Coronavirus Job Retention Scheme (How to Claim)

With businesses across the UK economy suffering the impact of the coronavirus outbreak, the Government has stepped in to help employers avoid layoffs and redundancies through the Coronavirus Job Retention Scheme (CJRS).

The CJRS is an emergency scheme designed to fund wages of those workers who would otherwise be unemployed as a direct consequence of the COVID-19 crisis.

As a new scheme, employers naturally have many questions about what the scheme is, who is eligible, and how it works.

In this Coronavirus Job Retention Scheme guide, we summarise the latest government guidance and answer employers’ frequently asked questions.

What is the Coronavirus Job Retention Scheme?

Under the CJRS, HMRC will pay cash grants of 80% of furloughed workers’ wages up to a limit of £2,500 per month per month, provided the individual remains employed.

Furloughing is when an employee remains employed and on their employer’s payroll but they are not allowed to undertake any work.

The scheme will cover the cost of wages backdated to 1 March 2020. There is no cap on the amount of funds being made available to employers under the scheme.

The scheme is initially being run for three months but may be extended on review.

Under the scheme, employers can reclaim 80% of the amount of salary for the employee. Anything which is not “regular salary or wages” is to be disregarded, eg performance-related bonus or discretionary payments (including tips), any conditional payments (eg where a threshold must be met) and any non-financial benefits compulsory commission from HMRC, as well as basic salary.

The furlough scheme has been extended from 31 May 2020 to the end of June.

Eligibility requirements for the Coronavirus Job Retention Scheme

Employer eligibility for the CJRS 
It is available to UK employers of all sizes and sectors that were signed up to the PAYE scheme on 28 February 2020.

Employers are to notify HMRC via a new online system of its furloughed employees.

Worker eligibility for the CJRS
Employees who were employed on 19 March 2020 are eligible for furlough, provided the employer had submitted real time information payroll data by that date. The Scheme is not limited to those employees who would otherwise be made redundant, and applies to any who are furloughed “by reason of circumstances as a result of coronavirus or coronavirus disease”.

There must be a written agreement that the worker has agreed to be furloughed. Employers must ensure they have confirmation in writing of the employee’s consent. The worker must remain employed and on the business’ payroll.

The worker cannot carry out any work for the employer that has furloughed them during the furlough period.

 

How to claim under the Coronavirus Job Retention Scheme

The first stage for employers is to identify which workers are to be furloughed.

While selecting which workers to furlough will be a business decision, employers should follow a fair, well-documented process in making their selection. Priority candidates are likely to be those workers who cannot work from home and who currently have no work.

Employers may then need to look at alternative selection methods such as asking for volunteers or pooling, documenting the reasoning for the selection to defend against any potential complaints or allegations of discrimination.

Those who have been selected should then be notified and a written agreement signed confirming the employee’s consent to being furloughed. The employer should then retain a record of the written notification for five years.

The Government’s guidance states that usual employment law provisions continue to apply, so technically, employees should consent to being furloughed, unless they have a ‘lay-off’ clause in their employment contract of employment. Employers should check their employment contracts for lay off terms and general provisions allowing the employer to vary contractual terms, or otherwise.

Imposing furlough without making up the 20% shortfall in wage carries more risk but employers could calculate that this offers more of a cost saving over continued employment.

The worker will then need to sign an agreement confirming status as furloughed.

Employers then submit details via a new HMRC online system for the grants to be paid to the employer.

How long does the furlough period have to be?

Workers have to be furloughed for at least three weeks to be eligible for the scheme before they can be re-employed.

Employees can be furloughed multiple times, e.g. they can be furloughed, brought back to work, then re-furloughed. Each period of furlough must be at least three weeks.

What are the workforce options to see employers through until the scheme pays out?

First payments are expected to be made towards the end of April. In the meantime, there are a number of options for employers to consider depending on the circumstances:

  • Asking or requiring employees to use annual leave
  • Asking employees to take unpaid leave
  • Asking employees to reduce their hours
  • Using lay-off or short-time working clauses
  • Allowing employees to take extended, unpaid time off for dependants
  • Considering periods of unpaid parental leave
  • Targeted redundancies of employees in probation or with under two years’ service

Can businesses reduce workers’ pay? 

If looking to reduce workers’ pay, employers should remember the general position that basic pay is fixed under employment contracts and can only be reduced with employee agreement.

Given the extreme nature of the crisis, employers may be considering imposing pay cuts. There are a number of employment law risks to be considered here which can have a longer-term implications.

