Before we update you with the latest developments we want to remind all clients that we are here to work with you to help you to identify, plan and deliver measures to help your business. We can help you identify the best solutions for the short term to help you through these tough times.
Part of the package of measures that the government has announced is the Cornoavirus Job Retention Scheme (CJRS). Where an employer may have been forced to dismiss some of its staff due to redundancy attributable to the Coronavirus, the government has said it will reimburse the employer with 80% of an employee’s salary (subject to a cap) if the employer retains the employee but places them on ‘furlough’.
At the moment some details are lacking but the government has said that HMRC will set out further details over the coming weeks. We are monitoring the position closely and we will constantly update clients as more information becomes clear.
Key details of the scheme announced so far
- The scheme will start in April 2020 and be backdated to 1 March 2020, to enable organisations to re-employ individuals who have already been laid off and for those workers to recoup lost income
- The business will need to:
- Designate affected employees as ‘furloughed workers’
- Notify the employees of this change
- 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)
- HMRC will reimburse 80% of furloughed workers’ wage costs, up to a cap of £2,500 per month, per employee
- HMRC are working urgently to set up a system for reimbursement (the government notes that existing systems are not set up to facilitate payments to employers)
- The government intends for the Coronavirus Job Retention Scheme to run for at least three months from 1 March 2020, but has stated that it will extend it if necessary
- The government funding available under the scheme overall is unlimited
The government announcement indicated that all UK businesses are eligible.
What is ‘furloughed’ and what is a furloughed employee?
‘Furlough’ is a term more frequently encountered in the USA. There, it is a temporary suspension of employment for a specified period of time, during which an employee does not receive wages.
Dictionary definitions refer to ‘allowing or forcing someone to be temporarily absent from work’.
At the moment ‘furlough’ is yet to be defined under the CJRS. The guidance states:
- If your employer intends to access the CJRS, they will discuss with you becoming classified as a furloughed worker
- This would mean that you are kept on your employer’s payroll, rather than being laid off
Aspects of the scheme which are currently not clear
- Whether the scheme will apply only to those with the status of employee or whether it will also extend to workers. The guidance refers to ‘workers’
- How agency workers will be affected
- What costs will be reimbursed: the details available so far refer to the employer claiming ‘a grant of up to 80% of your wage for all employment costs, up to a cap of £2,500 per month’ per employee
- Use of the term ‘grant’ in some of the published details of the CJRS could indicate that employers may ultimately be required to repay sums reimbursed under the scheme
- What changes will need to be made in order for an individual to be designated as a ‘furloughed employee’, eg:
- The government has not simply used the term ‘laid off employee’ so it presumably is something different to the statutory definition of ‘lay-off’ under the other definitions in employment law such as in Employment Rights Act 1996
- Whether the employee can do any work for the employer. The guidance states ‘to qualify for this scheme, you should not undertake work for [your employer] while you are furloughed’. This indicates that undertaking any work for the employer would disqualify a worker from the scheme
- Whether the employer will be required to follow a specified process. The guidance states that ‘changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation’
- How the reimbursement scheme will work. Use of the term ‘reimbursement’ indicates that the employer must make the payments first. Employers may therefore still encounter cash-flow difficulties while they await reimbursement
- Whether employers will be required to fund the 20% shortfall between the payment under the CJRS and the employee’s normal salary. The guidance states ‘your employer could choose to fund the differences between this payment and your salary, but does not have to’
Until the details of the scheme are released there will be some unavoidable ambiguity. However, the options in respect of furlough are that an employer;
- waits until the guidance is released, but undoubtedly there will still be some ambiguity as there is with any new law, or;
- alternatively, adopts a more pragmatic approach and follows a process akin to lay-off and redundancy in order to facilitate employees being furloughed. Given the guidance states: ‘changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation’ we would suggest seeking advice with us so that we can advise on specific situations.
Clearly there are still some aspects that need clarifying but the government is trying to reduce the impact for businesses and employees. Call us today on 0345 076 2288 and we will advise you on the best course of action for your circumstances.