Coronavirus job retention scheme - FAQs for employers
This note is up to date as at 12 noon on 24 March 2020 but, as in all areas of the response to the pandemic, the situation is changing frequently and advice will be needed on your specific circumstances. We have also sought to give a practical view based on our shared experience as employment lawyers, but this is not to be relied upon as generic advice.
On 20 March 2020, the Chancellor announced the Coronavirus Job Retention Scheme (Scheme). Under the Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.
1. Which parts of the workforce does the Scheme cover?
Whilst the government guidance refers to “employees”, the Chancellor made it clear the Scheme is intended to have wide application and will cover anybody paid via PAYE. Accordingly, the Scheme will cover workers as well as employees, but not self-employed contractors who are paid on an invoice basis.
In this note we use the term “employees” to cover both employees and workers covered by the Scheme
2. What does the grant under the Scheme cover?
HMRC will reimburse 80% of furloughed employees’ wage costs, up to a cap of £2,500 per month.
It is unclear whether this covers National Insurance contributions, pension contributions, etc. but the government guidance for employees refers to the grant covering “all employment costs”, which would suggest it does cover such costs.
Until there is clear guidance, deducting income tax and employee NI from any payment made is likely to need to be considered, but you should refer to your tax adviser for any specific considerations in this regard.
It is also unclear how the wages of employees who do not have regular hours of work will be calculated for the purposes of the Scheme, but we suspect an average will be used, such as the previous 12 weeks worked or possibly an average of the last 52 weeks (to accord with the changes to holiday pay calculations which come into effect next month).
As long as you take a rational approach, we expect HMRC will need to take a practical approach to reimbursement.
The Scheme does not currently cover employees who are unavailable to work for childcare purposes. We understand today that the government may be considering this or the extension of the entitlement to emergency leave to dependents (which is currently unpaid) to allow for payment of SSP on the same basis as self-isolating employees.
3. Do I need to make up the shortfall in furloughed employees’ wages?
The government guidance for employers is silent on this point, but the guidance for employees expressly states: “Your employer could choose to fund the differences between this payment and your salary, but does not have to.” As such, it seems the shortfall does not have to be made up, but please see question 4 below.
One area which is not clear is the extent to which any furloughed employee’s pay can fall below the National Minimum Wage rate. We are aware that the government is being asked by both employer and employee representative bodies to clarify this point and hopefully clarification will be issued shortly.
For now, making up any furloughed employees’ pay up to the level of the NMW would be a sensible precaution, if possible.
4. What do I need to do to furlough employees?
In our view, you should speak to affected employees and seek employees’ agreement to furlough because, even if you have a lay off clause in their contracts of employment, it is likely that you will be agreeing a temporary reduction in salary with employees, which would be a contractual variation. Otherwise, they could bring an unlawful deduction from wages claim, breach of contract claim, or a constructive dismissal claim if they have qualifying service.
The easiest way to implement a contractual variation, and to do so quickly, is by agreement. In practice, where employees are facing lay off on no pay or redundancy, they are likely to agree to furlough in most cases.
We would recommend recording the terms in writing and asking employees to confirm their agreement, most likely by email in the current circumstances. The furlough arrangements overlay any contractual rights, which will continue. Employees will continue to accrue holiday leave and it is not clear to what extent employers and employees will be able to mix and match furlough and paid leave entitlement under the Working Time Regulations.
Therefore, if you intend to stop any benefits, you will need to make clear what benefits other than pay (e.g. bonuses, car allowances, etc.) will be stopped.
Once you have furloughed employees, you will need to submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. We understand HMRC are working urgently on this and to set up a system for reimbursement which is likely to use the PAYE system.
5. Can furloughed employees undertake some work for me?
No. The Scheme is clear that employees must not do any work for you during periods of furlough. However, our view is that the Scheme is likely to be wide enough to allow an employer to pick and choose which employees it keeps active and which it doesn’t and to organise work accordingly.
This will need to be managed carefully from an employee relations perspective and to minimise the risk of discrimination claims if particular groups with protected characteristic are disproportionately affected. Therefore, we would urge you to undertake early workforce analysis and consider a fair basis for selection, if needed.
Further, the potentially wide nature of the Scheme means it could be open to abuse by employers seeking it to fund trading. We consider it is in this area where employers could face sanction in future and that HMRC may require, for example, statutory directors to sign declarations when submitting information via the new online portal.
6. Will collective consultation be triggered?
If you are placing 20 or more employees on furlough at one establishment and, in particular, varying their terms and conditions of employment, collective consultation under section 188 of the Trade Union and Labour (Consolidation) Act 1992 (TULRCA) could be triggered and a HR1 may need to be submitted.
Whilst we cannot say with any certainty, our view is that an employer is unlikely to be penalised for not going through a full collective consultation process before putting people on leave under the Scheme if all you are doing is closing down activity in all or part of your business and effectively putting the business into “a deep sleep” or “hibernation” due to the government’s mandate to close and/or the social distancing and other guidance.
This would accord with the government guidance that the terms of the Scheme can be backdated to 1 March 2020. However, as a protective measure, you may wish to submit a HR1 form with a covering note explaining you are furloughing employees, given it is a criminal offence not to submit a HR1 form if the obligation is triggered.
Further, there is likely to be a risk of failure to inform and consult claims if you are also considering redundancies and triggering terminations.
The basis for our thinking and our view in relation to specific areas are as follows:
Hospitality and leisure outlets
The decision to close was imposed on employers in these sectors on the evening of 20 March 2020. As such, the “special circumstances” defence under section 188 of the Trade Unions and Labour Relations (Consolidation) Act 1992 is likely to be engaged as there is nothing to consult about. Apart from adopting the steps set out at question 4 above, such employers are unlikely to be expected to do more.
Other retail outlets
The government guidance around social isolation and the announcement on the evening of 23 March 2020 makes it impossible to remain open, unless they are selling food or pharmacy products. Accordingly, our view is that the same considerations will apply as for hospitality and leisure outlets
Other businesses/parts of businesses where there is no work
These employers are unlikely to be able to benefit from the “special circumstances” defence and the position is therefore less certain. It may be prudent to have employee representatives in place, where there is no trade union or standing body of representatives.
Where you are unionised, speak to the union and try to reach an early agreement. Otherwise, we appreciate that many employers will not have the cash flow to wait to take any action during a collective consultation period and so some employers may take the commercial decision to proceed without undertaking collective consultation.
We consider that the risks of failure to inform and consult claims are likely to be mitigated in practice by speaking to employees openly and honestly and trying to reach agreement. Employers would need to argue that they have done everything they can reasonably to consult with and agree any changes with employees, so the more you can engage with your employees the better.
We hope this note is helpful at this time. Obviously, this note will not answer all your questions nor is it a substitute for detailed legal advice on the specific circumstances you are facing. If you have specific queries or would like detailed legal advice, please contact any member of the Employment team or call 0191 211 7777.