Coronavirus and Employment Law: Common Employer Questions – Updated

Coronavirus Job Retention Scheme (CJRS)

The CJRS will be operated by HMRC and will run for at least three months, from 1 March to 31 May 2020, but may be extended (which seems likely). Claims can be backdated to 1 March 2020. The HMRC portal will be open from 20 April with first payments to be made on 30 April.

Who is eligible?

• Any UK employer can apply for a grant under the CJRS if they have a UK bank account, enrolled for PAYE online, and started a PAYE payroll scheme on or before 19 March 2020.
• The scheme covers employees and workers who were on their employer’s PAYE payroll on 19 March 2020 (updated in government guidance issued on 15 April from the previously stated 28 February 2020). In this note, the term ‘employee’ also includes workers who are paid through PAYE, as they will also be covered by the CJRS.
• The scheme can cover furloughed directors and salaried members of Limited Liability Partnerships, but only in relation to salary payments made through PAYE, and provided that the furlough arrangements are formally adopted formally as a decision of the company or LLP. For the self-employed, there is a separate Self-employed Income Support Scheme.
• Employees who are part of the CJRS must be furloughed for at least three consecutive weeks. The employer must write to the employee to confirm that they have been furloughed, and keep a record for five years.

What can the employer claim?

• Under the CJRS employers can claim a grant from the government to cover 80% of a furloughed employee’s monthly gross wage, up to a cap of £2,500 per month. In addition, they can claim employer’s National Insurance contributions and the employer’s minimum auto-enrolment pension contributions on that subsidised wage. Sums for benefits that are provided through salary sacrificed cannot be included.
• For those with irregular pay (such as shift workers, casual staff and those on zero hours contracts) who have been employed for 12 months or more, the claim is based on the higher of:
  • the employee’s total earnings in the same month of the previous year; and
  • the employee’s average monthly earnings for the 2019/20 tax year.

• For employees with irregular pay who have been employed for less than 12 months, the claim would be based on their average monthly earnings since they started work. Those employees who have been employed for less than a month should have their earnings pro-rated up to the date they start furlough leave.

• Grants will be prorated if the employee is only furloughed for part of a pay period.
• Government guidance suggests that the grant will cover any regular payments that the employer is contractually required to pay to their employees. This can include wages, past overtime, fees and contractually required commission payments. So it would seem to cover sums (such as for commission and overtime) that were earned in previous months but only payable while the employee is on furlough leave. Discretionary bonuses, commission payments dependant on ongoing performance, tips, benefits in kind and non-cash payments are expressly excluded.

What must the employee receive?

• Employers may top up the grant to an employer’s full salary, but they are not obliged to do so.
• Withholding any part of an employee’s salary will, unless the employee gives their consent, amount to breach of contract and unlawful deduction of wages. Similarly, without employee consent, reducing an employee’s contractual benefits would be a breach of contract.
• Annual leave will continue to accrue while employees are furloughed, but there is currently no guidance as to what extent holiday pay can be recovered as part of CJRS grant. See summary on holiday below.
• HMRC will permit employees to switch out of a salary sacrifice arrangement if amendments are made to the relevant employment contract, on the basis that COVID-19 counts as a ‘life event’.

How should employees be selected for furlough? Do they need to be at risk of redundancy, or have a health risk? What about employees whose employment has ended?

