Government issues guidance and a new Treasury Direction on “Flexible Furlough”
On 29 May 2020, the Chancellor announced upcoming changes to the Coronavirus Job Retention Scheme (CJRS). The CJRS closed to new members on 30 June 2020 and, since 1 July 2020, employers have been allowed to bring furloughed employees back to work part-time, while still being able to claim the CJRS grant for their usual hours not worked (to be known as Flexible Furlough). Employees can remain on furlough for all of their working hours where required. The CJRS will close permanently on 31 October 2020 and between August and October, the grants available to employers will be gradually reduced.
On 12 June 2020, detailed guidance in relation to Flexible Furlough was published. .On 26 June 2020, the Government issued its third Treasury Direction (“the Direction”) which establishes the legal basis for the operation of the CJRS as now amended. The first and second Treasury Directions which set out the legal framework of the CJRS only apply to the CJRS until 30 June 2020. The Direction sets out detailed and complex provisions concerning a number of aspects of the operation of the CJRS from 1 July 2020. On 1 July 2020, small changes were also made to the CJRS guidance.
Separately, on 26 June 2020 HMRC also issued guidance on how employers can repay any grant monies received under the Scheme which have been overpaid. This can be viewed at the following link:
Any claims relating to the use of the CJRS up to and including 30 June 2020, must be submitted to HMRC by no later than 31 July 2020. The information in this note relates to the CJRS from 1 July 2020. Our previous note on the arrangements which applied until 30 June 2020 can be found here. Please note that the comments below are subject to any further information published by the Government in relation to the CJRS.
Although the principle of what the government is trying to achieve is relatively simple, the changes to the CJRS in practice are complex to navigate. The legal framework of the new Flexible Furlough arrangements is included in the Direction and guidance on the new Flexible Furlough arrangements set out in 6 separate new and updated guidance notes. These can be viewed at the following links and employers are strongly recommended to read the Direction and all of the guidance prior to implementing any Flexible Furlough arrangements or making a claim under the CJRS in respect of periods from 1 July 2020:
The Government has also issued some worked examples of how Flexible Furlough works in practice which can be viewed at the following links:
Below, we deal with some frequently asked questions about the changes to the CJRS:
1. What can an employer claim under the CJRS?
Until 31 July 2020, employers can reclaim up to 80% of wage or salary costs up to a cap of £2,500 per month, per employee, plus the associated employer National Insurance Contributions and minimum auto enrolment pension contributions on that wage or salary.
From July 2020, the level of the grant will be slowly tapered to reflect that people will be returning to work: In particular:
- From 1 July 2020, employers can bring back to work those employees that have previously been on Furlough Leave for any amount of time and any shift pattern, while still being able to claim the grant for their usual hours not worked. Employers will be responsible for paying wages which relate to any hours worked plus any associated National Insurance and pension contributions. The grant will cover any hours not worked plus associated National Insurance and pension contributions.
- From 1 August 2020, the grant will continue to cover 80% of wages up to a cap of £2,500 for the usual hours the employee does not work. However, employers will be responsible for paying associated National Insurance Contributions and pension contributions.
- From 1 September 2020, the grant will cover 70% of wages up to a cap of £2,187.50 for the usual hours the employee does not work. Employers will be required to pay associated National Insurance contributions and pension contributions plus 10% of wages to make up the 80% total up to a cap of £2,500.
- From 1 October 2020, the grant will cover 60% of wages up to a cap of £1,875 for the usual hours the employee does not work. Employers will be required to pay National Insurance and pension contributions and 20% of wages to make up the 80% total up to a cap of £2,500.
- Where employees are on Flexible Furlough, the cap will be proportional to the hours not worked.
- If an employer wishes to flexibly furlough employees, for every claim period they will need to work out and submit for each employee:
- the employee’s usual working hours;
- the actual hours they work; and
- their furloughed hours.
The HMRC furlough calculator tool has been updated to take account of Flexible Furlough arrangements.
2. Which employees can be “flexibly furloughed?”
The Flexible Furlough scheme is only available for employees previously furloughed for at least three consecutive weeks between 1 March 2020 and 30 June 2020. The last date for furloughing employees for the first time was 10 June (in order that three complete weeks of furlough can be completed prior to 30 June 2020). However, those returning from family-related leave do not need to have been previously furloughed before the 10 June cut-off date provided their employer has previously made use of the CJRS for other staff.
