Tis information is intended to provide general guidance. If you want specific advice, please book your Free 30 minute consultation call for advice on the myriad of issues the Coronavirus crisis has created, such as managing self-isolating and shielding employees, sick pay obligations, furloughing employees and staff issues that are starting to arise with staff who have already been furloughed, laid off, or who are working from home.
We have collated information from a variety of reliable sources and provide it here in our COVID-19 FAQs to ensure UK Employers are aware of their legal obligations and to assist them to deal with the various implications imposed by the rapid spread of the COVID-19 (Coronavirus) outbreak. The information provided here is intended as general advice. If you want specific advice, please book your Free 30 minute consultation call.
First published: 19 March 2020
Last updated: 7 May 2020
7 May 2020: Do disciplinary and grievance proceedings have to be paused while an employee is on furlough? following the publication of the Acas guidance Disciplinary and grievance procedures during the coronavirus pandemic.
1 May 2020: Comprehensive update with new sections added and updates made in light of Treasury Direction and updated government guidance.
21 April 2020: Comprehensive update on calculating 80% furlough pay to reflect the additional information provided by the 80% Guidance published by HMRC.
18 April 2020: Comprehensive update to reflect Treasury direction to HMRC on details, rules and eligibility requirements of the Scheme.
15 April 2020: Updated information on payroll date and eligibility.
9 April 2020: New information on eligibility and pension contributions has been added.
4 April 2020: This guidance has been updated with more information about the Coronavirus Job Retention Scheme.
19 March 2020: First published.
What is the legal status of the Treasury direction?
On 15 April 2020 the Chancellor issued The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction (15 April 2020)) (Treasury direction). The Treasury direction was issued under sections 71 and 76 of the Coronavirus Act 2020 which provide for HMRC to have such functions as the Treasury may direct in relation to COVID-19. The Treasury direction provides the direction envisaged by section 76, and the schedule to the direction sets out the rules, detail and eligibility requirements of the scheme.
Our understanding is that the Treasury direction takes precedence over the guidance where the guidance deviates from it. From HMRC’s perspective, its functions in respect of the CJRS are defined by the Treasury direction. We would expect HMRC to implement the CJRS in accordance with that direction in order to ensure that it acts within its powers.
We understand that HMRC have indicated in response to correspondence requesting clarity on inconsistencies between the Treasury direction and the guidance that it will read the Treasury direction in light of the guidance. However, it is difficult to see how HMRC could lawfully do this where there is a direct contradiction between the instrument that gives them the power to operate the CJRS and sets out the terms of that power, and their own guidance. If HMRC make payment to employers in circumstances where they are not entitled to do so under the Treasury direction, then it could be acting unlawfully and ultra vires.
How does an employer make a claim to HMRC for reimbursement?
To claim, the employer will need to be enrolled for PAYE online and submit via the Government gateway:
Claims can be backdated to 1 March 2020 if applicable.
HMRC have sped up the process for employers to register for PAYE online.
The claim can only be made at the point at which the employer runs payroll or in advance of an imminent payroll because actual payroll amounts need to be submitted.
If the employer is claiming in respect of fewer than 100 furloughed employees, the employer will be asked to enter details of each employee.
Where the employer has an agent authorised to act for PAYE purposes, the agent will be able to submit the claim on the employer’s behalf (see Claim guide). However, where employers use a file-only agent (who only files their RT1 return but does not act on other matters) that agent will not be able to submit the claim on their behalf.
For information on reporting employees’ wages to HMRC where reimbursement is being claimed through the CJRS, including where payment has been deferred until reimbursement is received, see the Reporting wages guidance.
Reimbursement will be paid via BACS payment to the nominated bank account.
Claiming for 100 or more furloughed employees
Where the employer is claiming in respect of 100 or more furloughed employees, the employer will be asked to upload a file (in .xls, .xssx, .csv or .ods format) containing the following information rather than input it directly into the system:
The 27 April 2020 update to the Claim guide states that when providing information in respect of 100 or more furloughed employees, the employer should ensure that:
What happens after a claim is submitted?
After an employer has submitted their claim they will receive a claim reference number. HMRC will then check that the claim is correct and pay the claim amount via BACS into the employer’s bank account. The employer must:
How long does it take for HMRC to pay employers after they submit their claims?
On 8 April 2020, HMRC advised the Treasury Committee that it is aiming to pay employers four to six working days after submission of their claim. The Claim guidance commits HMRC to pay within six working days, but states that employers should not contact HMRC until they have not received payment more than 10 working days after submitting their claim.
The Acas guidance previously advised that HMRC will make payments every three weeks, because three weeks is the shortest period furlough can last. However, this has now been removed.
What help will HMRC provide to employers to assist them in submitting their claims?
HMRC has also increased the number of employees on its helpline to meet the expected demand now the online portal has opened. For information on the methods of contacting HMRC including webchat and telephone, see Get help with the Coronavirus Job Retention Scheme. HMRC’s aim is for all employers to be able to “self-serve” and use the online portal without additional assistance. It has therefore said that it will further expand its current guidance if it receives feedback from stakeholders and employers that this is necessary.
Can an employer make multiple claims in respect of the same period?
No. Employers may furlough different groups and numbers of employees at different times but an employer can only make one claim during a claim period for each PAYE scheme it operates (see section 1 of the Step by step guide and paragraph 4 of the Treasury direction).
Each claim must include all furloughed employees on the relevant PAYE scheme because only one claim per scheme is permitted, and HMRC has confirmed that employers cannot make changes to their claim once it has been submitted (see the “How to claim” section of the 80% guidance).
What is meant by “claim period”?
The term “claim period” does not appear to be defined in the HMRC guidance or the Treasury direction but the 80% guidance provides that an employer can specify their own claim period. This is supported by the CJRS calculator which states: “The figures are for one employee, for the claim period you specify.” (our emphasis).
Although the minimum furlough period is three weeks, we do not understand there to be an obligation to make a claim every three weeks. There does not appear to be a minimum or maximum period for each claim for reimbursement, and it does not appear that employers are required to use the same claim period in each claim.
The CJRS calculator states that an employer can start its claim period on 1 March 2020 (the earliest possible start date for claims under the CJRS). On the second page of the calculator, an employer can specify the end date of their claim period. The calculator states:
“What’s the end date of this claim?
Choose a suitable date, for example one that aligns with your payroll run.
This date cannot be more than 14 days after today’s date.
You can make subsequent claims if the employees remain on furlough after the end date of this claim.”
Employers may decide to submit a claim before running payroll in order to ensure that funds are received in time to make payment. The employer can apply up to 14 days before the end of the claim period it has chosen, but payment may take up to six working days, so there may be a relatively narrow window to achieve this result. The Step by step guide states:
“You will receive payment six working days after making an application. If you wish to receive a payment from the scheme by the end of the month, you will need to submit your claim at least six working days in advance for the money to clear into your bank account.”
Which employers are eligible for reimbursement?
The scheme is open to an employer who:
This includes businesses, charities, recruitment agencies with agency workers paid through PAYE, and public authorities.
However, this may be an administrative requirement for HMRC to make reimbursement as it has previously stated that the CJRS system cannot currently make reimbursements in Euros . On 27 April 2020 the Claim guidance was updated to provide that the employer’s UK bank account must be able to accept BACS payments.
The previous uncertainty over whether an organisation needs to have a particular link to the UK, such as incorporation in the UK, beyond the above criteria was removed by the 4 April 2020 update to the guidance. It is clear that any entity which falls within the above categories may apply.
Where a company is in administration, the administrator will be able to access the CJRS. However, it is expected that an administrator would only access the scheme if there is a reasonable likelihood of rehiring the workers in light of, for example, an anticipated sale of the business.
Are public sector, local authority and charity employers covered?
Yes, although the government expects that the scheme will not be used by many public sector organisations, as the majority of public sector employees are continuing to provide essential public services or contribute to the response to the coronavirus outbreak.
Where employers receive public funding for staff costs, and that funding is continuing, the government expects employers to use that money to continue to pay staff as usual rather than put them on furlough. This also applies to non-public sector employers who receive public funding for staff costs.
Organisations who are receiving public funding specifically to provide services necessary to respond to COVID-19 are not expected to furlough staff.