Reducing pay could amount to constructive dismissal, and would be a breach of contract and employees would have the right to bring a claim for the difference in pay.

To mitigate the risks with this course of action, employers are advised to consult with employees and be open about the challenges facing the business and why this measure is being discussed. Also set a time limit and review period to show commitment to a return to normal pay as soon as possible.

Can an employer lay off workers without pay? 

Laying off means sending employees home without work and without pay. This is usually only permitted where there is express provision within the employee’s contract.

Can workers be furloughed due to caring responsibilities?

Yes, under further guidance issued at the start of April, workers unable to do their job due to caring responsibilities because of coronavirus may be furloughed to allow them to care for their dependants.

This also means parents whose children cannot attend school may be furloughed under the Job Retention Scheme rather than having to take annual or unpaid leave to stay at home and look after them.

Will the grants be taxable?

Yes, workers will continue to pay Income Tax and National Insurance on this income.

Will the grants include the cost of employer and pensions contributions?

The scheme can be used to apply for grants for employer contributions for NI and pensions on the lower of 80% of regular salary or £2,500 per month.

Will zero-hours contract workers qualify for the scheme?

All workers paid through PAYE will be eligible, including those who work irregular hours or have zero-hours contracts.

To calculate how much such workers qualify for, the 80% grant is applied to the higher amount of either the earnings in the same pay period in the previous year (eg March 2019, April 2019) or to the average earnings in the whole previous 12 months (or fewer if they have worked for less time than this, including a part month calculation if they were taken in February).

Can you furlough someone who has continued to work?

No, the scheme is only available where a worker has already been made redundant due to the crisis or has not been working for their employer.

Can workers do any work during the furlough period?

No, furloughed workers cannot undertake any form of paid work or duties for the employer who has furloughed them. They may, however, carry out activities to further their own development such as home learning or training, or volunteer.

Can workers start a new job while on furlough?

In an expansion to the job retention scheme, the Government has confirmed that furloughed workers can take on other work while laid off. The intention is to allow for labour shortages in some sectors to be ‘plugged’ temporarily by those on furlough.

The guidance notes that this has to be permitted under the old employment contract, or the old employer is to waive any provision preventing the employee from taking on additional employment.

Do employers have to make up the 20% shortfall in wages?

Employers do not have to meet any shortfall between the 80% grant and the full amount of wage, although this may require some negotiation with the employee in respect of contractual entitlements.

Can you furlough employees that have already been made redundant?

Yes, you would need to re-hire the employees made redundant due to the Coronavirus outbreak and then designate them as furloughed. The schene will backdate grants to 1 March.

Can workers work while on furlough?

No, furloughed workers cannot undertake any form of paid work or duties for the employer who has furloughed them. They may, however, carry out activities to further their own development such as home learning or training, or volunteer.

Do furloughed employees still build up holiday?

Yes, the individual remains employed and as such they continue to build up their holiday entitlement in the usual way.

Can you dismiss or make workers redundant who are on furlough?

Employers can still make workers either redundant or dismiss them while on furlough, or immediately after. The government’s guidance does not specify that employers have to bring furloughed workers back to work after the end of the furlough period.

Payments under the scheme will end if a furloughed worker is made redundant.

However, in both cases, normal redundancy rules and protections will apply.

These FAQs are for general guidance only, and do not constitute and should not be relied on as legal advice. Employers are advised to keep the government guidance under review and take professional advice about any workforce concerns.

Is my business better making redundancies than waiting for the scheme?

Normal redundancy rules and protections continue to apply. This means following a fair process when selecting and consulting affected employees – which necessarily takes time. For example, where there are potentially more than 20 redundancies, collective consultation will be required and notice must be given to the Department for Business, Energy and Industrial Strategy. Doing so prior to furlough should allow any necessary redundancies to be implemented more quickly post- furlough.

Redundancy also means paying the required notice period, statutory entitlement, annual leave accrual and any enhanced entitlement that may be due. Employers will need to assess the cost-benefit of redundancies as a permanent end to staff costs against the short term outlays to meet the legal requirements.

Can company directors be furloughed?

Yes, company directors can be furloughed. They cannot perform any work for the company except continuing to perform their statutory duties.

Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

This article first appeared on our sister publication www.lawble.co.uk

Coronavirus Job Retention Scheme (How to Claim) 2
Taxoo
Taxoo is a leading business and financial resource aimed at supporting businesses by providing reliable information and resources that can save business owners time and money.

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