On 12 June the Government issued new guidance on the forthcoming changes to the Coronavirus Job Retention Scheme, which will introduce a ‘flexible’ furlough scheme and reducing government contributions.
From 1 July 2020, employers will be allowed to assign some work to their furloughed employees on a part-time basis - a development that many employers will welcome.
Less welcome is the change is that, from 1 August 2020, the government will incrementally reduce its contributions to employees’ wages and employer National Insurance Contributions (ER NICS) and pension contributions paid through the Scheme.
The provisions of the Scheme continue to be somewhat complex and lengthy and, unfortunately, the guidance is split over a number of documents. This article addresses some of the key points to note from the new and updated guidance but should not be relied upon as a comprehensive summary. Employers are strongly advised to ensure that they have read and understood all of the guidance documents which are relevant to them and, where appropriate, to seek advice from a specialist tax or employment lawyer.
The guidance and other documents can be accessed from here.
Is it now too late to enter the Coronavirus Retention Scheme?
There is an exception for employees who are returning to work after extended parental leave, who will be eligible for furlough even after 10 June 2020.
However, except for employees in that category, the scheme will be closed to new entrants after 30 June 2020. From 1 July, only employees for whom an employer has successfully claimed a previous Coronavirus Job Retention Scheme grant will be eligible for further grants under the scheme. This means the employee must have previously been furloughed for at least 3 consecutive weeks taking place any time between 1 March 2020 and 30 June – so the last day an employee could have started furlough for the first time was 10 June.
Claims for periods ending on or before 30 June 2020 must be made by 31 July 2020.
What is the exception for parents returning to work after extended leave?
See the Government announcement here.
Parents on statutory maternity and paternity leave who return to work in the coming months after a long period of absence will continue to be eligible to be furloughed under the Scheme.
However, this will only apply where they work for an employer who has previously furloughed other employees on or before 10 June 2020.
How does that affect the maximum number of employees I can claim for under the Scheme?
The number of employees an employer can claim for in any claim period starting from 1 July 2020 cannot exceed the maximum number of employees they claimed for under any claim ending by 30 June 2020. However, this may differ where the employer has an employee returning from statutory parental leave.
What is the ‘flexible furlough’ scheme?
From 1 July, employers will be permitted to bring furloughed employees back to work for any amount of time, and on any work pattern. In essence, the employer will agree with the flexibly furloughed employee how many hours the employee will work in the claim period. The employee will then be furloughed for the rest of their ‘usual’ hours, and the employer will be able to claim the grant for those hours not worked.
In the same way as before, during hours which an employer has recorded their employee as being on furlough, they cannot ask their employee to do any work for them that makes money for their organisation or any organisation linked or associated with their organisation or provide services for their organisation or any organisation linked or associated with their organisation, but the employee can take part in training, volunteer for another employer or organisation or work for another employer (if contractually allowed).
The first time that employers will be able to make claims for July will be 1 July.
Do I need my employees’ agreement to bring them back on ‘flexible furlough’?
Yes. The guidance explicitly states that "If you flexibly furlough employees, you’ll need to agree this with the employee (or reach collective agreement with a trade union) and keep a new written agreement that confirms the new furlough arrangement".
The guidance also explicitly states that employers will need to make sure that the agreement is consistent with employment, equality and discrimination laws, keep a written record of the agreement for five years, and keep records of how many hours their employees work and the number of hours they are furloughed (i.e. not working).
See the guidance here.
A flexible furlough agreement is potentially quite complex, so employers should consider taking advice from a lawyer specialising in employment law.
How do I calculate my employee’s ‘furloughed’ hours for the purposes of the ‘flexible furlough’ scheme? What are ‘usual’ hours?
The guidance is quite detailed and can be found here.
The employer must record the actual hours the employee works.
The number of ‘furloughed’ hours is the employee’s ‘usual’ hours less the number of hours they actually worked in the claim period, even if that is different to what the employer and employee agreed.
There are two different calculations the employer can use to work out their employee’s ‘usual’ hours, depending on whether they work fixed or variable hours (for these purposes an employee works variable hours if they are not contracted to a fixed number of hours or their pay depends on the number of hours they work).
The guidance also provides a number of worked examples, which are helpful: https://www.gov.uk/government/publications/find-examples-to-help-you-wor...
If the employer claims in advance on the basis of hours agreed but not yet worked, and the employee then works for more hours than they agreed, the employer will have to pay some of the grant back to HMRC.
What happens if the employer makes an error?
If the employer has overclaimed, they must inform HMRC and they will have to pay some of the grant back to HMRC. This can be done through an adjustment to any new claim amount. HMRC is still working on a process whereby an employer who does not plan to submit further claims can let them know about such errors and pay back any amounts that they have overclaimed. If an employer has made an error that has resulted in an underclaimed amount, they should contact HMRC to amend their claim. In those circumstances, because the employer is increasing the amount of their claim, HMRC may conduct additional checks.
See the guidance here.
Is there a minimum or maximum period for an employee to be on ‘flexible furlough’? How does this affect the claim period?