In a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate (Employer’s CJRS guidance).
The Treasury direction does not prevent public sector employers from accessing the CJRS, or put any restrictions on their eligibility.
The government has issued specific guidance on the use of the CJRS by education, early years and children’s social care providers in England (DfE guidance, Coronavirus (COVID-19): financial support for education, early years and children’s social care). The guidance sets out specific conditions for access to the CJRS for these employers. This includes early years providers which have a mix of public funding through the free early education entitlements, and private income.
The scheme covers the individuals detailed below, whether they are employees or workers, provided that they were on a UK employer’s PAYE payroll and notified to HMRC on an RTI submission on or before 19 March 2020. Previous versions of the guidance contained a cut-off date of 28 February 2020 in this context, but this was revised to 19 March 2020 in the update published on 15 April 2020.
Making eligibility under the CJRS subject to the existence of an RTI submission for a furloughed employee may have consequences for certain groups of employees, particularly new employees. For example, if an employee’s pay is processed for the first time in the March payroll (potentially towards the end of March), the cut-off date of 19 March 2020 may not be met. The Employers’ CJRS guidance makes clear that an employee who was employed on 19 March 2020 will not be eligible for the CJRS if the RTI submission notifying HMRC was not made until after 19 March 2020.
The following table, taken from the Employers’ CJRS guidance explains the position:
|Was the employee employed with you as of this date?||Date RTI submission notifying payment was made to HMRC||Eligible for CJRS?|
|28 February 2020||On or before 28 February 2020||Yes|
|28 February 2020||On or before 19 March 2020||Yes|
|28 February 2020||On or after 20 March 2020||No|
|19 March 2020||On or before 19 March 2020||Yes|
|19 March 2020||On or after 20 March 2020||No|
|On or after 20 March 2020||On or after 20 March 2020||No|
An employer can claim in respect of the following:
Non-UK nationals can be furloughed by a UK employer (Employees’ CJRS guidance). Grants under the scheme are not counted as “access to public funds” and an employer can furlough employees on all categories of visa.
Where an employee has more than one job, their employments are treated separately for the purposes of furlough, and the reimbursement cap applies to each employer individually.
Employees on fixed term contracts can be furloughed.
For information on particular categories of employees, see the following sections:
Which workers are covered?
The 4 April 2020 update to the Employers’ CJRS guidance clarified that some individuals who may not be employees under employment law will be eligible for the CJRS.
It provides that the grant can be claimed for the following groups, if they are paid via PAYE:
“Employment”, “employed”, “employer” and “employee” for the purposes of the scheme have the meaning as set out in section 4 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) rather than their meanings under the Employment Rights Act 1996 (ERA 1996) (paragraph 13.1(e), Treasury direction). Workers are therefore included, provided that they meet the section 4 ITEPA definition of an employee, were on the employer’s payroll on 19 March 2020 and are paid through PAYE. The guidance contains the further comment on each of these groups.
Consistent with other types of employees and workers, furlough will need to be agreed between the office holder and the party that operates PAYE on the income they receive for holding their office. Where the office holder is a company director or member of an LLP, the furlough arrangements should be adopted formally as a decision of the company or LLP.
Salaried company directors are eligible to be furloughed and receive support through the CJRS. Directors’ duties under the Companies Act 2006 must be considered by the board when considering whether to furlough a director. A decision to furlough a director should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director concerned.
The Treasury direction provides that work undertaken by a director to fulfil a legal obligation to file company accounts or provide other information relating to the administration of the company is permitted (paragraph 6.5). This is narrower that the HMRC guidance which provides that furloughed directors are entitled to continue to carry out such duties as are reasonably necessary to fulfil the statutory obligations they owe to their company. The guidance provides that furloughed directors should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company.
This also applies to salaried individuals who are directors of their own personal service company (PSC).
On 8 April 2020, HMRC advised the Treasury Committee that directors’ dividends cannot be taken into account when calculating furlough pay as it is not possible for HMRC to identify which dividends have been received in lieu of wages.
Salaried members of limited liability partnerships
Members of LLPs who are designated as employees for tax purposes (“salaried members”) under the Income Tax (Trading and Other Income) Act (ITTOIA) 2005 are eligible to be furloughed and receive support through this scheme.
To furlough a member, the terms of the LLP agreement (or any such agreement between the LLP and the member) may need to be varied by a formal decision of the LLP. The guidance states that, for example, the LLP agreement may need to be amended to reflect the fact that the member will perform no work for the LLP for the period of furlough, and the effect of this on their remuneration from the LLP.
For an LLP member who is treated as being employed by the LLP (in accordance with section 863A of the ITTOIA 2005), the reference salary for this scheme is the LLP member’s profit allocation, excluding any amounts which are determined by the LLP member’s performance, or the overall performance of the LLP.
Agency workers who are paid through PAYE are eligible to be furloughed, including where they are employed by umbrella companies.
It is assumed that it will be the agency rather than client who is putting the worker on furlough as it will normally be the agency that is operating PAYE in respect of the worker. Furlough should therefore be agreed between the agency and the worker, although the guidance provides that it would be appropriate to discuss furlough with any end clients involved.
Agency workers should perform no work for, through, or on behalf of the agency that has furloughed them while they are furloughed, or for the agency’s clients.
Where an agency supplies clients with workers who are employed by an umbrella company that operates the PAYE, it will be for the umbrella company and the worker to agree whether to furlough the worker and put arrangements in place.
“Limb (b) workers”
Workers who are not employees are often known as “limb (b) workers” because the definition of worker, which goes beyond the traditional definition of employee, in the ERA 1996 is found in section 230(3)(b) (although the definition of worker is also used in other legislation).
As we mention above, the question in the context of the CJRS is whether the limb (b) worker is paid through PAYE and it is likely that employment status would be determined by tax law rather than employment law principles.
What issues arise when an employer is considering furloughing casual or zero hours workers?
It is clear under HMRC’s guidance that “limb b” workers can be furloughed provided that they were on a UK employer’s PAYE payroll and notified to HMRC on an RTI submission on or before 19 March 2020 (or 28 February if subsequently re-engaged).
However, certain aspects of the scheme do not sit easily with the way in which zero hours and other casual workers work, and these issues may discourage employers from furloughing such workers.
Zero hours and some other casual workers do not have fixed contractual hours and are reliant on the employer offering work, which the employer can usually do at its discretion. In addition, workers who are not employees under the ERA 1996 cannot claim unfair dismissal and do not have the right to a minimum statutory notice period. Employers may therefore decide to end zero hours or casual workers’ contracts, or simply stop offering them work, rather than put them on furlough in order to avoid the issues below. This does not appear to be the intention behind the scheme, but it may be an unfortunate effect of the uncertainties in the Treasury direction.
Some of the issues which are likely to be particularly tricky in relation to “limb b” workers include:
Furloughing contractors in the public sector who are employees under the off-payroll working rules
The 9 April 2020 update to the guidance states that, in a small number of cases, contractors who are deemed employees according to the off-payroll working rules might be eligible to be furloughed.
Where a public sector organisation wishes to furlough a contractor, they must confirm this with both the contractor’s Personal Service Company (PSC) and the fee-payer (as set out in the off-payroll working rules, usually the agency paying the contractor’s PSC). It should be formally agreed between these parties that the contractor is to do no work for the public sector organisation during their furlough period. The fee-payer would be able to apply for the furlough payment of 80% of the monthly contract value, up to a maximum of £2,500, as well as the employer NICs on that subsidised wage. The fee-payer would then pay at least the amount of wage-grant received to the PSC, and report the payment via PAYE using the contractor’s details, making the usual tax and NICs deductions for contracts in scope of the off-payroll rules. The PSC would then be required to report the amount it pays to the contractor as deemed employment income via PAYE using box 58A on the PAYE Real Time Information return.
Where a contractor is continuing to receive payments from a public sector client (including through the CJRS or other any other scheme), income from this client should be excluded from any calculation of the reference pay for the purposes of the CJRS if the contractor also decides to furlough themselves as an employee or director of their own company.
For further information, see the section “Contractors with public sector engagements in scope of IR35 off-payroll working rules (IR35)” in the Employers’ CJRS guidance.
Are the self-employed covered?
No, but a scheme is being set up to provide the self-employed with similar rights.