For employees that meet the criteria above, the number of employees that an employer can claim for in any single claim period starting from 1 July cannot exceed the maximum number of employees claimed for under any claim ending by 30 June. The Direction refers to this as the “high watermark number.” For example, where an employer had previously submitted three claims between 1 March 2020 and 30 June, in which the total number employees furloughed in each respective claim was 30, 20 and 50 employees means that the maximum number of employees that employer could furlough in any single claim starting on or after 1 July would be 50. This cap does not apply to employees returning from family related leave. These caps will be relevant to employers who have operated Furlough Leave on a rotational basis prior to 1 July 2020.
3. Purpose of the CJRS
The description of the CJRS set out in the Direction has been updated and now states that “integral” to the purpose of CJRS is that the amounts paid to an employer pursuant to a CJRS claim are used by the employer to continue the employment of employees in respect of whom the CJRS claim is made whose employment activities have been adversely affected by the coronavirus and coronavirus disease or the measures taken to prevent or limit its further transmission.
This has caused some doubt as to whether payments can be claimed under the CJRS in respect of employees on Furlough Leave who are subject to redundancy consultation or have been given notice of the termination of their employment.
Although this point has not been formally addressed by HMRC, their helpline has indicated to employers that payments can be claimed in in respect of employees at risk of redundancy or employees that have been given notice to terminate their employment.
See questions 17 and 18 below for further details.
4. Implementing Flexible Furlough
Employers are required to agree with their employees any arrangements in relation to Furlough Leave or Flexible Furlough.
Employers can request that their employees remain on Furlough Leave for all of their working hours where needed. It is not necessary to put Flexible Furlough arrangements in place if they are not required.
The new guidance and the Direction state that to be eligible for the CJRS grant, employers must have agreed any arrangements in relation to furlough or flexible furlough with the employee. The agreement can be made or confirmed in writing.
It should be noted that the Direction requires that the relevant agreement must be made before the beginning of the relevant claim period.
Employers must keep the written agreement for 5 years and where a Flexible Furlough arrangement has been agreed, the employer must also keep records of how many hours employees work and the number of hours they are furloughed (i.e. not working).
The simplest ways to implement a period of Furlough Leave or Flexible Furlough is to have a discussion with the employee to agree the Flexible Furlough or Furlough Leave arrangements and then confirm the arrangements in writing or alternatively the employer can write to the employee seeking their agreement to the Furlough Leave or Flexible Furlough arrangements. This will include an instruction not to attend work (either at all or at certain times) and information about changes to pay and benefits whilst they are not attending work or working reduced hours. It is best practice for employees to confirm their agreement to the arrangements in writing, however, the new guidance makes it clear that where the employee does not reply, this does prevent the employer from making a claim under the CJRS for the periods spent on Furlough Leave or Flexible Furlough.
The employer does not need to place all employees on Furlough Leave or Flexible Furlough. However, when the employer selects employees for Furlough Leave or Flexible Furlough this should be done in a fair and objective manner, taking into account normal employment law requirements including discrimination.
5. Minimum furlough periods
Until 1 July 2020, any employees placed on Furlough Leave must be furloughed for a minimum of 3 consecutive weeks. From 1 July, Flexible Furlough arrangements can last any amount of time and employees can enter into a Flexible Furlough agreement more than once.
Where a previously furloughed employee starts a new furlough period before 1 July this furlough period must be for a minimum of 3 consecutive weeks. This is the case regardless of whether the 3 consecutive week minimum period ends before or after 1 July. For example, a previously furloughed employee can start a new furlough period on 22 June which would have to continue for at least 3 consecutive weeks ending on or after 12 July. After this the employee can then be flexibly furloughed for any period.
6. What does the reimbursement cover?
Detailed guidance in relation to the sums that can be claimed under the CJRS from 1 July 2020 can be found at the following link: https://www.gov.uk/guidance/calculate-how-much-you-can-claim-using-the-coronavirus-job-retention-scheme. Further information is also included in the Direction.
In essence, employers will be able to cover a grant to cover up to 80% of an employee’s wages for any usual hours not worked during a claim period. From September, the amount of grant payable to employers will gradually reduce. However, employers will still need to calculate the “80%” in order to make their claim for a proportion of this under the CJRS and calculate how much they need to top up wages.
The amount you should use when calculating 80% of your employees’ wages for usual hours not worked, is made up of the regular payments you are obliged to make, including regular wages you paid to employees, non-discretionary payments for hours worked including overtime, non-discretionary fees, non-discretionary commission payments and piece-rate payments.
