

From December 2020, HMRC will publish details of employers who make claims under the extended CJRS.

EMPLOYEE ELIGIBILITY

*DOES NOT need to have been previously furloughed.

* Must be on employer's payroll on 30 October 2020.

*Their employer must have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 30 October 2020, which notifies a payment of earnings for that employee.

*Can be employed on any type of contract (note that, as long as they are paid through PAYE, employers can also claim for office holders (including company directors), salaried members of LLPs, agency workers (including those employed by umbrella companies), limb (b) workers, contingent workers in the public sector, and contractors with public sector engagements in scope of IR35 off-payroll working rules).

*Can be working under any category of visa (as grants under the CJRS are not counted as 'access to public funds' for this purpose).

*Can have their fixed term contract extended or renewed, if it has not already expired.

*Can be an apprentice and can continue to train whilst on furlough, but they must be paid the Apprenticeship Living Wage / National Living Wage / National Minimum Wage as appropriate for all the time they spend training.

FULL / FLEXIBLE FURLOUGH

As with the existing CJRS, eligible employers can either fully, or flexibly, furlough eligible employees.

There is no minimum furlough period.

In terms of flexible furlough, employees can work any pattern and there is no minimum hours requirement. Flexible furlough agreements can last for any period of time, and employees can be rotated on and off flexible furlough.

As set out below, however, each claim period needs to be a minimum of 7 consecutive days.

GOVERNMENT AND EMPLOYER CONTRIBUTIONS

The Government will contribute 80% of salary for hours not worked, up to a maximum of ￡2500 per month. Employers will be responsible for National Insurance Contributions and employer pension contributions. Employers will need to deduct, and pay to HMRC, income tax and employee National Insurance Contributions on the CJRS grant they receive, as well as student loan payments where applicable.

At their discretion, employers can 'top-up' the Government's contribution to the employees' full salaries.

For the hours which employees do work, the employer will be responsible for the employee's normal wages, as well as NICs and pension contributions, in the normal way.

The entirety of the grant received under the CJRS must be paid to the employee in the form of money (subject to the deduction of tax and NICs, and student loans if applicable). No part of the grant should be netted off to pay for the provision of benefits or a salary sacrifice scheme.

CALCULATION OF REFERENCE PAY

Employees on Payroll on 19 March 2020 and/or furloughed on or before 31 October 2020

"On Payroll" means a payment of earnings in the tax year 2019 to 2020 which was reported to HMRC on a Real Time Information submission on or before 19 March 2020.

Fixed pay:

The reference period is the last pay period ending on or before 19 March 2020.

Variable pay:

The reference period will be the higher of:

·      the wages earned in the corresponding calendar period in the tax year 2019 to 2020; and

·      the average wages payable in the tax year 2019 to 2020.

Employees not on Payroll on 19 March 2020 and not furloughed on or before 31 October 2020

Fixed pay:

The reference period is the last pay period ending on or before 30 October 2020;

Variable pay:

The reference period will be the period between the start date of their employment or 6 April 2020 (whichever is later) and the day before their furlough period begins (these dates are inclusive).

What should be included in the calculation of wages

When calculating 80% of wages, the following should be included in the calculation:

·      Regular wages paid;

·      Non-discretionary payments for hours worked, including overtime;

·      Non-discretionary "fees" (it is unclear at present as to what this would cover);

·      Non-discretionary commission payments;

·      Piece rate payments.

The following should be excluded from the calculation:

·      Tips, including those distributed through troncs;

·      Discretionary bonuses;

·      Discretionary commission payments;

·      Non-cash payments;

·      Non-monetary benefits like benefits in kind (such as a company car) and benefits received under salary sacrifice schemes (including pension contributions) that reduce an employee's taxable pay.

CALCULATION OF USUAL HOURS

Employees on Payroll on 19 March 2020 and/or furloughed on or before 31 October 2020

Fixed Hours:

The reference period is the last pay period ending on or before 19 March 2020.

Variable Hours:

Usual hours will be based on the higher of either:

·      the average number of hours worked in the tax year 2019 to 2020; and

·      the corresponding calendar period in the tax year 2019 to 2020.

Employees not on Payroll on 19 March 2020 and not furloughed on or before 31 October 2020

Fixed Hours:

The reference period will be the last pay period ending on or before 30 October 2020.