How are fixed-term employees treated?
Employees on fixed term contracts can be furloughed. Their contracts can be renewed or extended during the furlough period without breaking the terms of the CJRS provided that the extension takes place before the contract ends (Employers’ CJRS guidance and Employees’ CJRS guidance). Previously, the guidance stated that, where a fixed term employee’s contract ends because it is not extended or renewed then the employer will no longer be eligible for the grant. However, the Employers’ CJRS guidance and the Employees’ CJRS guidance were updated on 23 April 2020 to reflect the Treasury direction and put fixed-term employees in the same position as other individuals in terms of eligibility.
Paragraph 5 of the Treasury direction provides that, as long as the employee appeared on a return to HMRC made on or before either 28 February or 19 March 2020, their employment did not terminate before that date, they are furloughed in accordance with paragraph 6 and they meet the conditions in paragraph 7 then it seems the employer can claim reimbursement of wages following re-engagement. The table in the “Which employees are covered?” section summarises eligibility in terms of employee start date and RTI submission. Employees who started and ended the same contract between 28 February and 19 March 2020 will not qualify for the scheme on the basis that they do not meet the eligibility requirement of being employed on either 28 February or 19 March.
Any application for reimbursement must be made in the context of the aims of the scheme However, HMRC appear to take the view that there is no policy objection, in principle, to fixed-term employees whose contracts have terminated being re-engaged for the purposes of furloughing them.
Does the employee have to be at risk of redundancy to be covered by the scheme?
The Treasury direction provides that the purpose of the scheme is to “provide for payments to be made to employers on a claim made in respect of them incurring costs of employment in respect of furloughed employees arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease.”(paragraph 2.1) and that an employee is a furloughed employee if “the instruction is given by reason of circumstances arising as a result of coronavirus or coronavirus disease” (paragraph 6.1(c)).
The precise circumstances in which an employer can put employees on furlough and claim reimbursement through the CJRS were previously unclear due to inconsistencies between the various pieces of guidance and previous references to redundancy and lay-off. The Treasury direction appears to clarify that a redundancy situation is not a pre-condition for access to the scheme. It suggests that, provided there is a connection between putting employees on furlough and the consequences of COVID-19, the purpose of the scheme will be met. When using the portal to make a claim, employers are required to confirm that they are claiming “costs of employing furloughed employees arising from the health, social and economic emergency resulting from coronavirus”.
This is consistent with the updates to the Employers’ CJRS guidance. It states that the scheme is designed to “help employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy”. However, it goes on to state that all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus. It therefore suggests that there is no specific requirement for furlough to be offered as an alternative to redundancy or lay-off, provided that the employer’s operations were affected by COVID-19 and the application to the CJRS is a consequence of that.
The fact that employers are entitled to re-engage employee who stopped working for them after 28 February 2020 for reasons other than redundancy also supports the conclusion that a redundancy situation is not a prerequisite for qualifying for reimbursement.
In light of the Treasury direction and updated guidance, it appears that furlough needs to be offered in the context of the impact of the COVID-19 pandemic, but there is unlikely to be a forensic analysis of the circumstances of furlough by HMRC. However, the Treasury direction does provide that no claim may be made where it is abusive or otherwise contrary to the exceptional purpose of the CJRS (paragraph 2.5). Also, the government’s Business support: FAQs state that the government will retain the right to retrospectively audit all aspects of the scheme with scope to claw back fraudulent or erroneous claims.
Can an employer move employees who are already on reduced hours onto furlough?
Some employers have already placed employees temporarily onto reduced hours and pay due to the downturn in work as a result of the pandemic. The employer will not be able to seek reimbursement in respect of wages costs for employees who are still working on reduced hours (Employers’ CJRS guidance). The scheme only applies where employees are put on furlough.
The Treasury direction makes clear that an employer can furlough employees and claim reimbursement due to circumstances arising as a result of COVID-19 (see the section “Can employees who elected to take unpaid leave to be able to look after their children home from school or nursery be put on furlough instead?”).The underlying purpose of the scheme seems to be to assist struggling employers and keep employees in employment even where there is currently no work for them to do. There seems to be no reason in principle why an employer should not move employees from reduced hours onto furlough, particularly if the employer’s financial circumstances change.
The difficulty with this point is that the scheme may financially disincentivise employers from keeping their business open. Keeping a business running with staff on reduced hours allows an employer to keep a revenue stream and retain customer loyalty. However, this is likely to be more expensive for the employer than putting all staff on furlough and have HMRC pay 80% of their wages.
Can trainee solicitors be furloughed?
The SRA has issued guidance confirming that the requirement for appropriate supervision of trainees may be satisfied where firms put in place sensible arrangements for supervisors to review trainees’ work remotely (SRA: Coronavirus update – Education and training Q&A). It may therefore be possible for law firms to continue with trainees’ training during the pandemic. If furlough is under consideration then the Law Society has confirmed that trainee solicitors can be furloughed in the same way as any other qualifying employee (The Law Society: Coronavirus job retention scheme guidance for law firms).
Whether a trainee’s period of recognised training needs to be extended will depend upon the length of time the trainee is on furlough (SRA: Coronavirus update – Education and training Q&A).
Can employees whose employment terminated before or after the scheme was announced be re-engaged by their previous employer and furloughed?
Yes, the Employers’ CJRS guidance and the Employees’ CJRS guidance confirm that employees who were made redundant or otherwise stopped working after 28 February 2020 can qualify if they meet the eligibility requirement and are re-engaged by their former employer. They will qualify from the date they are put on furlough (Employees’ CJRS guidance).
The guidance previously only referred to those who were made redundant, but it was updated on 4 April 2020 to confirm that re-engagement and furloughing extends to anyone who “stopped working” for the employer on or after 28 February 2020. This is consistent with the statement by the Chancellor in his Q&A on Twitter on 3 April 2020 that anyone on their previous employer’s payroll on 28 February 2020 who then left “for whatever reason” can be re-engaged by their previous employer, if it agrees, and then furloughed.
There was a discrepancy between the guidance and the Treasury direction in terms of whether termination needs to have taken place by 19 March 2020. Previously, both the employer and employee guidance stated that re-engaged employees must have stopped working between 28 February and 19 March 2020. However, the terms of paragraph 5(a) of the Treasury direction provide that termination after 19 March 2020 does not affect eligibility for the CJRS, provided that they are re-engaged and put on furlough in accordance with the rules. It seems that the employer can claim reimbursement of wages following re-engagement provided that:
The Employers’ CJRS guidance and the Employees’ CJRS guidance were updated on 23 April 2020 to reflect this position. See the “Which employees are covered?” section for a table summarising eligibility based on start date and notification to HMRC on an RTI submission.
Where an employee is being furloughed by their current employer, they should not be re-engaged by their former employer in order to put them on furlough.
However, the compatibility of re-engagement with the purpose of the CJRS needs to be considered (see the “Is the re-engagement and furloughing of a former employee in accordance with the exceptional purpose of the CJRS?” section
Is the re-engagement and furloughing of a former employee in accordance with the exceptional purpose of the CJRS?
It is not clear how the re-engagement and furloughing of a former employee fits with the aim of the scheme.
The purpose of the CJRS is to provide reimbursement for costs incurred by an employer in respect of furloughed employees arising from the health, social and economic emergency resulting from COVID-19 (paragraph 2.1, Treasury direction). No CJRS claim may be made if it is contrary to this “exceptional purpose”.
In addition, an employee is only a furloughed employee if the instruction to cease work is given by reason of circumstances arising from COVID-19 (paragraph 6.1(c), Treasury direction).
If an employee is re-engaged solely to allow them access to an income through the scheme then arguably the employer is only incurring the cost concerned because they have taken the decision to re-engage, rather than because of the effects of COVID-19. This is particularly so if their original termination had nothing to do with the pandemic. Even if the employee was dismissed in the context of the pandemic, the employer is under no obligation to re-engage them so the argument remains that the costs incurred by an employer in paying an employee who was re-engaged for the sole purpose of furloughing them arises from the decision to re-engage rather than the effects of COVID-19.
Although the requirement under paragraph 6.1(c) may be met in the sense that the employee, once re-engaged, needs to be furloughed because (for example) the employer does not have work for them, there is arguably real difficulty in satisfying the overarching purpose of the scheme in paragraph 2 in this context.
