The Chancellor announced it will apply for employees furloughed from 1 March 2020. The scheme is only applicable for employees from the date they are furloughed but for businesses that laid off staff prior to the introduction of the scheme there is scope to re-hire those staff and put them on furlough instead.
How long will CJRS run for?
Initially CJRS was scheduled to run for a three month period, however the Chancellor has announced it will run until at least 31 October 2020.
What will the CJRS pay?
The CJRS is slightly more generous than most anticipated. CJRS grants will cover 80% of the gross salary of furloughed employees, up to £2,500 per month. However, it will also include further payment to cover the associated employer’s national insurance and minimum automatic enrolment employer pension contributions on that qualifying furloughed wage.
HMRC has confirmed that salaries for this purpose do include compulsory fees and commissions but do not include discretionary fees, tips, commissions or bonuses.
There are special rules for employees with variable pay or with variable contractual hours etc. We have provided some more detail below on special circumstances which require slightly more complex calculations. We expect further detail on such cases to emerge as further questions arise.
Can employers ‘top-up’ to maintain employees' current earnings?
Yes, employers can pay employees more than the grant amount if they choose to.
Will employers have to repay the CJRS?
The CJRS is described as a grant so it will not be repayable. HMRC have indicated that this they will be auditing claims made after the crisis has abated so suitable care needs to be taken with any claim.
When will the first payments be made?
The Government has indicated that following the portal going live on 20th April, the first payments will start to be made from the 30th April and any subsequent CJRS grant claim submissions should be paid within four to six working days.
Employers will still be required to operate payroll and make payments of PAYE and NIC as usual during the period for all workers, including those furloughed.
If you have cash flow pressures, you can consider agreeing a Time To Pay arrangement with HMRC to defer the PAYE, NIC costs that need to be paid. Please get in touch if you would like to discuss this.
How will CJRS be administered?
CJRS will fall under the remit of HM Revenue and Customs, who will pay grants to eligible employers based on claims made by employers. Employers can make claims every at least every three weeks and can be made in advance of an imminent payroll (when the application process is launched).
HMRC will retain the right to retrospectively audit all aspects of any claim.
Do employers have to ‘top up’ where the grant is below National Living Wage/National Minimum Wage?
Furloughed employees will not be subject to NLW/NMW as this legislation is based on hours worked so a top up is not compulsory as the employees are, by definition, not working. However, if employees are undertaking required training, for example, employers must ensure that employees receive NLW/NMW for the time spent training.
Do employees need to be completely furloughed or will employees whose hours are reduced qualify? Can jobs be split betwee employees?
HMRC has confirmed that employees need to be completely furloughed, as the scheme is to prevent redundancy. Employees who are on reduced hours or reduced pay will not qualify currently – however, an update is expected on this position by the end of May as the Government assesses how CJRS can support those returning to work from 1 August onwards.
All UK employers who make employees furlough will qualify, there are no restrictions for size or sector, including not for profits and charities. However, employers must have been operating a PAYE payroll on 19 March 2020 to be eligible.
Which employees will qualify?
Employees that were on the employer’s payroll on 19 March who are furloughed will be eligible. This includes those on full time, part time, agency, flexible hours and zero hours contracts.
Directors can be furloughed and still carry out their statutory duties.
HMRC has changed the reference date from 28 February to 19 March, those employed after this date will not be eligible.
Employees made redundant or those who stopped working for employers after 28 February can be rehired and furloughed. The employment law consequences of rehiring employees should be considered by the employer.
Employees on statutory sick pay (either sick or self-isolating) can be furloughed on their return to work. Those ‘shielding’ on government guidelines are not eligible for statutory sick pay and are able to be furloughed.
Employees on unpaid leave cannot be furloughed, unless it began after 28 February.
Employees on, or due to take: • Maternity Leave; • Paternity Leave; • Shared Parental Leave; and • Adoption Leave
Can be furloughed, but there are detailed rules and calculations applied to these scenarios. We can assist in these circumstances but the detail is outside the scope of this FAQ.
What does furlough mean?
Furlough has no special meaning in the law but in this context is similar to being laid off, and is for employees for whom there is currently no work but who are nevertheless retained on the payroll at zero hours and who would otherwise have been made redundant. Furloughed employees cannot undertake any work or services whilst furloughed (some required training is allowed).
The minimum period of furlough eligible for CJRS is a consecutive period of 3 weeks, and employees can be furloughed multiple times.
Do employees need to be completely furloughed or will employees whose hours are reduced qualify? Can jobs be split between employees?
HMRC have confirmed that employees need to be completely furloughed, as the scheme is to prevent redundancy. Employees who are on reduced hours or reduced pay will not qualify.
Will contractors qualify?
CJRS is only for payrolled employees so contractors and personal service companies (PSCs) who are not subject to PAYE will not qualify for CJRS, but support for those may be available through the Self-Employed Income Support Scheme or via CJRS through their own limited company if they have paid themselves via payroll.
How will this operate for employees on variable pay, Zero hours or flexible contracts?
HMRC have confirmed that for employees on zero hours/flexible contracts:
If they have been employed for longer than 12 months, it is the higher of the average monthly earnings for 2019/20, or their earnings from the same month the previous year.
