The steps to follow when furloughing employees
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 will last until 31 October 2020 at the earliest. However, the scheme is scheduled to close to new entrants from 30 June 2020, meaning the final date by which an employee can be furloughed for the first time will be 10 June 2020 (this is because a newly furloughed employee must be furloughed for at least 3 weeks).
Until 31 July 2020, employers can 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.
Forthcoming changes to the CJRS
On 29 May 2020, the Chancellor announced a series of changes to the CJRS that will be introduced in stages between now and 31 October 2020, which is when the scheme is currently scheduled to conclude. To summarise these changes:
- From July 2020, employers will be permitted 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 only pay for the hours that employees work, and the CJRS will continue to cover 80% of wages in respect of hours spent furloughed.
- From August 2020, employers will need to pay employers’ national insurance and pension contributions for furloughed employees, but the government will continue to pay 80% of wages (subject to the current £2,500 cap).
- From September 2020, in addition to employers’ national insurance and pension contributions, employers will need to cover a minimum of 10% of furloughed employees wages, with the government’s contribution dropping to 70% (capped at £2,190).
- From 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% on top of this, as well as employers’ national insurance and pension contributions.
Below is a checklist of steps that businesses currently need to take in order to select and furlough employees prior to 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
1. Decide which employees to designate as furloughed employees
Provided that an employer is not intending to furlough 20 or more employees, there is no set procedure for deciding which employees to furlough. However, you should ensure that any decision to furlough an employee is based on business needs and your current financial situation. If the number of employees to be furloughed is 20 or more, then it may be necessary to collectively consult with your employees; the duty to consult will depend on a number of factors, so if you are looking to furlough 20 or more employees, you should seek legal advice to ensure that you follow the correct processes.
In either 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.
2. Confirm that the selected employees are eligible for the scheme
Full time employees, part time employees, employees on agency contracts and employees on flexible or zero-hour contracts are all covered. Salaried directors who are paid via PAYE can also be furloughed. However, the employee(s) you a proposing to furlough must have been on your payroll on or before 19 March 2020 in order to be eligible under the scheme. Note that the situation may be slightly more complicated for employees who:
- Have been (or have received notice that they will be) made redundant;
- Are on unpaid leave;
- Are already receiving Statutory Sick Pay; or
- Are on maternity leave, contractual adoption pay, paternity pay or shared parent pay.
Whilst it may still be possible to furlough these employees, further information will need to be assessed to confirm whether they can take advantage of the scheme.
3. Decide on the length of the claim period
The scheme will be backdated to 1 March 2020 and remain open until at least 31 October 2020, although the government has confirmed that the scheme will be extended as necessary.
Employers are free to decide from when and for how long (within the above mentioned 3 month period) they wish to furlough staff, provided that employees are furloughed for a minimum period of 3 weeks.
However, employers should not backdate claims to cover periods during which the relevant employees wereworking.
4. Decide whether you will top up the employees’ salaries
Furloughed employees must, at a minimum, be paid the lower of 80% of their regular wage or £2,500 per month (as this constitutes the maximum amount the government will reimburse). You can however choose to top up the employee’s salary, although you are not obliged to do so (and any such top up will not be reimbursed under the scheme).
Note that employers can also claim any associated employer national insurance contributions and the minimum auto-enrolment employer pension contributions (in respect of the portion of each wage that is being reimbursed by the government).
Latest guidance has also now clarified that any “regular payments” that you are contractually obliged to pay your employees can also be claimed back from the government. Examples include wages, past overtime, fees and compulsory commission payments. The scheme does not however cover discretionary bonuses, tips, commission payments and non-cash payments (e.g. consideration in the form of options or shares).
5. Notify and obtain the consent of the selected employees
To change an employee’s employment status and/or reduce their pay and working hours, employers must obtain such employee’s consent to the proposed changes. Employees are not obliged to accept the new terms and should not be forced or coerced into doing so, but most are likely to accept (given the circumstances). Their agreement, in writing, is a specific requirement of the scheme and employers should keep a record of this communication 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.).
As an alternative to, or in combination with furloughing employees, you may also wish to consider asking employees to consent to working reduced hours or accepting reduced pay to help manage your cashflow. Please let us know if you would like more information on how to go about doing this.
5. Calculate the amount to be claimed
Before submitting your claim, you will need to calculate the value of your 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 help.
Note that the rules regarding what employers can claim are regularly updated. You can find the latest guidance from HMRC here.
6. Consider how you will fund any payroll liabilities in the interim
Based on the latest government guidance, any grants under this scheme are not likely to be paid until early May 2020. If there is a chance in the meantime that you will be unable to meet your payroll commitments, you should consider some of the other finance-related initiatives that the government has launched over the past few weeks.
7. 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 claim period (start and end date)
- The amount you are claiming (remember the minimum duration for furloughing an employee is 3 weeks)
- Your bank account number and sort code.
- Your contact name and phone number.
A walkthrough on how to use the portal can be found here.
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.