Employers may take the view that HMRC will give the exceptional purpose a broad interpretation to reflect the government’s enthusiasm for re-engagement of former employees, but there is clearly a risk that such a claim could be found to be invalid on the basis of the parameters of the scheme set out in the Treasury direction.
What about employees who had already been given notice of redundancy before the CJRS was announced?
It seems possible under the rules of the scheme for an employer to propose to employees who have been given notice of redundancy but are still employed, that they be put onto furlough instead.
However, unlike employees who are expecting to have a continuing relationship with their employer (and agreeing to a reduction in their pay in order to save jobs), an employee’s consent may not be forthcoming where they have already been given notice of termination and are due to be leaving their employment.
The employer would also need to consider the employee’s entitlement to statutory notice pay whether the aims of the scheme are met if the costs of paying the employee during their notice would be incurred regardless of the pandemic.
Can an employee who was given notice of redundancy after the introduction of the scheme be furloughed during their notice period?
The guidance does not specifically deal with this issue. However, it is likely that similar considerations apply where an employee is given notice of termination prior to the introduction of the scheme.
Can an employee who resigned before the furlough scheme was introduced and is working their notice be furloughed?
The government guidance does not specifically deal with this issue but it seems possible provided that the employee meets the usual eligibility criteria in terms of start date and timing of RTI submission.
However, this is subject to the following:
Can employees on unpaid leave be furloughed?
The guidance was amended on 15 April 2020 to provide that an employer can furlough employees whether or not their unpaid leave started before or after 28 February 2020. This includes those who went on unpaid leave to care for children at home due to school and childcare facilities closing and to care for vulnerable individuals in their household (see Employees’ CJRS guidance).
The 15 April 2020 update to the guidance states that, if an employee went on unpaid leave on or before 28 February 2020, they cannot be furloughed until the date on which it was agreed that they would return from unpaid leave. This is confirmed in paragraph 6.4 of the Treasury direction which also states that where the duration of the leave was uncertain because its duration is determinable by reference to a particular circumstance, completion of a particular purpose or occurrence of a specified event, the end date of the unpaid leave is the ending of the circumstance, completion of the purpose or occurrence of the event.
This appears to apply to those who are on statutory leave (discussed further below) and others on non-statutory unpaid leave which commenced on or before 28 February 2020.
Can employees on statutory family leave be furloughed?
Yes. The Employers’ CJRS guidance, Treasury direction and the 80% guidance make it clear that an employee can be on statutory family leave and furlough at the same time. The employer can claim through the CJRS in respect of any enhanced contractual family leave pay. However, where a woman started the unpaid part of her additional maternity leave (after 39 weeks) before 28 February 2020, she will not be able to be furloughed until the date when her maternity leave was due to end (paragraph 6.4, Treasury direction).
Can employees who elected to take unpaid leave to be able to look after their children home from school or nursery be put on furlough instead?
The 4 April 2020 update to the Employers’ CJRS guidance clarified that employees who were unable to work because of caring responsibilities arising from COVID-19 can be furloughed. However, the guidance and the Treasury direction also state that those who went on unpaid leave before 28 February 2020 cannot be furloughed until their unpaid leave comes to an end on the date previously agreed. It appears that this will also apply in respect of those who took unpaid leave to look after children, although it is unlikely that many employees will have done so prior to 28 February 2020 given that schools and nurseries were still open at that point.
Can you put employees on long-term sick leave on furlough?
The 9 April 2020 update to the Employers’ CJRS guidance is clear that, for short-term absences as a result of COVID-19 or because an employee is self-isolating, statutory sick pay (SSP) should be paid, subject to the eligibility requirements being met. It states that the CJRS is not intended to cover short-term sickness absence, as there is a three-week minimum furlough period, and short-term illness or self-isolation should not therefore be a consideration in deciding whether to furlough an employee. However, it then goes on to say that employers are entitled to furlough employees who are on sick leave, provided that they otherwise qualify and their sick pay ceases. This suggests that employers have the choice whether to keep an employee on sick leave or place them on furlough where they are sick at the point furlough is being considered. However, this is contrary to what the Treasury direction says, as explained below.
For longer term absences, the guidance states that employers can furlough employees for business reasons that are currently off sick, in the same way as other employees. If an employer furloughs those employees, they should no longer receive sick pay and would be classified as a furloughed employee. The guidance therefore suggests that employees on short-term and long term-sick leave can be treated in the same way in terms of furlough, although the wording seems to encourage employers to keep employees on short-term absence on sick leave until they are fit to work and then consider furlough.
The Treasury direction suggests otherwise. It provides that where SSP is payable (or liable to be payable, whether or not a claim is made) when the employee consents in writing to be furloughed, the period in respect of which a claim can be made from the CJRS does not start until the SSP entitlement period has ended, although any subsequent period of entitlement to SSP must be disregarded (paragraph 6.1). This is consistent with the previous version of the guidance which stated that employees who are on sick leave or self-isolating could be furloughed once they were no longer receiving SSP. We consider that the Treasury direction should be followed on this issue as our understanding is that it takes precedence over the guidance where there is a direct conflict. The consequence of this is that an employer may only be able to recoup furlough pay for an employee once their entitlement to SSP has ended whether or not the employee is actually receiving SSP.
An employer can claim back from the SSP rebate scheme and the furlough scheme in respect of the same employee but not for the same period of time.
Further, paragraphs 6.4 and 6.5 of the Treasury direction appear to mean that an employee on long-term sick leave whose unpaid period of sick leave started before 28 February 2020 (their SSP and contractual sick pay entitlement having ended) cannot be furloughed until they are fit to return to work (being the “ending of the circumstance” that led the employee to be on unpaid leave).
Where an employer is selecting which employees to designate as furloughed, they must be mindful of the risk of discrimination if selection is linked to a protected characteristic such as disability.
For the position in respect of an employee who falls sick during furlough, see What happens if a furloughed employee becomes sick? section.
What happens if the employer has relied on the HMRC guidance and furloughed employees on SSP, contrary to the conditions in the Treasury direction?
It is our understanding that the Treasury direction takes precedence on the basis that it is a direction from the Treasury to HMRC setting out HMRC’s function under section 76 of the Coronavirus Act 2020. From HMRC’s perspective, its functions in respect of the CJRS are defined by the Treasury direction and we would expect that it would act in accordance with that direction to ensure that it acts within its powers, rather than its own preceding guidance. We understand that HMRC have indicated in response to correspondence from a solicitor on a different contradiction between the Treasury direction and the guidance that they will read the Treasury direction in light of the guidance. However, it is difficult to see how they could do this where there is a direct contradiction between the instrument that gives them the power to operate the CJRS and sets out the terms of that power, and their own guidance.
If HMRC does adhere to the Treasury direction, it leaves employers who have furloughed an employee in reliance on the guidance but contrary to the Treasury direction, in a difficult financial and practical position.
The employer will have agreed a variation of contract with the employees such that they have the right to the furlough rate of pay rather than SSP. The employer may be able to bring furlough to an end (depending on the terms of the furlough agreement) and put the employee back onto SSP, but whether they can do this from a contractual perspective will depend on the circumstances. In addition, the employer still won’t be able to recover the “furlough pay” which has already fallen due to the employee, unless the employee is willing to waive their right to it, or, potentially, if the furlough agreement provided that the amount paid to the employee would be no more than that received from HMRC.
If the employee was only eligible for SSP for a relatively short period, then it may be that the employer can live with their furlough (and recovery of pay) starting from the point that their eligibility for SSP ends. However, the employer would need to ensure that the length of furlough is at least 21 days, from the point that entitlement to SSP ends.
It is hoped that HMRC will clarify its position on reimbursement for employers who acted quickly in reliance on the guidance in order to avoid further complication and uncertainty for the employers and employees concerned.
It is possible that judicial review proceedings could be brought if HMRC acts contrary to its published guidance, but this would require detailed consideration which is outside the scope of this note. We understand that, when making an application for reimbursement through the portal, employers are required to confirm that the claim is made in accordance with HMRC guidance and there is no mention of the Treasury direction.
Can employees who are shielding be placed on furlough?
