COVID-19 UK: Employment – UK Coronavirus Job Retention Scheme – The Details Have Landed – Update


One day after the Coronavirus Act was passed (which brought in the new SSP rules), we have finally received guidance from the Government on the announced Coronavirus Job Retention Scheme and how it will work. There is no reference in the guidance to legislation and it is not clear whether there will be any, or whether HMRC will simply rely on this guidance. However, a lot of the questions we have all been asking for the last week have been answered.

We have broken down the key points below.

The Basics

  • The scheme will last for "at least three months" starting from 1 March 2020 and can be used at any time during this period – it is expected to be up and running by the end of April. There has been previous suggestion that it may be extended after that if needed – but there is no commitment to that effect.
  • It is designed to support employers whose operations have been severely affected by COVID-19 and applies to all UK employers (with a UK bank account) that had a PAYE payroll scheme running on 28 February 2020, including companies under administration.
  • The scheme covers all employees who were on your PAYE payroll on 28 February 2020, including agency workers and zero hours contracts.  Employees hired after 28 February 2020 will not be eligible BUT if an employee has been made redundant since 28 February 2020, you can re-hire them, convert them to furloughed worker and then they will also be covered.
  • Employees must be furloughed for a minimum of three weeks – there is no maximum specified.

What does 'Furlough' mean?

  • We finally have a definition of furlough (to some extent) – it is defined as a "leave of absence" and crucially, only applies to employees or workers who are not working.  They cannot therefore undertake any work or generate any revenue for or on behalf of you, during the absence – employees who are still working but on reduced hours or pay are not eligible.
  • A furloughed employee can, however, take part in volunteer work (for example, the recently announced NHS volunteer work) or training.
  • You do not have to place all your employees on furlough but if you are selecting certain employees or groups to go on furlough, be wary of potential discrimination grounds (for example, choosing employees with poor sick records or all employees in a certain group which tends to be all or majority female).

What can you pay and what can you reclaim?

  • As we already knew, the scheme will cover the lower of 80% of the employee's regular wage or £2,500 per month. These are the specifics:
    • You can reclaim wage costs through this scheme and will receive a grant from HMRC to cover the costs.
    • The 80%/£2,500 is calculated based on gross pay and will be paid subject to income tax and Employee National Insurance contributions (but see point five below re Employer's National Insurance contributions).
    • Fees, commission and bonuses should not be included.
    • For employees whose pay varies, the employer can claim for the higher of (i) the same month's earning from the previous year (e.g. earnings from March 2019) or (ii) average monthly earnings in the 2019/20 tax year.  If they have been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
    • You will also have to pay the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on the subsidised wage BUT you can claim those costs back from HMRC on top of this amount – further guidance will be issued on how to claim for this before the scheme is live.
  • You have to pay this amount to the employee as a minimum but can choose to top up beyond that (e.g. to 100% or to include bonus, commission, etc.) if you wish, although you are not obliged to do so under the scheme.  The terms (and benefits) you provide during furlough will be a question of negotiation with the employee (see below) but we anticipate that most employers will look to provide the minimum only.  Note that you cannot reclaim NI costs or pension contributions on any amounts paid in excess of the minimum.
  • You will need to calculate the amount you are claiming in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll – in other words, you can only claim for what you have actually paid or are committed to pay. HMRC retain the right to retrospectively audit all aspects of your claim – which seems to suggest that any challenges will come through the normal audit process, rather than at the time of grant.
  • You can only submit a claim every 3 weeks (i.e. not weekly) and claims can be backdated to 1 March for any employees already on furlough then.Once HMRC have received your claim and if you are eligible for the grant, they will pay it via BACS payment to a nominated UK bank account.

What process do you need to follow?

  • To be eligible for the grant, you simply need to write to the employee confirming that they have been furloughed and keep a record of this communication.  The guidance reiterates however that normal employment laws apply, so you still need to have the contractual right or the employee's agreement to place them on the furlough (and in relation to the terms which will apply to that), otherwise it could lead to breach of contract or constructive dismissal claims.
  • We expect a certain degree of leniency to be shown in that respect, given the circumstances, provided a reasonable level of prior consultation has been undertaken, but it is worth noting that the guidance specifically advises discussion and agreement with the employees before making the change – and notes that collective consultation processes may be triggered by these changes if sufficient (20+) numbers are involved.  It also suggests taking legal advice first – as though anyone hasn't already!

What about employees already on leave?

  • Employees already on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February 2020.  We think this is intended to exclude non-coronavirus related leaves e.g. normal sabbaticals.
  • Employees who are on sick leave or self-isolating will not be eligible as they will receive Statutory Sick Pay, but they can be furloughed after that period.  Employees who are "shielding in line with public health guidance" can be placed on furlough.Employees on other types of leave e.g. maternity or shared parental leave, will receive the statutory pay applicable to that leave – however, any enhanced pay you offer for that leave is included as wage costs that you can claim through this scheme.

What next?

  • When the scheme ends, you can decide (subject to any applicable consultation) whether the employees can return to their normal duties or whether you need to make them redundant.  You can also make them redundant or start the consultation process during the furlough period, if the circumstances require that.
  • Normal rules on unfair dismissal and redundancy pay apply to furloughed workers – there is no detail as to what pay is applicable to redundancy pay in that case but we anticipate that the normal, full pay would be used to calculate any damages and statutory payments, rather than the 80% pay.

The full details can be found here, and additional guidance for employees, here.