If they have been employed for less than 12 months, it is the average of their monthly earnings since they started.
Past overtime can be included in these calculations.
What will employees be able to do during this furlough period?
As noted earlier, employees must not undertake any work or services or make any money for the employer whilst furloughed. HMRC have said where training is required, this is allowed, but no details have been made on what ‘required training’ means. Employees are able to volunteer whilst furloughed (for example, the NHS voluntary service) We understand however that the CJRS grant will also apply for those who return to work from 1 August 2020 onwards. We await further details on this (anticipated by end of May)
Will employees be able to undertake training during the furlough period?
Yes furloughed employees can undertake training provided the training is to develop their skills, does not generate income for the organisation and it not require them to provide services for the organisation.
Will businesses in administration be able to claim CJRS?
HMRC have confirmed that businesses in administration, are eligible for CJRS.
Will overseas businesses qualify?
If they have employees subject to UK PAYE, with a UK PAYE reference and bank account, then they will qualify.
How will this operate for temporary/fixed term contract employees?
Temporary employees and fixed term contracts will only be eligible for the length of their contract but HMRC have confirmed that these contracts can be extended. The employment law considerations of extending contracts should be considered by employers.
Can Office Holders be furloughed?
Office Holders can also be furloughed providing they do no more than nominal office holder statutory duties during that furlough period. Statutory duties are very limited and can be carried out but no services or revenue-generating work can be performed.
How does CJRS interact with current employment law?
Changing the status of employees remains subject to existing employment law. This means that furlough cannot be imposed on workers, instead, as with all changes to employment contracts it will be subject to negotiation and agreement. Similarly, employees cannot independently self-select for furlough. Volunteers can be sought but the employer has to offer furlough to individuals.
By what process should an employer identify employees to be furloughed? Can a request for volunteers be made?
It is likely to be similar to a redundancy process, and we believe the can be done through a compressed process which should take no longer than two weeks. Volunteers can be sought.
What is the process for notifying employees they are furloughed?
The advice we have so far is that, as with all changes to employment terms (e.g. hours worked, places of work, salary) this cannot be imposed by the employer but must be done by varying the employment terms through explicit signed agreement with the employee. This remains the case despite the current circumstances so employers cannot simply furlough people without consultation or written agreement. Furloughed employees should be notified in writing and records should be kept in case there is an audit by HMRC.
Do employees have to accept being furloughed?
As most employment contracts do not cover this scenario, employees cannot be forced the be furloughed. However, as furloughing is the alternative to redundancy, we would expect the majority to take this offer.
Can employers choose who may find it difficult to work in this period (such as parents)?
We think that this may effectively be achievable. It remains the case that the employer needs to show that the roles are at the threat of redundancy because there is not enough work. Employees in those roles can be offered furlough and people who have external pressures may choose to take the furlough.
What risks for discrimination claims when choosing employees could there be?
Equalities Acts and other anti-discrimination laws will apply to this as in other employee matter
Will those who are furloughed be first in line for future redundancies?
No – redundancy is a separate exercise and must be considered without reference to furlough.
Can employees who have been made redundant since 1 March be reinstated as furloughed?
HMRC has confirmed this is possible.
Could employers be tempted to furlough too many and create pressure for remaining employees?
We should be clear that the purpose of this package of measures from HMRC is to protect jobs – not to protect profit – and trying to run with a too few staff when there is still enough work available may cause them longer term issues.
Can employees find other work whilst furloughed?
The CJRS grant claim will be invalid if the employee carries out any work for their employer or a connected employer. However, they can work for other separate employers during the furlough period, subject to any employment law considerations (e.g. specific agreements within the furlough documentation).
What rights will furloughed employees have?
Employees that have been furloughed have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments. Employees can be made redundant during the period of furlough or at the end of a furlough period if the business so requires.
Interaction with Tax and Pension Questions
Will employers still have to operate PAYE?
Companies will need to operate their payroll as normal (including full pay for furloughed employees) and then submit records for a ‘refund’ for those employees who are furloughed.
Will the payment be subject to Employers National Insurance?
The payment is subject to employer’s National Insurance, but the grant will subsidise this cost also.
Will the grant be subject to corporation tax?
The grant will simply offset the cost of wages and salaries in the P&L for corporation tax purposes, so is in effect taxable.
Will employers still need to operate auto enrolment pension contribution?
Employers will still need to operate auto enrolment pension contributions, but the grant will repay the minimum automatic enrolment employer pension contributions on the employee’s wage.
Information contained in this presentation is confidential and is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. Please be aware that due to the nature and frequency of the announcements from the UK Government relating to the impact of Covid-19, information contained herein may change and require to be updated, and it should not be regarded as comprehensive or sufficient for making decisions.
This information should not be used as a substitute for consultation with a professional accounting, tax, legal or other competent adviser and specific advice in relation to your own affairs should be taken. Mazars LLP accepts no responsibility for any loss arising from any action taken or not taken by anyone using the material contained herein.
Get in Touch
If you have any questions about this scheme or any others you may be eligible for, please do not hesitate to get in touch.
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