The position is not clear because employees who are shielding are now entitled to SSP following the amendments made by the Statutory Sick Pay (General) (Coronavirus Amendment) (No. 3) Regulations 2020 (SI 2020/427) (Coronavirus Amendment No. 3 Regulations) which came into force on 16 April 2020.
The Employers’ CJRS guidance and the Acas guidance currently state that employers are entitled to furlough employees who are unable to work because they are shielding in line with public health guidance, or because they need to stay at home with someone else who is shielding. The requirement for shielding employees to be otherwise redundant were removed by the 9 April 2020 update to the guidance.
As shielding employees are now entitled to SSP and the Treasury direction appears to state that an employee cannot be furloughed while they are entitled to SSP (whether or not they are actually receiving it) (see Can you put employees on long-term sick leave on furlough?), there is a risk that an employer will not be able to recoup the furlough pay of a shielding employee they place on furlough under the terms of the CJRS.
The position is complicated further by the Explanatory memorandum to the Coronavirus Amendment No. 3 Regulations which states at paragraph 7.2 that:
“This instrument ensures entitlement to SSP in cases where people are unable to work because they are shielding themselves in accordance with the guidance and where they meet the SSP eligibility criteria as set out above in 6.1. This is intended as a safety net for individuals, in cases where their employer chooses not to furlough them under the Coronavirus Job Retention Scheme and does not have other suitable policies in place (e.g. the ability to work from home, or the provision of special leave).”
This suggests that the regulations are intended to only extend SSP entitlement to employees who are shielding where they have not been furloughed. If this were the case then, arguably, such employees would not be excluded from eligibility for furlough because their entitlement to SSP has not yet arisen (although the argument is rather circular). The difficulty with this, aside from the circularity, is that it would require the explanatory memorandum to take precedence over the wording of the regulations, which does not impose any such precondition on eligibility for SSP. Although an explanatory memorandum may be used to aid interpretation where the wording is ambiguous, it seems unlikely that it could be used to read in eligibility requirements which are plainly not included in the drafting of the regulations.
However, there is a further complication because the Coronavirus Amendment No. 3 Regulations only came into force on 16 April and do not have retrospective effect. This means that the position could be different depending upon when the employee was furloughed
Furloughed before 16 April 2020
As we explain, above, prior to 16 April 2020 employees who were shielding were not entitled to SSP. This means that, arguably, paragraph 6.3 of the Treasury direction does not apply to the furlough of shielding employees before that date. Paragraph 6.3 provides that where SSP is payable in respect of an employee at the time they were instructed to cease all work then furlough cannot begin until entitlement to SSP ends. If there was no entitlement to SSP at the time the direction was given to cease work then this section of paragraph 6.3 does not seem to apply and the employer may be able to claim from the CJRS.
Paragraph 6.3 also provides that any subsequent entitlement to SSP by virtue of the employee becoming unfit for work again during furlough can be disregarded. However, the use of “again” suggests that this confirmation relates only to those who were on SSP prior to furlough and have become sick again. The Treasury direction is silent on those who have a new entitlement to SSP during furlough. However, the guidance states that an employer has a discretion as to whether or not to keep such employees on furlough or move them off furlough and onto SSP.
As matters currently stand, in our view, there is nothing in the Treasury direction to prevent employers from claiming in respect of shielding employees who were furloughed prior to 16 April 2020, on the basis that they were not entitled to SSP at the time they were furloughed.
Furloughed on or after 16 April 2020
In contrast, as matters currently stand, in our view, employers who put shielding employees on furlough on or after 16 April 2020 will not be able to claim from the CJRS if HMRC follows the Treasury direction. This is because the Coronavirus Amendment No. 3 Regulations are clear that SSP eligibility arises from shielding, and the Treasury direction is clear that HMRC does not have the power to reimburse where the employee is eligible for SSP at the point that they are instructed to cease work.
We hope that further clarification on this point is provided by the government.
Can employees who are on compassionate leave be required to return to work and be put on furlough?
If the compassionate leave is unpaid and it began before 28 February 2020 then it appears that the employee could not be put on furlough until the date on which it was agreed they would return from the compassionate leave.
If the compassionate leave is paid, it seems that the employee could be furloughed while still on compassionate leave, in a similar way to the ability to furlough an employee on sick leave. However, where the employee is contractually entitled to their full salary while on compassionate leave, the employer would either need to top this up or reach an agreement with the employee to receive only the furlough pay covered under the CJRS. Any discussions on ending compassionate leave early should be approached sensitively.
Can a new or expectant mother suspended on health and safety grounds be furloughed?
There are special duties that apply in respect of new or expectant mothers in the workplace (regulation 16, Management of Health and Safety at Work Regulations 1999/3242and section 68, Employment Rights Act 1996). In short, where there is a workplace risk and certain conditions are satisfied, an employer must suspend a new or expectant mother on full pay. The period of suspension should be kept as brief as possible and once the suspension ends, the employee must return to work.
Where the nature of an employee’s role means that they cannot work from home or there is no suitable alternative work available that they can do from home, the employer should consider suspending them on full pay. Employees who are shielding in line with public health guidance became entitled to receive SSP for periods on or after 16 April 2020. The Treasury Direction provides that employees who are in receipt of SSP are not eligible to be furloughed until their SSP entitlement ceases. (Although it would seem that shielding employees who were placed on furlough before 16 April 2020, can be furloughed.)
The position of employees who are suspended on maternity grounds is not specifically covered in HMRC guidance or the Treasury Direction. Those pregnant employees will be shielding in line with public health guidance. However, it is unclear whether they would be treated in the same way for furlough purposes as other pregnant employees who are not medically suspended but are shielding, because a medically suspended pregnant employee has a legal right to receive full pay rather than just SSP. It might be argued that the legal right to full pay rather than SSP means that such employees should be treated differently and can be furloughed.
What does the reimbursement cover?
Claims can only be made in respect of expenditure incurred, or to be incurred, by an employer (paragraph 2.2, Treasury direction).
Employers can claim up to the lower of 80% of usual monthly wage costs or £2,500 per employee, plus the associated employer national insurance contributions and minimum auto-enrolment employer pension contributions on the capped furlough pay (paragraph 8, Treasury direction and Employers’ CJRS guidance).
In calculating the employee’s reference salary, only regular salary or wages are taken into account. Regular in this context does not appear to mean “frequent”.
Non-monetary benefits, including taxable benefits in kind, should not be included in the reference salary. This includes benefits which are provided through salary sacrifice schemes, including pension contributions, that reduce an employee’s taxable pay.
The Employers’ CJRS guidance states that the maximum level of grant for employer pension contributions on subsidised furlough pay is set in line with the minimum automatic enrolment employer contribution of 3% on qualifying earnings. Grants for pension contributions can be claimed up to this cap provided the employer will pay the whole amount claimed to a pension scheme for the employee as an employer contribution.
The 80% guidance states that student loan payments will not be covered by the grant from the CJRS and should continue to be paid as usual. However, the Employees’ CJRS guidance states “You’ll still pay …student loan repayments and any other deductions (such as pension contributions) from your wage”. It therefore seems that student loan repayments will come out of the 80%/£2,500 salary paid to the employee, although there is an argument that proportion of furlough pay is not recoverable through the CJRS. The position is not clear.
The 80% guidance also states that the Apprenticeship levy will not be covered by the CJRS and should be paid as usual.
What is the start date for the purposes of reimbursement?
The Employers’ CJRS guidance states that the claim should start from the date the employee finishes work and starts furlough, not the date the decision to furlough them was made, or the date on which they were written to confirming their furloughed status.
The guidance also states that in some circumstances an employer can backdate their claim to 1 March 2020. It is not entirely clear what those circumstances are under the current wording of the guidance, and the Treasury direction does not assist on this point. However, as previously worded, it appeared under the guidance that an employer could backdate their claim to 1 March 2020 where either:
However, paragraph 6.5 of the Treasury direction potentially rules out the first instance above. It states:
“No claim to CJRS may be made in respect of an unpaid sabbatical or other period of unpaid leave of an employee beginning before or after 19 March 2020(whether agreed or otherwise arranged conditionally or unconditionally on, before or after that day).”
We are unclear whether this is the meaning of paragraph 6.5 and the Treasury’s intention.
