JRS: Update on Latest Guidance
Since announcing the introduction of the Coronavirus Job Retention Scheme (JRS) on 20 March 2020, the government has published and updated its guidance and launched various support channels for businesses and employees seeking assistance on the application of the JRS.
We summarise the key points below.
- Employers can claim 80% of the regular monthly wage costs (up to £2,500 a month) of employees who are not working but remain on their employer’s payroll (“furloughed employees”). In addition, employers can claim associated employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. The term “employee” in this article is used to describe employees, workers on PAYE, office holders (including company directors), salaried members of LLPs and agency workers (including those employed by umbrella companies).
- Employers are not obliged to continue to pay full wages in respect of furloughed employees, although withholding 20% of their salary will amount to a breach of contract and unlawful deduction from wages (unless employee consent is obtained). Employers should note that employer National Insurance contributions and automatic enrolment contribution on any additional top-up salary will not be funded through the JRS.
- If an employee has more than one employer, they can be furloughed for each job and the reimbursement cap applies to each employer individually.
- Employees can be furloughed multiple times, but each separate instance must be for a minimum period of three weeks.
Who can apply?
- Any UK organisation with employees (regardless of size or sector) can apply, as long as they have created and shared a PAYE payroll scheme on or before 28 February 2020, have enrolled for PAYE online (which can take up to 10 days) and have a UK bank account.
- Although public sector, local authority and charity employers are also covered, the government does not expect these organisations to use the JRS since the majority will be continuing to provide essential public services during the pandemic.
- Although the government will retain the right to retrospectively audit all aspects of the JRS to claw back fraudulent or erroneous claims, no evidence of the employers’ inability to continue paying its staff seems to be required at the moment.
Who is covered?
- Furloughed employees must have been on their employer’s PAYE payroll on 28 February 2020, and can be on any type of contract, including agency contracts, fixed term, flexible and zero hours contracts. The JRS also covers employees who were made redundant since 28 February 2020, if they are rehired by their former employer.
- Apprentices can be furloughed. If they continue to train whilst furloughed, their employer must pay them at least the Apprenticeship Minimum Wage, National Minimum Wage or National Living Wage.
- Individuals can furlough employees (such as nannies).
- Administrators will be able to access the JRS if there is a reasonable likelihood of rehiring the relevant workers.
- Foreign nationals are also eligible to be furloughed.
- Where furloughed directors need to carry out particular duties to fulfil their statutory obligations, they may do so provided they do no more than would “reasonably be judged necessary for that purpose”.
- Employees who have been made redundant or stopped working for their employer since 28 February 2020 can be re-employed and placed on furlough.
- If an employee is on reduced hours or reduced pay, they will not be eligible for the JRS and their employer will have to continue paying their salary subject to the terms of their employment contract.
- Employees on unpaid leave cannot be furloughed, unless their unpaid leave started after 28 February 2020.
- Employees who are in receipt of Statutory Sick Pay (such as those on sick leave or self-isolating) cannot be furloughed, but they can be furloughed once they stop receiving SSP and are, presumably, better. Employees who are shielding in line with government guidance can be placed on furlough if they are unable to work from home and they would otherwise have been made redundant.
- Employees who are unable to work because they have caring responsibilities resulting from coronavirus can be furloughed.
- Self-employed are not covered by the JRS, but a scheme is currently being set up to provide them with similar rights.
What steps must employers take to implement furlough leave?
- Step1: Since employers do not need to place all their employees on furlough, they must first decide which employees to designate as furloughed employees. Employers must ensure that their selection criteria are not discriminatory (except where such discrimination is likely to be justified – specific legal advice should be sought regarding this).
- Step 2: Employers must notify the furloughed employees of the intended change.
- Step 3: Employers must consider whether their duty to engage in collective consultation with the employees’ representatives and trade unions has arisen. This obligation will likely be engaged where an employer intends to vary the contracts of 20 or more employees within a period of 90 days or less and dismiss or make redundant those employees who do not consent to the change in their terms.
- Step 4: Most employers will need to agree the change with the furloughed employees (unless they have a contractual right to unilaterally vary the employee’s contract of employment).
- Step 5: In order to be eligible for reimbursement, employers must confirm the employees’ new status in writing. Records of relevant correspondence must also be kept for five years.
- Step 6: Employers must submit the following information to HMRC through the new portal, expected to be operational by the end of April 2020: the employer’s ePAYE reference number, the number of employees being furloughed, the claim period, the amount claimed, the employer’s UK bank account number and sort code, the employer’s contact name and phone number. Employers can only submit one claim at least every three weeks.
- Step 7: Employers must ensure that the furloughed employees do not provide services or generate revenue for them. However, furloughed employees can take part in volunteer work and (if contractually allowed) work for another employer. Although furloughed employees can also engage in training, where such training is undertaken at the request of their employer, the employees will be entitled to at least their appropriate National Minimum Wage for the time spent training.
- It is likely that the employees’ statutory holiday entitlement will continue to accrue during furlough leave (similarly to employees on sabbatical).
- Although employers could attempt to negotiate a change in contractual terms that annual leave over and above statutory leave does not accrue, it is unclear whether such conditions could be attached to an employee’s furlough leave.
- With effect from 26 March 2020, employees are permitted to carry-over up to four weeks of untaken annual leave into the next two leave years, where it was not reasonably practicable to take it in the leave year “as a result of the effects of the coronavirus”.
- Further guidance is required on whether it is possible to be on annual leave whilst on furlough leave and it is also unclear whether a period of annual leave will disrupt furlough leave.
Family friendly leave and furlough
- Employees will retain their right to go and be paid for family leave, although eligibility and amount of statutory pay may be based upon their temporary reduced rate of pay, depending on the timing. The government guidance provides that enhanced (earnings related) contractual maternity adoption, paternity or shared parental pay may be claimed through the JRS, suggesting that an employee can simultaneously be furloughed and on maternity or family friendly leave.
How is the reimbursement calculated and what payments should furloughed employees receive?
- Claims should be started from the date that employees finish work and start furlough, not when the decision to furlough them is made or when they receive written confirmation of their furloughed status.
- For full time and part time salaried employees, the employees’ actual salary before tax (as of 28 February 2020) should be used to calculate the 80%. Employers can claim for any regular payments they are obliged to pay their employees, such as past overtime, fees and compulsory commission payments. Discretionary bonus (including tips) and commission payments and non-cash payments are specifically excluded. Additionally, non-monetary benefits (such as taxable benefits in kind) and benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should not be included. HMRC agrees that COVID-19 counts as a “life event” that could warrant changes to salary sacrifice arrangements.
- For employees whose pay varies and who have been employed for 12 months or more, the employer can claim for the higher of: (1) the same month’s earnings from the previous year; or (2) the average monthly earnings in the 2019-2020 tax year.
- For employees whose pay varies but who have been employed for less than 12 months, the employer can claim 80% of their average monthly earnings since they started work. If the employee only started work in February 2020, the employer will need to work out a pro-rata for their earnings so far.
- Although Apprenticeship Levy and Student Loans should be paid as usual, they are not covered by the JRS.
- Furloughed workers must be paid the lower of 80% of their salary or £2,500 even if, based on their usual working hours, this would be below the National Minimum Wage or National Living Wage.
- An employer must pay a furloughed employee the entire grant it receives for their gross pay.
- Wages of furloughed employees will be subject to Income Tax and National Insurance in the usual way.
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If your business needs legal support with any issues arising from COVID-19, please get in touch with Jon Taylor.
All information in this document is accurate at the time of writing. It is meant for general information only and is not legal advice.