The steps to follow when furloughing employees from 1 July 2020 under the Coronavirus Job Retention Scheme (CJRS).
Introduction
The Coronavirus Job Retention Scheme (CJRS) is a temporary scheme designed to support eligible businesses that are struggling to meet their wage bills as a result of the commercial impact of COVID-19, including the measures taken by the government in response to the pandemic. The scheme is open to all UK businesses that operate PAYE and whose operations have been severely affected by coronavirus. The scheme is scheduled to close on 31 October 2020
Under the original scheme rules, which applied until 30 June 2020, employers were entitled to claim reimbursements for 80% of “furloughed” employees’ usual monthly wage costs, up to a maximum of £2,500 a month, as well as the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on the relevant wages. “Furloughed” is simply a term used to describe employees that have been placed on a leave of absence.
However, as of 1 July 2020, the scheme permits employers to bring back furloughed employees on a part-time basis (as opposed to the current “all or nothing” approach), offering greater flexibility than has been the case to date. Employers will be required to pay employees in full for any days worked and can then claim under the CJRS for any days not worked (subject to the relevant caps, discussed below). The previous requirement that employees be furloughed for a minimum period of 3 weeks has also been dropped.
Below is a checklist of steps that businesses currently need to take in order to select and furlough employees after 1 July 2020. Provided that an employee consents to being furloughed (more on this below), the process can be fairly quick and simple to implement.
Steps involved in furloughing employees from 1 July 2020
1. Decide which employees to continue furloughing
The CJRS closed to new entrants on 30 June 2020, subject to the below exceptions. This means that only employees who had previously been furloughed on or prior to 10 June 2020 may be furloughed under the amended scheme, unless they are employees who are returning to work following:
· a long period of statutory family leave (e.g. maternity leave); or
· a period of mobilisation as a military reservist.
Employees on rotating furlough agreements prior to 1 July 2020 are also permitted to continue those arrangements.
The effect of this is that from 1 July 2020, subject to the exceptions above, the total number of employees that can be claimed for cannot exceed the maximum number of employees that the employer claimed for prior to 30 June 2020 (and, as mentioned, only employees previously furloughed may be furloughed post-1 July 2020).
2. Consider whether there is a need to consult with employees or trade unions
Provided that an employer is not intending to re-furlough 20 or more employees, there is no set procedure for deciding which employees to re-furlough. However, you should ensure that any decision to re-furlough an employee is based on business needs and your current financial situation.
However, if an employer is looking to re-furlough 20 or more employees, and the new furlough arrangements require a further change to the employees’ terms of employment (e.g. to reflect the fact that they will be required to work part-time), then a new consultation process may be required.
In any case, you should also ensure that all decisions relating to the furloughing process are properly documented, for example in internal notes or board minutes, in part because equality and discrimination laws will continue to apply in the usual way.
3. Decide what furlough arrangements will apply
For each eligible employee, employers will need to decide whether to:
- Continue to place the employee on furlough full-time;
- Require an employee who is currently furloughed to return to work on a part-time basis;
- Re-furlough an employee who has previously been furloughed for at least 3 weeks prior to 30 June 2020; or
- Continue or introduce a new rotating furlough arrangement (provided that those employees have been furloughed for at least 3 weeks prior to 30 June 2020 or fall within the exceptions).
As per the previous scheme, an employer can choose to top up an employee’s pay during furlough, but they may only claim reimbursement under the CJRS up to the relevant financial cap.
4. Notify and obtain the consent of the selected employees
Employees should be notified of any proposed changes to their working pattern and will need to agree to such changes in advance. Employees are not obliged to accept new terms and should not be forced or coerced into doing so, although most are likely to accept (given the circumstances).
For employees that are currently being furloughed but will return to work part-time, or where existing furlough arrangements are being amended, it may be necessary to amend the existing furlough agreements using side letters signed by all the parties, or by entering into new furlough agreements. It is recommended that any changes are documented in writing and records of the communications are retained for at least 5 years.
In addition to obtaining consent, employers should notify each employee (in writing) that they must not undertake any work for or on behalf of them during the furloughing period. As an exception to this, furloughed directors are permitted to continue to carry out any statutory duties (e.g. filing accounts on time, acting in the best interests of shareholders etc.).
5. Calculate the amount to be claimed
Under the changes to the CJRS brought in on 1 July 2020, employers will be required to pay employees in full for any hours worked. In addition, from 1 August 2020, there will be a further requirement for employers to contribute to the cost of furloughing staff.
- From 1 July 2020 onwards, employers will be required to pay employees in full for any hours worked. However, they can continue to claim for the lower of 80% of their regular wage or £2,500 per month as well as employers’ national insurance and pension contributions on the furlough pay.
- From 1 August 2020, employers will also need to pay employers’ national insurance and pension contributions in connection with the wages of furloughed employees (including any top up voluntarily paid by employers), although the government will continue to pay 80% of those wages (subject to the current £2,500 cap).
- As well as the national insurance and pension contributions mentioned above, from 1 September 2020, employers will also need to cover a minimum of 10% of the gross wages of furloughed employees (capped at £312.50), with the government’s contribution dropping to 70% (capped at £2,190).
- Finally, from 1 October 2020, the government’s contribution to wages will drop to 60% (capped at £1,875), with employers having to contribute a minimum of 20% (capped at £625) of the gross wages of furloughed employees, as well as the national insurance and pension contributions in respect of the total wages paid.
Given that employees can now return to work on a part time basis, any caps mentioned above will apply pro rata to the aggregate number of hours spent on furlough.
Before submitting a claim, you will need to calculate the value of the claim. The method for calculating this will depend on whether the employee is on a fixed or variable salary and the duration for which they have worked for you.
Your existing payroll provider should be able to help you calculate the correct amount, otherwise our sister firm Ignition Financial will be able to assist. Based on the latest government guidance, HMRC commits to paying furlough claims within 6 working days.
Note that the rules regarding what employers can claim are regularly updated. You can find the latest guidance from HMRC here.
6. Submit information to HMRC
The HMRC online portal, through which employers will need to register claims in connection with the Coronavirus Job Retention Scheme, is now open.
The following information must be submitted to HRMC regarding any employees that have been furloughed:
- Your ePAYE reference number.
- The number of employees being furloughed.
- The start and end date of the claim period (note that HMRC has now provided further guidance on claim periods for claims made after 1 July 2020, which can be accessed here.
- The amount you are claiming.
- Your bank account number and sort code.
- Your contact name and phone number.
This short guide has been prepared for employers for information purposes only, in particular to provide a summary of the government guidance relating to the Coronavirus Job Retention Scheme. This guide does not constitute legal advice and should not be relied upon. For specific queries and any further information, please contact Ignition Law for advice relating to your particular circumstances.
