Ben Williams,  part of the Employment team here at Kings,  discusses how the scheme works and draws on some of the many queries that have already been raised with members of the team.

Ben Williams


It has been over a week since the Chancellor set out his package of targeted measures to assist businesses through at least the next 12 weeks. As it all sinks in, our Employment Team here at Chambers has been inundated with queries about how the Coronavirus Job Retention Scheme actually works; what do we tell our employees? What do we do about their contracts? How will the salary be paid? What happens after 12 weeks? etc.

I thought therefore, what I would try and do is distil the scheme in a way that enables you to properly advise your clients in what are unprecedented and entirely uncertain times. I would also encouraged you to refer to the guidance now published:

Qualification for the scheme

The scheme applies to full time and part time employees, those on zero-hour / flexible hour contracts and those on agency contracts who were on the payroll as at 28th February. Those hired since that time do not qualify and neither do those who were on unpaid leave on the 28th February.

To be ‘furloughed’ means that the employee has not worked at all. There is nothing to stop an employee undertaking voluntary work or training, but they must not provide a service or generate any revenue for the employer. We can fairly assume that measures will be put into place to avoid any abuse of this system. Those who have been self isolating will receive SSP from day one, and can simply become furloughed on their return.

A furloughed employee qualifies for the payment after three weeks and the 80% payment from HMRC can, in theory be backdated to 01 March 2020. This is important when one considers that there was a significant period of uncertainty prior to the Chancellor’s announcement of the package of support where many employers acted hastily through fear of the short and long term impact of this pandemic.

It is right to say that employees who were made redundant from the 1st March onwards, i.e. those who were on the payroll still at the 28th February, ought to be reinstated and furloughed. This is effectively

cost neutral for the employer and meets the very purpose that the CJRS was devised to target – the avoidance of redundancy. Employees are also encouraged to contact their employers to ask to be reinstated and furloughed too as many employers appear unaware of the ability to do this.

What does the scheme guarantee in terms of pay?

The scheme is available to all employers who operate the PAYE scheme. It effectively means that once an employee is classed as ‘furloughed’, they may remain employed, but the Government will subsidise 80% of their wages up to a maximum threshold of £2500 per month. That sum does not include commission or bonus payments.

This raises a couple of immediate queries: what about the other 20% and what about those who earn over £2500 per month? The Government hopes that alongside the scheme, the employers will pick up the shortfall – i.e. pay the extra 20%, however, the reality is such that most employers are reverting to the 80% pay only. Now whilst this will be alarming to many employees, there are a number of points to make;

  • Firstly, maintaining your employment and receiving 80% of your wage is far better than facing redundancy at this time. Many businesses may be in the position of being unable to even settle redundancy payments and the employee would be faced with seeking money from the Government in any event.
  • Secondly, whilst the CJRS may simply delay redundancy for some, it is possible that many employers, once back up and running, are able to make good on that shortfall over time. The truth is that everyone is being forced to make adjustments. It would be wrong to see this in terms of what is fair and what is unfair. For a start, with the lockdown provisions in place, it is clear that expenditure ought properly to reduce. Further, people are not travelling to and from their place of work; people cannot go out to socialise; people are rightly going without certain ‘luxuries’. I would suspect that a 20% reduction in outgoings is rather close to the mark for many.

Employees can also take advantage of a three month mortgage holiday which would assist greatly in terms of income and expenditure. There is also the potential to consider whether there is any additional entitlement to benefits. A good employer would ensure that their staff are made aware of such matters when discussing a move to furlough.

Of course, there is a fair point to make to some employers regarding the ‘extra’ 20%; there is the option of grant funding for certain businesses (e.g. £10,000 for all business in receipt of small

business rate relief or rural rate relief and £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000). Those grants, together with the business rate holiday (12 months for all retail, hospitality, leisure and nursery businesses), could mean that, at least for the time being, the employer is able to ensure that their staff are paid in full.

For employees who receive a variable rate of pay the scheme assesses an average rate rather than using a 13 week reference period as per the ERA 1996. If an employee has been employed (or engaged via an agency) for a full 12 months period, the employer will be able to claim for the higher of either of the following:

(a) The same month’s earning from the previous year; or

(b) The average monthly earnings from the previous tax year

In the event that an employee has been there for less than a year, the employer can claim for an average of their monthly earnings, calculated since they started work. If you have an employee engaged shortly before the 28th February 2020, you use a pro-rata for their earnings.

In respect of any employees that are on maternity leave, related pay will continue to apply as normal. In the event that such employees enjoy enhanced payment through such leave, this could be claimed as a furloughed wage cost, as could paternity and shared paternity leave.

The contractual position

But what about the employment contract I hear you ask? I know first-hand that many employers have simply been ‘telling’ their employees that they are now furloughed. Well the guidance makes it clear that any necessary changes required for the employee to ‘go on furlough’ and therefore not work but receive 80% of their wages, must be agreed with the employee. The guidance also says that “If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.” It is therefore important that the employer speaks with the employees. One hopes that they adopt a pragmatic stance in the circumstances. As stated above, it may be that they easily comprehend the benefit of an 80% wage as opposed to redundancy. The position may be less clear for those who earn substantially more than the threshold.

Also note that once an employee is furloughed, the guidance states that “To be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of this communication.”

How will employers receive the money through the scheme?

Assuming staff are properly furloughed, what then is expected to happen? The Government has explained that there will be an online portal. Understandably this is not yet up and running and many of us do not expect it to run entirely smoothly – at least at first. Nevertheless, employers can begin to ready themselves for as smooth a transition as possible. The guidance suggests that the employer will need the following information:

· The number of furloughed employees

· A start and end date for the claim period

· The amounts to be claimed (which will need therefore to be calculated)

· The company bank details

· A contact name and number

It is envisaged that once the scheme is properly up and running the employer will receive those calculated sums (which will no doubt be checked accordingly) and therefore they should expect to receive their grant from HMRC to “…cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included”

This therefore envisages that the employer will receive wage costs such as NI on top of the £2500 threshold or 80% figure (whichever is lower). The employer pays the £2500/80% sum to the employee so that they receive the full sum less tax and NI. For those fortunate few for whom the employer chooses to top up the extra 20% for example, the employer will have to pay the NI on that ‘top up’ payment. The same principle applies to any voluntary automatic enrolment contributions above the mandatory minimum of 3% such that the employer would have to pay any additional contributions.

So there we have it. There’s a whole new ‘F-word’ for employment practitioners to grapple with and a brand new system of pay set up to allow employers to retain their workforce for the next 12 weeks at least. There are undoubtedly even more testing times ahead for employers and employees alike, but for the time being we ought to embrace what is available in the hope that many jobs can be saved in the short and long term. Employees might want to thank themselves lucky they aren’t self-employed, but that is a topic for another blog no doubt.

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