You cannot include the following when calculating wages: payments made at the discretion of the employer or a client (this includes where the employer or client was under no contractual obligation to pay), tips, discretionary bonuses, discretionary commission payments, non-cash payments and 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.
For full time and part-time salaried employees (i.e. those who earn an annual salary in respect of a particular number of hours per year and are paid in regular, equal instalments), the employee’s actual salary before tax, as of 19 March 2020, should be used to calculate the 80%. For workers with variable hours and pay such as zero-hours workers, the employer can claim for the higher of (i) the same month's earning from the previous year (e.g. earnings from July 2019); or (ii) average monthly earnings in the 2019-20 tax year.
The entirety of the grant received to cover an employee’s subsidised furlough pay must be paid to them in the form of money. No part of the grant should be used to pay for the provision of benefits or a salary sacrifice scheme. Where the employer provides benefits to furloughed employees, including through a salary sacrifice scheme, these benefits should be in addition to the wages that must be paid under the terms of the CJRS.
Some employees may wish to cease salary sacrifice arrangements at the current time in order that their reference salary for the purposes of the CJRS is higher. HMRC has acknowledged that the current Covid 19 crisis justifies such a change. This means that it may be possible for the employer and the employee to agree a change to the contract of employment to cease the salary sacrifice arrangement and increase normal salary payments and that the new higher salary can then be used for the purposes of working out the 80% figure to be claimed under the CJRS. Employee pension contributions would then be deducted from their salary in the usual way.
7. How do we calculate “usual hours?”
If your employee is flexibly furloughed, you’ll need to work out your employee’s usual hours and record the actual hours they work as well as their furloughed hours for each claim period.
Whilst this sounds straightforward, in reality, it is not. In the new guidance, there are two different calculations you can use to work out your employee’s usual hours, depending on whether they work fixed or variable hours. A step by step guide in relation to how to work out an employee’s usual hours, together with worked examples can be viewed at the following link
8. Claim Periods
The claim period is made up of the days you are claiming a grant for.
Claim periods are not the same as the period for which an employee has been furloughed or flexibly furloughed, which from 1 July 2020 can be for any period.
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 you’re claiming for the first few days or the last few days in a month. You can only claim for a period of fewer than 7 days if the period you are claiming for includes either the first or last day of the calendar month, and you have already claimed for the period ending immediately before it.
The new guidance states that you should match your claim period to the dates you process your payroll, if you can. You can only make one claim for any period so you must include all your furloughed or flexibly furloughed employees in one claim even if you pay them at different times. If you make more than one claim, your subsequent claim cannot overlap with any other claim that you make. Where employees have been furloughed or flexibly furloughed continuously (or both), the claim periods must follow on from each other with no gaps in between the dates.
You can claim before, during or after you process your payroll. You can usually make your claim up to 14 days before your claim period end date and do not have to wait until the end of a claim period to make your next claim. Claims for periods after 30 June can be made from 1 July.
The new guidance states that when claiming for employees who are flexibly furloughed you should not claim until you are sure of the exact number of hours they will have worked during the claim period. This means that you should claim when you have certainty about the number of hours your employees are working during the claim period. If you claim in advance and your employee works for more hours than you have notified to HMRC, you will have to pay some of the grant back to HMRC.
9. What can employees do whilst they are on Furlough Leave?
During hours which you record your employee as being furloughed, you cannot ask them to do any work for you that:
- makes money for your organisation or any organisation linked or associated with your organisation; and/or
- provides services for your organisation or any organisation linked or associated with your organisation
However, your employee can:
- take part in training;
- volunteer for another employer or organisation; and/or
- work for another employer (if contractually allowed)
For any employer that takes on a new employee, the new employer should ensure they complete the HMRC starter checklist form correctly. If the employee is furloughed from another employment, they should complete Statement C.
10. Employees with more than one job
If your employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually. Employees can be furloughed in one job and receive a furloughed payment but continue working for another employer and receive their normal wages
11. If your employee is shielding
According to the new guidance, 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) can be furloughed. Such an employee can continue to be furloughed from 1 July so long as they have undertaken a period of Furlough Leave of at least 3 consecutive weeks prior to 30 June 2020. This position is reflected in the Direction. The purpose of the Scheme references the continuation of the employment employees affected by “the measures taken to prevent or limit the further transmission” of COVID-19. It therefore appears that those who are shielding can remain furloughed for the purposes of the CJRS even if the employer terminates furlough arrangements for other staff as operations move back towards normality.