Where a previously furloughed employee has started a new furlough period before 1 July, this furlough period must be for a minimum of 3 consecutive weeks, even if that 3 consecutive week minimum period would end after 1 July. After that, the employee can then be flexibly furloughed for any period. For example, a previously furloughed employee could start a new furlough period on 22 June, but that new furlough period would have to continue for at least 3 consecutive weeks ending on or after 12 July. After that, they could then be flexibly furloughed for any period.
Flexible furlough periods starting on or after 1 July can last any amount of time.
However, claim periods starting on or after 1 July must start and end within the same calendar month and must last at least 7 days unless the employer is claiming for the first few days or the last few days in a month. Employers can only claim for a period of fewer than 7 days if the period they are claiming for includes either the first or last day of the calendar month, and they have already claimed for the period ending immediately before it.
Claims for any periods starting before 1 July must end on or before 30 June. This is the case even where an employee furloughed in June continues to be furloughed full time in July. Separate claims will need to be submitted to cover the days in June and the days in July that the employer wants to claim for. In the above example, where the previously furloughed employee starts a new furlough period on 22 June which is to continue till 12 July, the employer will need to make separate claims for the period up to 30 June and for the period from 1 July. This may mean that an employer’s claim periods will differ from the pay periods they use.
Claims for periods ending on or before 30 June 2020 must be made by 31 July 2020.
How do I calculate minimum furlough pay for an employee who is ‘flexibly furloughed’, and what I can claim?
Again, the guidance is quite detailed. In addition, HMRC has provided a calculator to help employers to work out how much they can claim, but warns that there are some cases where this may not be suitable and that it is the employer’s responsibility to check that the amount they are claiming for is correct. The guidance also provides a number of worked examples, which are helpful.
By way of a simple example, Q Ltd’s is paid calendar monthly. From 1 July, the employee returns to work part-time for Q Ltd and is furloughed for the rest of their usual hours. From 1 July to 31 July the employee actually works 80 hours. Q Ltd has calculated that the employee’s usual hours from 1 July to 31 July would be 164, and that 80% of the employee’s usual wages would be £1,800. Q Ltd calculates the minimum furlough pay:
1. Start with £1,800 - this is the lesser of 80% of the employee’s usual wages (£1,800) and the maximum wage amount (£2,500),
2. Multiply by 84 i.e. the employee’s furloughed hours (i.e. the employer’s usual hours (164) less the hours the employee actually works (80)),
3. Divide by 164 i.e. the employee’s usual hours.
Q Ltd must pay the employee £921.95 for the time they are on furlough. Q Ltd can choose to pay the employee more than this for the time they are furloughed, but does not have to.
Q Ltd will next need to calculate how much of the minimum furlough pay it can claim for.
What will happen after 1 August 2020?
The guidance can be seen here.
Until 1 August 2020, i.e. for June and July, the government will continue to pay 80% of wages up to a cap of £2,500 for the hours the employee is on furlough, as well as employer National Insurance Contributions (ER NICS) and pension contributions for the hours the employee is on furlough. Employers will have to pay employees for the hours they work.
From 1 August, however, whilst the government will pay 80% of wages up to a cap of £2,500 for the hours an employee is on furlough, employers will pay ER NICs and pension contributions for the hours the employee is on furlough.
For September, the government will pay 70% of wages up to a cap of £2,187.50 for the hours the employee is on furlough. Employers will pay ER NICs and pension contributions and top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500, for time they are furloughed.
For October, the government will pay 60% of wages up to a cap of £1,875 for the hours the employee is on furlough. Employers will pay ER NICs and pension contributions and top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500, for time they are furloughed.
Again, the guidance offers worked examples.
Can employees enter into a flexible furlough agreement more than once?
What about employees who are ‘shielding’ or have caring responsibilities?
Employees who are unable to work because they are shielding in line with public health guidance (or need to stay home with someone who is shielding), or because they have caring responsibilities resulting from coronavirus (COVID-19), can be furloughed. Such employees can continue to be furloughed from 1 July so long as the employer has previously submitted a claim for them in relation to a furlough period of at least 3 consecutive weeks taking place any time between 1 March 2020 and 30 June.
Can employers still “fully” furlough after 1 July?
What sort of records have to be kept?
The guidance sets out strict requirements. Employers must keep the following records for pay for six years:
• the amount claimed and claim period for each employee
• the claim reference number for the employers' records
• the employers' calculations in case HMRC need more information about the claim
• usual hours worked, including any calculations that were required, for employees flexibly furloughed
• actual hours worked for employees flexibly furloughed
See the guidance here.
When will the government end the scheme, and what will happen then?
The Coronavirus Job Retention Scheme will close on 31 October 2020.
When that happens, employers must decide, depending on their circumstances, as to whether employees can return to their normal hours. If not, it may be necessary to consider reducing their hours, or a termination of employment (redundancy). Normal redundancy rules apply to furloughed employees. It is strongly recommended that employers consider taking advice from a lawyer specialising in employment law.
Whilst every effort has been made to ensure the accuracy of this article as of the date of writing (16 June 2020) it should not be relied upon as legal advice in respect of any particular case and no liability is accepted in respect of the same.
3PB Barristers’ employment law group offers expert advisory and advocacy services to private and public sector employers and individuals, as well as service providers and businesses across all areas of employment law.