The 80% guidance is also unhelpful. It states: “Claims can be backdated from 1 March 2020 where employees have already been furloughed from that date. A claim cannot start any earlier than the date the employee was first furloughed.” However, since the CJRS was only announced on 20 March 2020, it is not possible that an employee could have been already furloughed under the scheme on 1 March 2020. However, it is possible that the 80% guidance is referring to employees who were in practice furloughed within the meaning of furloughed under the scheme but before it was announced.
Does the reimbursement limit include auto-enrolment pension contributions and employer’s NICs?
No. Paragraph 8.1 of the Treasury direction and the Employers’ CJRS guidance makes clear that these payments can be reclaimed in addition to the cap. How to calculate the claim in respect of recoverable pension contributions and NICs is explained in the 80% guidance.
Is £2,500 the net amount the employee receives or is it subject to tax and NI?
The sum paid to the employee during furlough is gross and then subject to income tax and national insurance in the usual way.
The reimbursement is made to offset those deductible revenue costs and should be treated as income in the business’s calculation of its taxable profits for income tax and corporation tax purposes, in accordance with normal principles (80% guidance).
How does the cap work where the employee has more than one job?
The cap on reimbursement applies to each employer individually (Employers’ CJRS guidance).
What can an employee do if their employer doesn’t pass on the reimbursement to them?
In most cases the employee will already have received the pay in respect of which the employer is being reimbursed so this issue will not arise.
However, where pay is deferred until reimbursement is received from HMRC, and the employer does not pass it on to the employee, they have the following options:
There is no mechanism for employees to apply directly to the scheme where their employer has failed to pass on the reimbursement.
What steps must employers take to put employees on furlough?
Employers will need to:
What can be relied on as an employee’s consent to be furloughed?
For the purposes of the CJRS, an employee is a furloughed employee if they:
The Employers’ CJRS guidance states that employers should discuss the proposal with staff and make changes to the employment contract by agreement. It provides that employers must confirm in writing where an employee is furloughed, and that confirmation must be based on collective agreement or consent (although it does not require the employee to agree to furlough in writing, stating that the employee “does not have to provide a written response”). However, the Treasury direction makes it clear that an employee will not be considered to be furloughed by HMRC for the purposes of the CJRS unless the employee has agreed in writing to cease all work in relation to their employment. The employee’s written agreement to be furloughed can be given in an electronic format such as an email (paragraph 6.7, Treasury direction).
We understand that HMRC take the view that there is no contradiction between the Treasury direction and the guidance in this respect, and that the Treasury direction must be read in the context of the guidance. The normal interpretation of “agreed in writing” is that both parties have put in writing their agreement to the matter in hand. It is a stretch of the phrase to suggest that one party can send a piece of unilateral correspondence and that this can amount to both parties agreeing to a matter in writing. It is difficult to see how the Treasury direction and the guidance can be read compatibly in this respect. While the guidance could aid interpretation of the Treasury direction where there is ambiguity, it seems odd that HMRC would suggest that the guidance should be read in favour of the Treasury direction when it is the latter which sets out the nature of HMRC’s powers in respect of the CJRS.
It should also be noted that the High Court in the Carluccio’s administration case, decided in relation to events before the Treasury direction was issued, held that no inference of implied acceptance to be furloughed could be drawn from an employee’s failure to respond to an employer’s request for consent.
The update to the Employers’ CJRS guidance on 23 April 2020 provided that collective agreement could satisfy the requirement for consent. Whilst this may, in some circumstances, amount to a valid variation of individual contracts of employment, there is some uncertainty over whether it would meet the requirement in the Treasury direction that the “employer and employee have agreed in writing” to cease work during furlough, which is a precondition for access to the CJRS.
We await further comment from the government on this point. As matters currently stand, the cautious approach is to seek agreement in writing from the employee prior to commencement of their furlough period.
What records should an employer keep in relation to employees on furlough?
An employer must keep a written record of all communications with the employee regarding the furlough arrangement, including all copies of the furlough agreement, for five years (Employers’ CJRS guidance).
An employer must also keep a record of the claims for reimbursement it makes for furloughed employees’ wages under the CJRS. The Employers’ CJRS guidance sets out the detailed information employers must keep.
Records of any agreed training undertaken by furloughed employees should also be kept. It is important to keep training records to show that the training undertaken is both directly relevant to the employee’s employment and is agreed between them and their employer before being undertaken to show compliance with paragraph 6.8 of the Treasury direction. While the Treasury direction requires agreement between employer and employee, it does not state that the agreement must be in writing (unlike the agreement to cease all work). However, the safest approach would be to secure furloughed employees’ written agreement to undertake training (and to keep a record of this written agreement alongside other furlough-related documents).
When submitting a claim, employers must confirm that they meet the exceptional purpose of the scheme. In order to be in a position to respond to an audit on this point, employers should ensure that a written record is kept to confirm the reason that the COVID-19 pandemic necessitated putting employees on furlough. This could include details of any downturn in work, closure of the business or the impact of sickness or other absence upon the ability to continue operating.
How does an employer decide who to put onto furlough: do they need to go through an equivalent redundancy scoring exercise?
An employer could initially ask for volunteers. However, in some cases an employer may receive more volunteers than it wants to furlough. The procedure an employer follows to decide which employees to furlough may depend on its current financial situation. If the employer needs to very urgently furlough employees or make them redundant in order to be able to continue to trade, a limited selection procedure carried out on an urgent basis is likely to be acceptable. However, where an employer does not have any immediate financial concerns, it is likely to be more reasonable for it to follow a more comprehensive procedure.
Employers could draw up a matrix of objective criteria in a similar way to redundancy scoring. Employers should ensure that their decisions on who to furlough are not based on discriminatory criteria, except where such discrimination is likely to be justified. For example, it will be directly discriminatory for employers to use age as a criteria and select employees over 70. However, this could be justified as a proportionate means of achieving the legitimate aim of protecting the health and safety of vulnerable employees as identified in government guidance. The Employers’ CJRS guidance makes clear that equality and discrimination laws apply in the usual way in this context.
Can an employer rotate furlough between its employees?
The Employers’ CJRS guidance states that employees must be furloughed for a minimum of three weeks. This is in keeping with the current requirements for as many people to avoid leaving their homes as much as possible. The Treasury direction clarifies that three weeks means 21 calendar days (paragraph 6.1(b)).
Since employers are likely to receive many requests or volunteers to be placed on furlough, it is likely to assist employee relations for employers to be able to move employees on and off furlough, subject to that minimum three week period, so that no employee feels that they have been unfairly denied the opportunity to take furlough. The guidance confirms that employees can be furloughed multiple times, subject to the minimum three consecutive week period.
Is there a specific amount of time an employee has to work before going back on furlough?
Currently, we are not aware of any guidance requiring an employee to return to work for a minimum period of time before being furloughed again. However, if an employer is rotating furloughed employees, those returning to work are likely to be back at work for at least three weeks (given that the minimum furlough period is three weeks).
An employer should also bear in mind the anti-abuse provisions relevant to the CJRS. A claim must not be made under the CJRS if it is abusive or otherwise contrary to the “exceptional purpose” of the CJRS (paragraph 2.5, Treasury direction), which is stated to be the payment of employment costs in respect of furloughed employees “arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease”. This is a warning to employers that abuse of the CJRS will be open to scrutiny, if not immediately then certainly in any future audits. If an employee returns to work for only a very short period of time before being furloughed again, it is possible (although by no means certain) that this could suggest that the employee is being furloughed for some reason unconnected to COVID-19. This would, however, always depend on the facts of the particular case.
Can an employee be furloughed for a period that is not a multiple of three weeks?
Yes, the Employers’ CJRS guidance states that employees must be furloughed for a minimum period of three consecutive weeks. The Treasury direction clarifies that three weeks means 21 calendar days (paragraph 6.1(b)). Provided that an employee is furloughed for a minimum period of 21 consecutive calendar days, we are not currently aware of any requirement for the total furlough period to be a multiple of three weeks (or 21 days). However, if an employee is furloughed multiple times (returning to work between periods of furlough), each separate period of furlough must be a minimum period of 21 consecutive calendar days.