12. If your employee has caring responsibilities
Under the new guidance, employees who are unable to work because they have caring responsibilities resulting from coronavirus can be furloughed. For example, employees that need to look after children can be furloughed. Such an employee can continue to be furloughed from 1 July 2020 so long as they have undertaken a period of Furlough Leave of at least 3 consecutive weeks prior to 30 June 2020. This position is reflected in the wording of the Direction.
13. If your employee becomes sick while furloughed
Furloughed employees retain their statutory rights, including their right to Statutory Sick Pay. This means that furloughed employees who become ill, due to Coronavirus or any other cause, must be paid at least Statutory Sick Pay. Subject to eligibility this includes those self-isolating or shielding because of Coronavirus. It is up to employers to decide whether to move these employees onto Statutory Sick Pay or to keep them on furlough, at their furloughed rate.
The new guidance states that if a furloughed employee who becomes sick is moved onto SSP, employers can no longer claim for the furloughed salary. Employers are required to pay SSP themselves, although may qualify for a rebate for up to 2 weeks of SSP if the sickness is related to coronavirus.
If employers keep the sick furloughed employee on the furloughed rate for the period that they are sick, they remain eligible to claim for these costs through the CJRS. Such an employee can continue to be furloughed from 1 July so long as they have undertaken a period of Furlough Leave of at least 3 consecutive weeks prior to 30 June 2020.
14. How do we treat employees on family leave (such as maternity or paternity leave)?
If an employee is eligible for Statutory Maternity Pay (SMP) or Maternity Allowance (or similar), the normal rules apply.
Employees who qualify for SMP (or similar), will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is £151.20 a week from April 2020.
New regulations which came into effect on 25 April 2020 confirm that an employee’s normal rate of pay (rather than any reduced rate paid during Furlough Leave) should be used for the purposes of calculating whether an employee is eligible to receive SMP and also the employee’s average weekly earnings.
The regulations apply in a similar way in relation to maternity allowance, statutory paternity pay, statutory adoption pay, statutory shared parental pay and statutory parental bereavement pay. The aim of the regulations is ensuring that employees are not disadvantaged in relation to these statutory payments as a result of their being on Furlough Leave. The regulations apply where the first day of the period in which the relevant payment or allowance is payable is on or after 25 April 2020.
If an employer offers enhanced contractual pay to employees on Maternity Leave (or similar), this is included as wage costs that the employer can claim through the CJRS. The same principles apply where the employee qualifies for contractual adoption, paternity or shared parental pay.
15. Employee transfers under TUPE and on a change in ownership
A new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 28 February 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership. In order to claim in these circumstances, the new employer needs to have previously submitted a claim for the employees in relation to a furlough period of at least 3 consecutive weeks taking place any time between 1 March 2020 and 30 June.
A new employer is also eligible to claim in respect of the employees of a previous business transferred after 10 June 2020 as long as the TUPE or PAYE business succession rules apply to the change in ownership and the employees being claimed for have previously had a claim submitted for them by their prior employer in relation to a furlough period of at least 3 consecutive weeks taking place any time between 1 March 2020 and 30 June
In these circumstances, the maximum number of employees that the new employer can claim for will be the total of both the maximum number of employees the new employer claimed for in any one claim ending on or before 30 June and the number of employees that are being transferred to the new employer which have had a claim submitted 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.
16. How do we deal with holiday?
The new guidance clarifies that the normal rules relating to the accrual of holiday entitlement, taking holiday and holiday pay will apply when an employee is on Furlough Leave or working pursuant to a Flexible Furlough arrangement.
This means that employees (and workers) will continue to accrue annual leave as normal in accordance with their employment contract during periods that they are furloughed or on Flexible Furlough. Employees will still be entitled to a minimum of 5.6 weeks (28 days for a full-time worker) of paid annual leave in this holiday year, regardless of whether or not they have been furloughed. If employees usually receive more than 5.6 weeks annual leave, the employer and employee can agree to vary the employee’s holiday entitlement as part of the employee’s agreement to be placed on Furlough Leave or Flexible Furlough (as long as the total amount does not fall below the 5.6 weeks minimum).
Employees can request and take holiday as normal during Furlough Leave or Flexible Furlough (subject to employer agreement) including bank holidays. However, the new guidance states that employees must be paid at their normal rate of pay during the period of holiday and employers will be obliged to top up the amount they are reimbursed from HMRC to the employee’s normal pay.