Variable Hours:

The average number of hours will need to be calculated between 6 April 2020 and the employee's first day of furlough.

NB: If an employee is flexibly furloughed, then any hours taken as holiday during the claim period should be counted as furloughed hours, rather than working hours.

HOW TO PUT FURLOUGH INTO PRACTICE

Furlough veterans will be pleased to note that nothing has changed in this respect.

Essentially, given that a furlough arrangement will amount to temporary change to an employee's terms and conditions, employers must agree the change with the employees, and confirm that agreement in writing to the employees. Where there is a recognised union, agreement must be reached through them.

RECORD KEEPING

Employers must keep the written record of the furlough agreement for 5 years. They must also keep records of the number of hours which are worked and not worked by each furloughed employee, for 6 years.

TRANSITION PERIOD: RETROSPECTIVE AGREEMENT WINDOW

The extension of the CJRS has been announced with no warning before its commencement, when businesses had already prepared to use the (now shelved) Job Support Scheme. As a result, the Government has provided that employers can, up to and including 13 November 2020, enter into furlough agreements with employees which are backdated to 1 November 2020.

FURLOUGHING FOR NON-BUSINESS RELATED REASONS

Eligible employees can be furloughed for reasons unrelated to their employer's financial situation or closure, where they:

·      Are shielding in line with the newly updated public health guidance. (Note that the wording of the HMRC policy paper, "or need to stay at home with someone who is shielding" is missing from the Government guidance, as those living with clinically extremely vulnerable individuals are still expected to go to work if they cannot work from home. However, if they are carers for shielding individuals, then they may fall under the point below);

·      Have caring responsibilities which result from COVID-19, including employees who need to look after children.

The extended CJRS is not intended to be used for short-term sickness absences (including self-isolation), although this will not affect the furloughing of an employee for business reasons, who just happens to be off sick at the time.

In terms of those employees who are placed on furlough, and then subsequently become ill (due to COVID-19 or otherwise), it is up to the employer whether to move the employees onto Statutory Sick Pay, or keep them on furlough.

NEW: the guidance confirms that employers can furlough employees who are off on long-term sick leave, although this is not mandatory.

INTERACTION BETWEEN REDUNDANCY AND FURLOUGH

Employers can commence redundancy processes whilst employees are on furlough, in accordance with usual employment procedure.

Important to note is that:

·      CJRS grants cannot be used to fund redundancy payments;

·      At present, employers can claim the CJRS grant for employee notice periods (it is likely that this applies to both statutory and contractual notice periods; however, there are two separate guidance notes which are conflicting in this respect and we await further information). HOWEVER, for claim periods starting on or after 1 December 2020, the Government is currently reviewing whether employers should still be permitted to claim for employees' statutory or contractual notice periods. Further guidance is promised at the end of November 2020.

If an employee is made redundant, their statutory redundancy pay and statutory notice pay should be based on their normal wage rather than the reduced furlough wage.

RE-EMPLOYING AND FURLOUGHING REDUNDANT EMPLOYEES

Employees who were on an employer's payroll on 23 September 2020, but who were subsequently made redundant or stopped working for their employer after this date, can be re-employed and furloughed.

In addition to being on the payroll on 23 September 2020, a PAYE RTI submission to HMRC must have been made from 20 March 2020 to 23 September 2020, notifying a payment of earnings for the employee concerned.

This applies to employees who were employed on fixed term, as well as permanent, contracts.

EMPLOYEE TRANSFERS UNDER TUPE

A new employer is eligible to claim in respect of employees of a previous business transferred under TUPE. In order to be eligible, employees should have been employed by their prior employer on or before 30 October 2020, and transferred to their new employer on or after 1 September 2020. Note that there seems to be an error in the guidance, which states that the transfer should be on or before 1 September 2020. We understand that this has been potentially confirmed as an error by an employment barrister through the HMRC Help function.

EMPLOYEES WITH MORE THAN ONE JOB

If an employee has more than one employer, they can be furloughed from one or more of those jobs.

It is an obvious point, but if an employee is being furloughed by their current employer, any former employer should not re-employ them, put them on furlough and claim for their wages through the scheme.

EMPLOYEE RIGHTS AND ENTITLEMENTS ON FURLOUGH

The rules here are the same as with the previous incarnation of the CJRS.