It is, however, likely to be helpful for an employer to commit to a nominal end date at the outset of any furlough period, which will be at least 21 calendar days from the start of furlough. This approach will help to avoid any confusion over whether the furlough period lasted at least 21 calendar days. In addition, employees will want to understand how long they can expect to be furloughed for, so being open about the duration of furlough from the start may avoid employers having to deal with follow up queries on the same point. The furlough period can be extended if needed.
Will employers need to collectively consult if they intend to put 20 or more employees on furlough?
The Employers’ CJRS guidance has confirmed that if sufficient numbers of employees are involved then it may be necessary to engage in collective consultation to procure agreement to change the employees’ terms. It is therefore clear that there is no exception to the obligation to collectively consult in this context where the duty arises.
In what circumstances does the duty to collectively consult arise?
Where the employer intends to vary the contracts of 20 or more employees, and it intends to dismiss employees who do not consent to the change in their terms within a period of 90 days or less, those employees will be classed as dismissed by reason of redundancy for the purposes of section 188 of TULRCA.
In many cases where the employer intends to put an employee on furlough and reduce their pay to the level of reimbursement, this definition will be met. This assumes that the employer intends to dismiss employees who do not consent to the change, although arguably the duty does not arise at the initial stage where consent is being sought.
Although the circumstances in which the HMRC reimbursement can be claimed are not entirely clear at this stage, in many cases it will arise in what would otherwise be lay-off or redundancy situations. This means that, in many (but not all) cases, an intention to dismiss underpins the furlough proposal. Even if the obligation to collectively consult were not triggered by the proposed variation of contract, it may be triggered if the employer is offering furlough in the context of a proposal to make 20 or more employees redundant within 90 days, whether or not the employer has actually started a redundancy process.
If so, the employer will have a duty to inform and consult appropriate employee representatives and notify the Secretary of State using form HR1.
If no contractual variation were intended (because the employer already has the right to suspend and does not intend to reduce pay to the level that can be reimbursed) then it is less likely that collective consultation would be required. However, even in that scenario, if the suspension were in the context of the employer proposing to make redundancies further down the line, the obligation could be triggered.
Is there any exception for furlough?
No. Employers’ CJRS guidance makes clear that collective consultation obligations are not altered by the scheme.
Can an employer use the special circumstances defence?
Employers could perhaps rely on the special circumstances defence if they do not consult. The employer would need to show that compliance was not reasonably practicable, and that the circumstances were “special”.
In terms of reasonable practicability, the effect of the pandemic may mean that there are practical difficulties with appointing representatives in the normal way and undertaking full consultation, and also in terms of remaining solvent while that process is undertaken. These issues could be more pronounced where there is no recognised trade union or standing body of representatives meaning that an election has to take place before consultation can begin. However, it is arguable that the employer can conduct the collective consultation remotely. Whether a particular employer is entitled to dispense with collective consultation altogether because it was not reasonably practicable will very much depend on the circumstances and is subject to the two further points below.
Given the unique and unprecedented nature of the pandemic and the economic effects of the government response, there is likely to be mileage in the argument that circumstances are “special”. Insolvency, in itself, does not amount to a special circumstance, but where it arises from a sudden, out of the ordinary event, the defence may apply. Given that the pandemic is a sudden and out of the ordinary event, it is easy to see how that logic could apply in these circumstances.
However, where there are special circumstances, this does not absolve the employer absolutely from the obligation to consult on the matters referred to in section 188(2). The employer must still fulfil those obligations which it is reasonably practicable to comply, or which are unaffected by the special circumstances. Where full compliance is not reasonably practicable, the employer is also obliged to take all steps towards compliance as are reasonably practicable in the circumstances of the case. In all but the most extreme cases, there is therefore likely to be an expectation that some form of consultation is undertaken, even if it is not reasonably practicable to meet all collective consultation obligations.
What should employers do?
We understand that the new scheme has the backing of the TUC and it is possible that employers will take the view that the risk of a collective consultation claim is low in the circumstances. An employer could proceed without undertaking collective consultation and take the risk that it is later found to be in breach. A middle ground could be for an employer to undertake a consultation for a shorter period on the basis that the change proposed is only a change to the employees’ contracts of employment, and then only proceed to a formal collective redundancy consultation if full employee consent is not obtained. It is arguable that this is all that is required under section 188, on the basis that the employer does not propose to make any dismissals until the point that it becomes clear there is no employee consent.
In any event, collective consultation does not need to last for the relevant minimum period. Therefore, as furlough is a far better option for the majority of employees than lay-off or redundancy, it is possible that some employers will find that all employees agree to the proposal early on in the process and the full consultation period is not required.
Whatever action employers take, they should bear in mind that the furloughed employees will be returning to the workplace and so maintaining good employment relations is important.
If there is uncertainty as to whether collective consultation obligations are triggered, consideration should be given to submitting an HR1 form because failure to do so is a criminal offence.
Can an employer reach an agreement with a recognised trade union without the need for individual consultation?
In terms of achieving a lawful variation of individual contracts of employment, this would only be possible where there is a collective agreement which covers the matters being varied and which has been incorporated into individual workers’ contracts of employment. If the workforce did not have express incorporation clauses in their contract then the employer would need to seek individual consent.
However, as we explain in that section, it is arguable that the Treasury direction potentially requires more than a lawful variation of contract in order to access the CJRS. It requires that the “employer and employee have agreed in writing” that the employee will cease work during furlough. It is not clear whether this requirement would be satisfied by a collective agreement which has been incorporated into individual contracts of employment.
Can an employee request their employer puts them onto furlough?
Yes, an employee can request this, but the employer does not have to agree. It is the employer’s decision which employees to place on furlough, if any. It seems that it is also the employer’s decision whether to place employees on furlough or make them redundant. Potentially redundant employees do not have a right to require their employer to place them on furlough as an alternative to redundancy. However, it is hoped that many employers will see the new scheme as preferable to business closure and making redundancies. It is unclear whether refusing to place an employee on furlough and making them redundant could amount to an unfair dismissal.
Is the idea of furlough unfair on employees who have to continue working, particularly when many are going to have childcare difficulties?
It may seem unfair that some employees will be required to continue working, potentially increasing their risk of infection if they are unable to work from home, and others will be permitted to receive a substantial proportion of salary and not be required to do so. However, provided the employer has used appropriate, non-discriminatory criteria to choose who is granted furlough, it is possible for an employer to lawfully choose to furlough only part of the workforce. Some employees may look at this issue the other way and prefer to continue to receive full pay so the employer may find that seeking volunteers for furlough identifies the preferences of individual employees and avoids a feeling of unfairness.
Is consideration required where an employee agrees to reduced pay and being put on furlough?
Any agreement to vary the terms of an existing employment contract must either be supported by consideration or executed as a deed (although note that consideration is not required under Scots law. It is likely that, where furlough is being offered as an alternative to redundancy or lay-off then continued employment would be the consideration. In GAP Personnel Franchises Ltd v Robinson UKEAT/0342/07, the EAT held that it is “accepted law” that consideration for a variation in the contractual terms of employment is mutually provided by the employer continuing to employ the employee and the employee continuing in employment.
If the change is being offered in other circumstances, where employment would continue in any event then the employer would need to consider if there is other benefit to the employee. If there is any doubt, consideration should be given to executing the amendment as a deed (although it remains to be seen whether furlough can be offered where continued employment is secure.
Can an employer defer payment to furloughed employees until reimbursement is received from HMRC?
Some employers will not be able to continue to pay 80% of employees’ salaries until reimbursement is received. They therefore have the option of:
Unfortunately the Treasury direction neither explicitly permits nor prevents deferral of payment and the position remains unclear. Based on the following analysis of the Treasury direction we narrowly conclude that deferral of payment is permitted, but the matter is certainly not beyond doubt:
Although the Treasury direction takes precedence in terms of determining HMRC’s powers to administer the CJRS, the HMRC guidance is helpful in interpreting it. The available guidance supports the conclusion that HMRC regard deferral as permitted within the terms of the CJRS. The Claim guidance states, in the section “After you’ve claimed” that an employer must pay its employees after the claim is submitted, if it has not done so already. It is unclear whether this requirement is intended to apply before or after reimbursement from HMRC. The Reporting wages guidance, which deals with the mechanics of reporting wages in a range of scenarios where the CJRS is being accessed, includes a section on reporting to HMRC where employees have not yet been paid in full, and where they were not paid at all in March and April. This indicates that HMRC takes the view that some employers will defer payment and may not have been in a position to pay wages in March and April pending reimbursement.
