22 Mar Coronavirus (COVID-19) update – 22 March 2020 – Job Retention Scheme
This is an update to the Coronavirus bulletin issued on 16th March and covers what we know about the Coronavirus Job Retention Scheme, which was announced by the Chancellor on the afternoon of Friday 22nd March.
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Coronavirus Job Retention Scheme
The key points of the scheme are:
• It is accessible to all employers that operate a PAYE payroll, e.g. sole traders, partnerships, LLPs, limited companies, charities or non-profit
• Employers will be able to apply to HMRC for a grant to cover up to 80% of the earnings of retained employees up to a total of £2,500 a month
• To be eligible under the scheme, employees must be designated as ‘furloughed’ (temporarily laid off) by the employer and kept on the payroll
• To qualify for this scheme, employees are not permitted to undertake work for the employer whilst they are furloughed
• The employee will remain employed by the employer while furloughed
• The employer can choose to top up the employee’s earnings and fund the difference, i.e. 20% but are not obliged to do so
• Employees need to have been on the payroll as of 28th February 2020 with payments will be backdated to 1st March 2022
• The Scheme will be open initially for at least three months, but may be extended for longer if necessary
• The scheme only covers employees that are on the PAYE payroll. It does not cover ‘workers’ or those that are engaged on a self-employed basis, e.g. freelancers, or sub-contractors. These will have to access Universal Credit
• The scheme does not cover the pay of those that are on sickness absence due to having coronavirus, or self-isolating. They will continue to receive Statutory Sick Pay (SSP)
• The scheme does not provide any subsidy for the pay of those employees that are still at work, and who have had their hours of work reduced, and as a result their salaries or wages
• It is expected that the first payments will be made “within weeks” and HMRC are aiming to “get it done by the end of April”
This is a welcome measure which will bring much needed relief to many businesses and their employees. However, the detailed guidance has yet to be published so many questions will remain unanswered until this becomes available.
In his speech, the Chancellor said that “Employers will be able to contact HMRC for a grant to cover most of the wages of people who are not working but are furloughed and kept on payroll, rather than being laid off.”
The terms used by the Chancellor could cause some confusion, as they are not correct in an employment law context. The term “furloughed” is intended to mean temporarily laid off. When the Chancellor referred to employees being “laid off” he meant dismissed on the grounds of redundancy.
In an employment law context, laid off and redundant are two different concepts. A temporary lay off means that the employee is still employed by the employer, although not required to attend work; whereas redundancy means that the contract of employment has been terminated.
The term ‘furlough’ is not defined in UK employment law, but we take it to mean a temporary layoff. In this guidance we will continue to use the term furlough, as this is likely to remain the preferred term by the government going forward.
The aim of this scheme is to discourage employers from making employees redundant; and funds the pay of only those employees that are temporarily laid off due to current circumstances.
To access the scheme employers will need to:
• “designate affected employees as ‘furloughed workers,’ and notify your employees of this change – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation”
• “submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required)”
Some points to note:
• It is the decision of the employer to designate which employees are being ‘furloughed’ and not the choice of the employee. Care will need to be taken when designating employees so as not to discriminate against any employees, e.g. those with a disability or on maternity leave
• However, for an employee to be furloughed, there needs to be either a contractual layoff clause, or agreement reached between the employer and employee
• As it is in the interests of the employee to agree to being placed on furlough, so that the employer can access grants under the scheme, most employees are likely to give their consent [A template letter which explains the situation to employees and seeks their consent to being placed on furlough will be provided shortly]
• The ‘online portal’ is not yet available and it may take some time to set this up. In the meantime, employers will need to determine whether they can maintain wages for those employees that are furloughed, or pay statutory guarantee pay (where the contract allows this)
• It is not clear whether the scheme will allow an employer to designate as furloughed an employee that is either absent from work due to having coronavirus or self-isolating
Usually, when an employer needs to vary terms and conditions of employment, such as introducing a layoff clause, there needs to be consultation with the employee to gain agreement. Varying the terms without the consent of an employee would normally open the door to a potential claim of constructive dismissal. Similarly, reducing hours of work and pay without a clause that permits such a change would usually result in a claim for unlawful deduction of earnings.
The problem for employees is that to make a claim for constructive dismissal they would need to resign, which would mean not being eligible to claim anything from the scheme. Similarly, a claim would be followed by a very lengthy process which would result in a considerable delay in getting any compensation, and that is only if the claim is successful. The wait would be the same for an unlawful deduction claim.
Faced with the choice between pursuing a claim and unemployment, or being placed on furlough and receiving on 80% of pay for the duration, most employees will choose the security of the latter.
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