On 4 April the Government issued an update to their Coronavirus Employment Retention Scheme guidance for businesses, which followed on from the Government’s announcement about the Scheme on 20 March 2020
It is important to remember that this is a Government Scheme for employers which has been developed at pace given the pandemic, and that in doing so not all questions are covered in the updates.
So what has changed since our last update?
What is the position on Apprentices?
Many businesses will have apprentices either working through the Modern Apprenticeship Scheme or other recognised schemes. The update clarifies that apprentices can be furloughed but they must be paid at the correct rate of the National Minimum Wage for all time they spend training – either the Apprenticeship Minimum Wage, the National Living Wage or the National Minimum Wage*. You will however only be able to reclaim 80% of wages (capped at £2,500) under the Scheme.
*Remember the NMW rates increase on 6 April 2020.
I am an individual who has employees can I furlough them?
Yes you can but in order to be able to submit a claim you have to be registered for PAYE online. This can take up to 10 days so if you are not already enrolled for this you should do it as soon as possible.
Can company directors be furloughed?
The updated guidance has clarified that salaried company directors can be furloughed provided:
- They are paid via PAYE;
- The Board of Directors considers it can still comply with their statutory duties under the Companies Acts;
- The decision is formally adopted as a decision of the company;
- It is formally recorded (by resolution) in the company records;
- It is communicated in writing to the director to be furloughed.
As such directors are employees you also have to comply with employment law and therefore seek their consent before placing them on furlough as it amounts to a variation to their contract of employment.
Many Directors only take a small salary (if any) and receive income from their business as dividend payments from their shareholding. Any income derived from dividend payment is not covered by this scheme or that implemented for the self-employed.
Can a furloughed director carry out any statutory duties while furloughed?
The guidance provides that if they need to fulfil out particular statutory obligations then they can do so, provided they do no more than would be considered reasonably necessary and they shouldn’t carry out any work to generate commercial revenue or provide services to or on behalf of their company.
What is no more than “reasonably necessary” will be interpreted differently by different directors, so they should be doing no more than the minimum to ensure compliance.
The large health warning on that guidance is that non-compliance with some statutory duties can lead to personal liability. A director’s personal liability for statutory duties such as “wrongful trading” is expected to be suspended for 6 months, once the detailed guidelines are published. However, there are other statutory duties such as the prohibition against fraudulent trading, which remain in place, and can still lead to personal liability. This area of personal liability for non-compliance with statutory duties is complicated and nuanced, so we would be very happy to discuss particular issues directly.
What about non-executive directors or other office holders?
Again the guidance now provides that they can be furloughed provided they are paid through PAYE, but they will only be able to claim in respect of that income.
I am a member of an LLP, can I be furloughed?
Some members of LLPs, particularly in some professional practices, are salaried and remunerated through the PAYE system. If that is the case, then they too can be furloughed in a similar way to directors, with the same caveats and warnings in relation to their statutory duties. The LLP member’s agreement should also be looked at and may require amendment to allow this to happen.
I am a worker not an employee, can I be furloughed?
Workers are individuals who undertakes to do or provide personally any work or services to another party, but are not carrying out a business or profession. Many people on zero hours contracts and contractors fall within this definition.
If you are paid through PAYE then you are eligible under the Scheme.
We use agency workers – are they eligible for furlough and , if so, who claims the reimbursement
Provided the agency worker is paid through PAYE they can be furloughed and this is the case even if they are employed by umbrella companies. This will require discussion between the end client and the agency as to the need to furlough agency workers and the length of any furlough period.
The party who pays the agency worker i.e. who operates PAYE for them will make the claim.
Where an agency worker is furloughed they cannot provide any work through or on behalf of the agency while furloughed, and that includes work for the agency client’s.
Update on individuals who are shielding in line with public guidance.
The previous update on the Scheme (released on 26 March) only provided that shielded employees or those in the same household could be furloughed. This has now been refined to provide they can be furloughed if they are unable to work from home and you would otherwise have to make them redundant.
So if their role would not otherwise be at risk of redundancy you will not be able to furlough them. Care should also be taken if the medical conditions which place them in the most vulnerable group would mean they would be classed as having a disability under the Equality Act 2010. Separate advice should be sought in these circumstances to ensure employers comply with equality and discrimination legislation.
We have a number of employees with caring responsibilities – can they be furloughed?
The guidance has been updated to provide that if they are unable to work because of caring responsibilities resulting from coronavirus then they can be furloughed. However if caring responsibilities are not related to that then furlough will not apply to them.
We have been approached by employees who left us after 28 February asking to return and be furloughed what is the position?
The guidance provides that if you made employees redundant or they stopped working for you on or after 28 February 2020 you can re-employ them and put them on furlough. However you are not obliged to do so and it is important to remember that the Scheme is to help businesses whose operations have been affected by the pandemic to retain their employees and protect the UK economy. It is not clear what evidence HMRC may look for in relation to why they left your employment e.g. if they resigned or were dismissed for say capability or misconduct.