An employer can require an employee to take a holiday on particular dates but must give the employee notice twice the period of a holiday to be taken. For example, if the employer requires the employee to take 1 week holiday, they must give at least 2 weeks’ notice of this. If employees are being directed to cancel a holiday, a period of notice equal to the period of holiday due to be taken must be given. This is subject to any provisions in the employment contract allowing for different notice requirements.
For employees who are working according to a Flexible Furlough arrangement, any days taken as a holiday can be counted as furloughed hours for the purposes of making a claim under the CJRS.
17. Can we conduct redundancy consultation with staff whilst they are furloughed?
Yes, you will need to ensure that appropriate steps are put in place to enable employees to properly participate in the consultation process despite the fact that face to face meetings may not be possible.
If you are consulting on a collective basis (because you are proposing to dismiss 20 or more employees at one establishment within a period of 90 days) you will also need to put appropriate measures in place to enable election of employee representatives.
18. What do we pay to employees who are serving their notice period whilst on furlough or Flexible Furlough?
This is not specifically dealt with in the new guidance or the Direction. Existing employment law on notice rights will likely apply although this is a complex area of law and specific advice may need to be sought.
Applying existing law, employees who are entitled to statutory minimum notice only have the right to receive a minimum level of payment during the notice period based on the provisions of the Employment Rights Act 1996 which provide for “a week’s pay”. In essence, these employees should receive “a week’s pay” for each week of their notice period. For employees who have regular hours of work, this is likely to be their normal rate of pay rather than the reduced rate they are receiving during a period of furlough or any days of Flexible Furlough. For employees with variable hours or pay, the rate of pay will depend on the specific arrangements.
Employees do not qualify for minimum levels of pay during the notice period if they have a notice period which is a least one week greater than the statutory minimum notice period. For these employees, their pay during a furloughed notice period would likely be whatever they have agreed to receive while on furlough or Flexible Furlough (usually 80% of normal pay for any days not worked).
An employee will be entitled to statutory minimum notice only where they are entitled to one week’s notice during the first 2 years of employment, increasing by 1 week for each subsequent complete year of employment subject to a maximum of 12 weeks’ notice after 12 years of employment.
19. Are employers obliged to top up the remaining 20%? What about if the employee is only paid National Minimum Wage?
There is no obligation to top up wages until 31 August 2020. Thereafter, employers will be obliged to top up wages to 80% as set out above.
Individuals are only entitled to the national minimum wage for the hours they work. So if they are furloughed and do not work and 80% of their normal earnings would take them below the minimum wage based on their normal working hours, they still only receive 80% as they are not working. However, employees are entitled to be paid national minimum wage for any time spent working or training during a period of furlough or Flexible Furlough.
20. Paying employee taxes and pension contributions
Your employees will still pay the taxes they normally pay out of their wages. This should be done through PAYE using the normal rules.
This includes pension contributions (both employer and automatic contributions from the employee), unless the employee has opted out or stopped saving into their pension. Until 31 July you can continue to claim for these costs for the hours the employee is on furlough. From 1 August employers will be required to pay all employer NICs and pension contributions.
21. Employer Tax Treatment of the Coronavirus Job Retention Grant
Payments received by a business under the CJRS must be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles. Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes
22. How to claim
To make a claim, you will need:
- to be registered for PAYE online
- your UK bank account number and sort code (only provide bank account details where a BACS payment can be accepted)
- the billing address on your bank account (this is the address on your bank statements)
- your employer PAYE scheme reference number
- the number of employees being furloughed
- each employee’s National Insurance number
- the start date and end date of the claim
- the full amounts that you’re claiming for including:
- employee wages
- employer National Insurance contributions (for claims up to 31 July)
- employer minimum pension contributions (for claims up to 31 July)
- your phone number
- contact name
You also need to provide either:
- your name (or the employer’s name if you’re an agent)
- your Corporation Tax unique taxpayer reference
- your Self-Assessment unique taxpayer reference
- your company registration number
If you’re claiming for employees who are flexibly furloughed, you’ll also need:
- the number of usual hours your employee would work in the claim period
- the number of hours your employee has or will work in the claim period
- you will also need to keep a record of the number of furloughed hours your employee has been furloughed in the claim period.
Members of the Taylor Walton Employment Team are available to assist you with any employment law queries or concerns arising out of the Coronavirus Pandemic. In the first instance please contact: Alec Colson on firstname.lastname@example.org or on 07711 589574.