During furloughed hours, employees are not permitted to carry out any work for their employer, or any linked / associated employer, whether it makes money or provides services.

However, they can take part in training, volunteer for another employer or organisation, or (if they are contractually permitted to do so) work for another employer. When carrying out training for their employer, employees must be paid the appropriate national minimum wage and so, in some cases, employers will need to top up the furlough payment during this time, to the extent that it does not meet the minimum wage threshold.

Whilst on furlough, employees who are union or non-union representatives may undertake duties and activities for the purpose of individual or collective representation of employees or other workers.

As before, employees will retain their usual entitlements such as annual leave.

EMPLOYEES RETURNING FROM STATUTORY PARENTAL LEAVE

"Statutory Parental Leave" includes maternity leave, adoption leave, paternity leave, shared parental leave and parental bereavement leave.

Should an employee on statutory parental leave return on or after 1 November 2020, and the employer wishes to furlough them, then the normal scheme rules set out elsewhere in this document apply.

Employers can agree with those employees on maternity leave that they can return to work early to enable them to be furloughed. However, employees will need to provide a minimum of 8 weeks' notice of their early return, and employers will not be able to furlough them until the expiry of that 8 week period.

Note that an employee is not permitted to receive Maternity Allowance and pay under the CJRS at the same time. If an employer has agreed with an employee to be put on furlough, then the employee must contact the Jobcentre Plus to stop their Maternity Allowance payments.

MILITARY RESERVISTS

Strangely, the guidance on this has, presumably in error, not been updated, and only deals with periods of claim prior to 31 October 2020 (i.e. "old" furlough). Although not expressly stated, we consider that military reservists will be subject to the same rules as those returning from statutory parental leave i.e. the updated scheme rules will apply to them in the normal way.

HOW TO CLAIM UNDER THE EXTENDED CJRS

Employers are able to claim through the online Government Gateway (used for PAYE online).

Generally, claims can be made in advance (although there is also the option to claim at the point that a payroll is run, or after the payroll has been concluded). However, for the period 1 November 2020 to 11 November 2020, monies will need to be claimed in arrears.

To make a claim, employers will need to:

·      Report and claim for a minimum period of 7 consecutive calendar days;

·      Be registered for PAYE online;

·      Have a UK, Channel Island or Isle of Man bank account number and sort code;

·      Provide the billing address of the bank account;

·      Provide the employer PAYE scheme reference number;

·      Provide the number of employees being furloughed;

·      Provide each employee's National Insurance number;

·      Provide the start date and end date of the claim;

·      Provide the full amounts which you are claiming;

·      Provide one of the following: the employer's name, Corporation Tax taxpayer reference, Self-Assessment taxpayer reference or company registration number;

·      For flexibly furloughed employees, provide:

o  The number of hours the employee would usually work in the claim period;

o  The number of hours the employee has or will work in the claim period;

o  The number of furloughed hours the employee has been furloughed in the claim period.

The claim period must start and end within the same calendar month. If the pay period includes days in more than one month, each of those claims will need to be calculated separately. Claim periods cannot overlap.

When claiming for employees who are flexibly furloughed, employers should not claim until they are sure of the exact number of hours their employees will have worked during the claim period. If employers claim in advance and the employees work for more hours than anticipated, some of the grant will have to be repaid by the employer to HMRC.

Claims relating to November 2020 must be made by 14 December 2020. Claims relating to each subsequent month should be submitted by day 14 of the following month.

Grants payments are anticipated to be received by employers 6 working days after the claim is made.

AMENDING CLAIMS

Employers can increase the amount of any claim if they amend it within 28 calendar days after the month to which the claim relates (unless this falls on a weekend, in which case the deadline is the next working day). For example, to amend a claim relating to November 2020, employers must amend the claim by 11:59pm on 29 December 2020.

WHAT IS HAPPENING TO THE JOB SUPPORT SCHEME & JOB RETENTION BONUS?

The Job Support Scheme has been postponed for the time being. We will have to wait and see whether it is revived after the closure of the CJRS next March.

The Job Retention Bonus will not be paid in February 2021 as previously envisaged. It may be that an alternative retention incentive will be instigated as and when appropriate.

This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact James Baker or Rachael Lloyd to discuss any issues you are facing.