There has been a good deal of commentary published about Rishi Sunak’s announcement to avoid mass redundancies by offering to cover 80% of worker’s wages. In this article we have summarised the key information issued so far, providing an indication of how we understand the scheme might operate when it is introduced next month.
The information provided is based on the details available on 25 March 2020 and is subject to change and clarification prior to the scheme becoming fully operational.
We strongly recommend that you speak with your regular HR professional contact or an employment lawyer before taking advantage of the CJRS.
What are the objectives of the CJRS?
Overall, the objectives are to help avoid the lay-off of employees and to provide businesses with financial support to retain staff who will be needed to rebuild the business once the COVID-19 crisis is over. Support will be given by means of a ‘grant’ to allow continued payment of employees’ salaries.
All UK employers, regardless of size, will be eligible for assistance where an employee has been designated as a ‘furloughed worker’ (see below). The scheme will provide support to cover the cost of these employees’ wages from 1 March 2020, therefore assistance can be backdated and is available to workers who were in employment on 29 February 2020.
The scheme will be in place for three months initially, but we have been advised that it may be extended, if necessary.
The term ‘furloughed worker’ is not defined in UK employment law but it is thought to mean an employee who would have been made redundant or laid off without pay due to the impact of COVID-19. In the US, where the term is used more commonly, it refers to someone who remains employed but is not undertaking any work for their employer. Importantly, this suggests that the scheme will not cover employees who have agreed to work reduced hours.
There are a number of key questions our clients are currently asking about the CJRS, which we have set out below:
How do you designate an employee as a furloughed worker?
As the employer, you should first check if your contracts of employment include the right to designate an employee as a furloughed worker or to lay workers off without pay. In practice, it will be rare for such a term to be included. If your employment contracts do not include this right, then you would need to obtain agreement from the employee to designate them as furloughed. You would also need your HR/legal advisers to help you understand how the fact that you didn’t have a ‘lay off’ clause in your employment contracts might impact on your ability to take advantage of the CJRS.
Furthermore, a contract variation letter would need to be provided to, and signed by, every employee who is to be designated as a furloughed worker, evidencing their agreement.
The above points are employment law related and we cant emphasise enough how important it is that you seek advice from an employment lawyer or HR professional before taking any action.
Finally, employees cannot demand to be furloughed.
Can my employee(s) continue to work for me during their period of furlough?
No. It is important to note that any workers designated as furloughed must not carry out any employment duties for the employer during their period of furlough.
As mentioned above, we believe the scheme will not cover employees who have agreed to work reduced hours.
It is currently unclear whether an employee can come on and off furloughed leave.
How much is the ‘grant’ worth?
HMRC’s guidance initially stated that the scheme would pay a grant to the employer equal to 80% of the “wage cost” of the furloughed worker, up to a maximum of £2,500 per month. We had hoped the term “wage cost” would include employers’ NIC and pension contributions.
However, HMRC have, in the last few hours, subtly changed the wording in their guidance to say “wages” rather than “wage cost”. This suggests that the additional employment costs referred to above may not be covered, but we await further clarification on this point.
The employer could choose to fund the 20% shortfall, however, there is no obligation to do so.
How will the scheme be accessed?
We are still awaiting information on the mechanics, but we understand HMRC are working on a new online portal which employers will use to submit necessary information to HMRC to make the claim and receive reimbursement. Early indications are that it will take HMRC until the end of April to design and implement the new online portal.
The grant will be paid directly to the employer. It is unclear at this stage how this will operate for employers who use a payroll agency.
If my business has cash flow problems, how will I pay my workers?
Until this scheme is fully operational, businesses may require support in funding their furloughed employee costs. The government is providing several packages, in addition to the CJRS, to support businesses that have been impacted by COVID-19, including:
- the Coronavirus Business Interruption Loan Scheme (“CBILS”) ; and
- an automatic deferral of VAT payments due in the period from 20 March 2020 to 30 June 2020.
Do we know how the scheme will be controlled?
It is thought that there will be tight controls over the subsidy to avoid misuse, although the extent of these controls is yet to be announced. It is understood that the portal, when launched, will cross check applications for grants against the PAYE records for each business making a claim.
We expect more information to be available over the coming days.
Will this apply to owner-managed companies and zero hours workers?
It is not yet clear whether directors of owner-managed companies can put themselves ‘on furlough’.
For employees on zero hours contracts, it is our understanding that the employer can use the monthly pay in February 2020 as a benchmark for the worker’s pay when on furlough.
As a self-employed sole trader, can I take advantage of this scheme?
No.This scheme does not extend to the self-employed, although we understand measures to help the self-employed are to be announced soon.
Can I re-hire an employee who has already been made redundant as a result of the impact of COVID-19?
Unfortunately, the guidance is unclear whether employers can re-hire employees who have already been made redundant and put them on furlough.
What you need to think about now.
We await further announcements, but in the meantime there are preparatory steps which can be taken.
- It is vital for employers to take advice from an HR professional or employment lawyer as a first step. The process may involve changing employees’ contracts of employment and it may be that some employers may not be able to take advantage of the scheme.
- Employers will then need to identify furloughed employees; this will be straightforward if the entire business has been forced to close, but less so if some staff are continuing to work.
- Cash flow positions should be reviewed to identify the need for cash flow support as a bridge until CJRS grants are received.
- Speak with your employees, ensure they have accurate information and answer any questions they may have. This is an unsettling time for everyone; rumours and misinformation will not be helpful.
This preparatory work, in particular consulting an HR professional or employment lawyer, can be done immediately so that, by the time HMRC’s online portal is up and running, employers have identified and notified furloughed employees and have their individual details ready to submit to HMRC in order to minimise delays in receiving the grant.
If you have any questions on the CJRS, please do get in touch and speak with your normal contact at RG.