• There are currently no set conditions or criteria which require employers to evidence a redundancy risk in order to access the CJRS. Guidance suggests the CJRS is designed to cover employers unable to provide work to employees and to support businesses ‘severely affected’ by the coronavirus crisis, which is a broad scope. Government clarification would be helpful, although note that it can retrospectively audit all aspects of the CJRS to prevent abuse.
• Employees who were employed as of 28 February and on payroll, and made redundant after that and prior to 19 March can be rehired and furloughed. However, the scheme does not appear to cover employees who were placed on unpaid leave before that date.
• Government guidance now suggests that recent leavers could be re-employed by their former employer and furloughed, but does not indicate how this could work. There is no legal obligation on the employee to re-pay any termination payments they received, as that will be a matter for agreement between the parties. Also, the employer will later need to terminate employment with the potential risk of employee claims, such as for unfair dismissal. Any such arrangement is down to the individual company, which will inevitably take on some risk by doing so. They may want to specify, for example, that wages will only be paid if the claim for the grant is accepted.
• Workers on fixed term contracts that are due to end during the operation of the CJRS, can have their contracts extended, and be furloughed.
• Shielded employees, who are unable to work due to public health guidance, can be furloughed, as can employees on long-term sick leave. Short-term illness or self-isolation should not be a consideration when deciding to furlough, however, employees already on sick leave may be furloughed. It appears that furlough selection could be expanded to include employees unable to work due to childcare commitments (now that coronavirus has affected schools and childcare settings) and where there may be health and safety issues with requiring an employee to work during the pandemic.
• Discrimination law applies as usual when selecting employees for furlough. This means that employers should ensure that their decisions on who to select for furlough leave are not based on discriminatory criteria, except where this can be justified. So, for example, prioritising vulnerable employees will likely be justifiable. We recommend creating a matrix to select employees fairly and objectively, as you would do for redundancy, whilst considering the needs of the business – is the particular role essential if the business is operating on a skeleton staff?
• Requests can be made for volunteers for furlough leave. However, take care to not base selection solely on those who volunteer, as the health and safety of others may mean that furloughing those employees could be a priority. Also, employers are likely to want to furlough those employees who cannot work from home and do not have any work to do.
• Note that employees can request, but not demand, to be put on furlough leave. Employers should be sensitive to the employee’s particular circumstances when considering their request.

Can employees perform any work during furlough leave?

• No, employees cannot do any work for the organisation during furlough leave, even if they receive a salary top-up from their employer. This prohibition covers generating revenue and providing any services for the organisation. Deliberately breaching this obligation would likely be regarded as fraud. The government will be able to retrospectively audit all aspects of the scheme to claw back fraudulent or erroneous claims.
• There is nothing in the current guidance that stops an employee working for a different employer. And if an employee works for two different businesses, each employer can claim for a grant under the CJRS. However, we consider that employees will not be allowed to work for other businesses associated with their employer, such as those in their employer’s group. HMRC will likely look unfavourably on such practices.
• Employers should make it very clear, in correspondence with the employee, that no work must be done for their business. As well as warning employees to ensure that the government subsidy is not placed in jeopardy, this may be helpful evidence in the event of an HMRC investigation.
• Employees can undertaking training while on furlough leave, with the latest government guidance stating that this should be encouraged. Employees are entitled to at least National Minimum Wage/National Living Wage for their time spent training, unless training is genuinely optional.

How long does furlough leave last?

• Employees must be placed on furlough leave for at least three consecutive weeks.
• Employees can be placed on furlough leave multiple times, allowing employers to rotate their staff (provided that each period of furlough leave lasts at least three consecutive weeks). Depending on operational challenges, or to make selection for furlough leave fair for all, one option is for an employer to divide its workforce into teams and rotate furlough leave.
• It is down to the employer to notify employees when furlough leave will end and normal employment rules will apply regarding this process (in particular, discrimination legislation). There is no government guidance as to how to end furlough leave, but we recommend including a provision in the furlough letter to the employee, allowing the employee to be brought back to work when required.

Must employees be consulted before being placed on furlough leave?

• Government guidance states that employers should discuss the furlough proposal with staff. If wages will be reduced as a result of being placed on furlough, employee consent in writing will be required (possibly unless their employment contract specifically permits this), in which case there will be a need for some consultation with staff.
• If employers have consultation agreements in place with trade unions, these will very likely require trade union consultation before implementing furlough.
• Collective consultation applies if the employer proposes to dismiss 20 or more employees in one establishment over a 90 day period. Generally, if refusing furlough means the employer will dismiss as redundant 20 or more employees, it will need to carry out collective consultation with employee representatives before effecting the first dismissal. The CJRS does not alter the obligation to collectively consult.
• Collective consultation may be impracticable in the current circumstances (requiring that the first dismissal cannot take place until 30 days after the start of consultation where 20-99 redundancies are proposed, 45 days for 100+employees), particularly if representatives first need to be elected. Employers may be able to rely on the ‘special circumstances’ defence, but in all but the most extreme cases some form of consultation should be undertaken (employers should go as far as reasonably practicable in the circumstances).
• If you are in a situation where you need to furlough and reduce the pay of 20 or more employees, we suggest seeking their consent to the changes before taking any decision as to what to do with those who refuse. The majority of employees will hopefully consent, particularly given the circumstances, so you will likely have a smaller number to deal with (hopefully under 20), in which case collective consultation rules should not apply.