What about fixed-term contracts which are due to end shortly?
Employees on fixed term contracts can be furloughed. For those whose contracts would otherwise expire during the furlough period, the guidance advises their contracts can be extended or renewed without breaking the terms of the Scheme. This is relevant particularly if the only reason you were not renewing or extending the contract is because of the effects of the pandemic. However if the contract is not renewed or extended then you will no longer be eligible to claim under the Scheme.
Clarification in respect of past overtime payments, fees, commission, bonuses and non-cash payments
The previous guidance set out that fees, commission and bonuses could not be reclaimed under the Scheme. The updated guidance now states that you can claim for any “regular payments” you are obliged to pay your employees which includes past overtime, fees and compulsory commission payments. Remember for most people these will be based on their February 2020 salary, or for those with variable pay the higher of (1) the same month’s earnings in 2010, or (2) the average monthly earnings in the 2019-2020 tax year.
This reflects that in many sectors it is not uncommon for someone to be on a low basic salary at NMW level, but earn significantly more due to overtime or commission.
We operate a salary sacrifice scheme – are wages based on the pre or post salary sacrifice wage?
Normally once an employee signs up to a salary sacrifice arrangement they cannot come out of it unless there is a life event. The guidance states that “HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements” provided the contract of employment is updated.
Wages for the purpose of the Scheme should not include the cost of non-monetary benefits provided to employees, including taxable Benefits in Kind. Neither should benefits, such as pension contributions, be included in the reference salary. HMRC have updated their guidance to clarify that benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should not be included in the reference salary. Therefore, the reference salary is the employee’s salary post sacrifice and not the pre-salary sacrifice amount.
Can someone be taken on and off furlough?
Again the previous guidance only referred to a requirement that employees have to be furloughed for a minimum of 3 weeks. The updated guidance makes it clear that employees can be furloughed multiple times, but each separate instance must be for 3 weeks. This will give employers some flexibility either where due to sickness in non-furloughed staff mean you need cover, or also to cover holidays of non-furloughed staff.
The guidance does not state that there is a minimum period they have to be brought back for, just that each period of furlough must be for at least 3 weeks.
Is there any update on holidays and furloughed employees?
Unfortunately there isn’t in this update in the guidance. Amendment Regulations to the Working Time Regulations 1998 have been brought into force. These provide that if it is not reasonably practicable for employees to take the first 4 weeks of holidays under the WTR due to the pandemic, then they can be carried forward for a period of 2 years from the end of the holiday year in which they accrued.
ACAS updated their advice on 2 April 2020 providing that if an employee is placed on furlough they can still request and take their holiday in the usual way (including bank holidays which is particularly relevant in April and May). However that is not definitive. Some commentators are suggesting that holidays can be taken/requested to be taken (by the employee or the employer) during furlough but that is not the same as saying that the Scheme definitively allows for that.
The first thing to note is that it will generally be for the employer to decide whether an employee can take these holidays or not in their current holiday year. The fact that an individual will not be able to travel or use their holiday leave in the way in which they want due to the restrictions in place does not mean that it is not reasonably practicable for them to taken holidays. The employer can serve notice on the employee to take WTR holidays provided the notice given is twice as long as the duration of holiday e.g. 2 weeks notice for 1 weeks leave.
Secondly, the ability to take people on and off furlough means an employer could serve the required notice (ensuring that the furlough period is at least 3 weeks) on the employee to take holiday, but will have to pay them their contractual pay when on holiday. If they are not on furlough, the employer will not be able to claim the reimbursement of wages. Whether an employer does this will depend on whether the greater consideration is the covering of wage costs or the accumulation of holidays.
Thirdly, it would appear that holidays still accrue when on furlough. However there is case law as a European level which means the Government could amend the WTR to provide that that during furlough the first 4 weeks (and the additional 1.6 weeks the UK provides) under the WTR do not accrue. This has not happened yet and therefore the safer assumption to make is that holidays do continue to accrue during furlough. Employers may wish to discuss with staff with a view to agreeing that contractual holidays (over and above 28 days FTE) do not accrue. This would have to be covered off in a variation to the employment contract.
Lastly, there is still nothing in the guidance to say that an employee can be on furlough and holiday leave at the same time, which would allow employers to reclaim the 80% of wage costs for that period.
Can one of my furloughed employees work for someone else?
Many employment contracts will include a provision that the employee can’t work for someone else without their employer’s consent. There is nothing under the Scheme from preventing you from giving your consent and the employee still remaining on furlough, however you need to make sure that they are available when you need the employee to return to work whether that be temporarily or permanently.
What information will we be expected to produce for furloughed employees to get the grant?
To be eligible for the grant HMRC have now confirmed that employers must confirm in writing to their employee confirming that they have been furloughed. A record of this communication must also be kept for five years.
Insight from Noele McClelland, Employment Law Partner. For more information contact Noele or any member of the Employment team on 03330 430350.