General Questions

Can employees who TUPE transfer be furloughed?

• The government has clarified in the most recent update to its guidance (issued on 15 April) that claims can be made for employees who TUPE transfer after 19 March 2020. What is as yet unclear, is whether this applies:

• • if the incoming employer was a new business that was not operating a payroll by 19 March;
  • if the employee will not have served the minimum three consecutive weeks on furlough for one of their employers, even if they spent that minimum time on furlough leave across both employers; and
  • if the employee has been furloughed by the outgoing employer for less than three consecutive weeks before the TUPE transfer, and the incoming employer immediately takes them off furlough because it needs them to work straight away.

Hopefully, the government will provide further clarification soon.

How does annual leave interact with the CJRS?

• There has been no specific guidance from the government regarding annual leave for those employees who have been furloughed.
• As furloughed employees remain in employment, they will continue to accrue holiday allowance. Employees could agree with their employers that they will not accrue any contractual holiday entitlement in excess of the statutory minimum 5.6 weeks per year.
• We expect that furloughed employees are permitted to take annual leave when on furlough leave, and that employers can be reimbursed holiday pay through the CJRS, although neither aspect has been confirmed by the government. Should employees not be allowed to take annual leave, then presumably the furlough period would end and, if the employee has not been on furlough for three continuous weeks, no claim under the CJRS could be made for them.
• There is no specific guidance as to holiday pay, although there are significant legal arguments in favour of employees being paid full holiday pay if taken while on furlough per the Employment Rights Act, which HMRC Customer Support have indicated is the case. However, this is yet to be confirmed by the government.
• If an employer requires it employees to take holiday when on furlough, they must give twice the period of notice as the length of the holiday. So that if an employer wants employees to take a week’s holiday, it must give two weeks’ notice.
• The government has passed emergency legislation relaxing the restriction on carrying over the four weeks’ leave derived from the Working Time Directive Employees. Where employees are unable to take holiday due to coronavirus, they are now permitted to carry over those four weeks holiday for 2 years.

How does Statutory Sick Pay (SSP) interact with furlough pay?

• In the guidance updated on 9 April, it was made clear that employees on sick leave or self-isolating can be furloughed, provided the decision to furlough is made for business reasons. Those employees should stop receiving sick pay and start receiving furloughed pay. In addition, employees who become sick while furloughed can remain furloughed and do not have to be placed on SSP.
• Regulations on SSP have been amended to give SSP entitlement to people incapable of work because of COVID-19 from day one of an employee’s absence from work, instead of day four. They also apply when an employee is self-isolating or living with someone who is self-isolating. If non-furloughed employees become ill, need to self-isolate or be shielded, then employers may qualify for the SSP rebate scheme, enabling them to claim up to two weeks of SSP per employee.

How does maternity pay interact with furlough pay?

• For employees on maternity leave, entitlement to Statutory Maternity Pay (SMP) will continue. Employers who offer enhanced maternity pay (or enhanced paternity, adoption or shared parental pay) will be able to claim back the excess over the statutory arrangement at furloughed rates.
• Employers should note that just because an employee is pregnant, they cannot be put on furlough on the basis of their pregnancy alone. Doing so risks a discrimination claim.
• If there is a risk to pregnant employees’ health and safety in continuing to work/travel to work and there are no alternatives available (e.g. alternative work or working from home safely) and furlough leave is not applicable, employers will need to consider medical suspension, for which the employee can receive up to 26 weeks full pay.

What is the impact of furlough on EMI option holders?

• Where an employee is no longer committing their time to the business, this generally is a disqualifying event. We expect that HMRC will make an exception may be made for furloughed employees, however we still need clarification on this point.

Please note that we have based our responses on the government guidance available at the time of the webinar, together with revised government guidance issued on 4, 9 and 15 April. Where guidance was lacking, we have given our opinion as to what we consider will likely apply. As circumstances evolve and guidance is clarified, our responses above may change. None of the above responses should be treated as legal advice.