We also understand that the declaration when a reimbursement application is made states that “all employees have been paid their wages before the claim was submitted, or will be paid in the next payroll” which supports our tentative conclusion on this point.
Although we consider that it is intended that employers can claim reimbursement prior to paying the wages in question, the Treasury direction is not clear. This means that there is a risk that employers who defer payment until they receive payment under the scheme will not be entitled to reimbursement for that period. We hope that the government will clarify the position.
Can an employer make payment to furloughed employees conditional on reimbursement under the CJRS?
This is not entirely clear. It has been suggested that paragraph 7.4 of the Treasury direction could be interpreted to mean that furlough payments which were conditional on an employer receiving funds under the scheme from HMRC might make an employer ineligible to seek reimbursement under the CJRS for those payments. However, it seems unlikely that the Treasury intended paragraph 7.4 to exclude such payments and, in any case, paragraph 7.4(b) of the Treasury direction concerns the definition of “regular” for the purpose of assessing an employee’s reference salary rather than anything else (and an employee’s reference salary concerns their pre-furlough pay).
Are employers obliged to top up the remaining 20%?
Employers are entitled to continue paying full pay during furlough, but they are not obliged to do so. If they do top up, they can only claim back employer national insurance contributions and minimum auto-enrolment payments up to the cap.
Withholding 20% of an employee’s salary will, however, amount to breach of contract and unlawful deduction of wages unless the employee gives their consent. It is expected that the majority of employees will consent since furlough is a better alternative than unpaid leave, lay-off or redundancy.
If an employee is re-engaged for the purposes of the CJRS, will their continuity of employment be preserved?
Continuity of employment is a statutory concept which is governed by the provisions in the ERA 1996. There is nothing in the CJRS which has varied. Where the re-engagement follows redundancy, see the section on Re-employment after redundancy.
It is worth noting that the rules under section 138(1) of the ERA 1996 regarding redundancy only apply where an offer of re-employment is made before the end of the employee’s employment under their old employment contract. This is unlikely to be the case in a furlough situation.
How does furlough operate for companies in administration?
In the first reported decision on the CJRS, the administrators of the restaurant chain Carluccio’s sought determinations from the High Court on a number of questions of law relating to furlough and the use of the CJRS in the context of a company in administration (In The Matter of Carluccio’s Ltd,  EWHC 886 (Ch) (13 April 2020)).
The High Court confirmed that the approach taken by the administrators in seeking express consent to vary the employees’ contracts of employment to put them on furlough, reduce their pay to the level recoverable from the CJRS and defer payment until reimbursement is received was an effective variation of contract upon acceptance by the employee. It is important to note that this decision was made in the context of the guidance available at the time, and it pre-dates the Treasury direction.
The variation letter asked the employees to respond by email, using a prescribed form of words, confirming their acceptance (see paragraphs 24 to 29 for details of the wording used by the administrators). It made clear that a failure to respond may result in redundancy (and there was no suggestion that a non-response would amount to a tacit acceptance of the variation). The company went into administration on 30 March and the employees were given until 3 April 2020 to respond. On 7 April 2020, 1,707 of the 1,788 employees who received the variation letter, had accepted its terms, four had rejected it and stated that they wished to be made redundant, and 77 had not responded.
The administrators sought a declaration of the effect of the variation of contract on the employment contracts from an insolvency law perspective. Administrators have a period of 14 days before contracts of employment may be taken as “adopted”. The relevance of the adoption rules for employees is that they determine how employees’ claims rank against other debts of the insolvent company or who has liability to pay them. From the administrator’s perspective, the rules allow them to dismiss employees within the first 14 days of their appointment without creating a super priority. The administrators were therefore concerned with the effect of the intended variation for furlough on the contracts of the employees who had consented to variation, those who had objected, and those who had not yet responded.
The High Court found that adoption would occur as follows in relation to each type of employee:
The administrators were not under an obligation to any employee (for example, through the application of the obligation of trust and confidence) to make an application to the CJRS where there had not been acceptance of variation of employment contract by the employee.
Can an employee work for another employer?
Yes, the update to the guidance on 4 April 2020 confirmed this point.
However, the employee cannot do work for the employer seeking the reimbursement during furlough, and it cannot ask them to do work for another linked or associated business (paragraph 6.2, Treasury direction and Employers’ CJRS guidance). Also, the employee’s contract of employment will continue during furlough so any enforceable restrictions on working elsewhere during employment will continue to apply. However, in the circumstances, employers may consider relaxing any such restrictions to allow employees to take up a role with a non-competing business with their prior consent.
If a furloughed employee starts work for another employer, they should confirm their furloughed status in Statement C of the PAYE starter checklist it completes for the new employer. The furloughed employee will need to be able to return to work for the employer that has furloughed them, and undertake any training that employer requires of them during furlough (Employee’s CJRS guidance).
Can employees with more than one employer be furloughed?
Yes, the COVID-19: guidance for employees states that an employee can be furloughed by one employer and continue to work for the other, or can be furloughed by both employers. The scheme will reimburse each employer for 80% of the employee’s salary, up to the £2,500 cap for each job.
However, an employee cannot be furloughed by their current employer and also accept re-engagement by a former employer with a view to being furloughed by the former employer too and effectively obtaining funds through the CJRS twice (Employers’ CJRS guidance).
Can employees on furlough do volunteer work?
Yes, the Employers’ CJRS guidance has clarified this point. This assumes that the volunteering in question is not for the employee’s employer and being used to circumvent furlough but receive reimbursement of wages. That would likely be regarded as fraud and the government has explicitly identified the right to retrospectively audit all aspects of the scheme with scope to claw back fraudulent or erroneous claims (see Business support: FAQs). Employees are also encouraged to report the employer if they are being asked to work whilst on furlough, or if they otherwise become aware of fraudulent behaviour relating to the scheme (Employees’ CJRS guidance).
Can employees on furlough undertake training?
However, the Treasury direction has created uncertainty in terms of the precise circumstances in which training is permitted.
The guidance provides that training can take place provided that it is not used by the employer to generate revenue or for the provision of services, effectively circumventing furlough.
The Treasury direction is significantly more limited. It provides that that the employee must cease all work in relation to their employment and the only exception in this context is where training activities are “directly relevant” to the employee’s employment (paragraph 6.8). This limited exception is in direct contradiction with the stated intention in the guidance that “furloughed employees should be encouraged to undertake training”, and seems contrary to the principle of ensuring a flexible workforce once the crisis period subsides. However, employers are likely to be cautious about offering training during furlough unless it is clear that it is direct relevant to their role given that the Treasury direction is likely to take precedence where there is a direct contradiction between it and the guidance. Offering training which does not fall into that category could have the effect of bringing furlough to an end and limiting access to the CJRS.
On 28 April 2020, the Department for Education (DfE) announced a new free online learning platform with free digital and numeracy courses. Such training would arguably often not be “directly relevant” to furloughed employees’ employment (as required by paragraph 6.8 of the Treasury direction) if employers require employees to complete the online courses while furloughed. However, the DfE says that employers are encouraged to use the Skills Toolkit to help to support and develop furloughed employees.
If the employer requires the employee to complete training which falls into the “directly relevant to the employee’s employment” category during furlough, this will not bring their furlough to an end, but they must be paid the NMW in respect of the training. However, the furlough payment will be taken into account in determining whether NMW requirements have been met in terms of the training hour so, unless a significant amount of training is undertaken, this will normally satisfy this requirement. If the employer intends to require the employee to undertake online training during furlough, then this should be agreed with the employee and reflected in the correspondence confirming furlough.
While the Treasury direction requires agreement between employer and employee, it does not state that the agreement must be in writing (unlike the agreement to cease all work). However, the safest approach would be to secure furloughed employees’ written agreement to undertake training.
Can employee and trade union representatives continue with their duties while on furlough?
When an employee is put on furlough, they must not work for their employer, either by making money for the employer or providing services to the employer. Carrying out duties as an employee or trade union representative does not fall into the first category of making money for the employer and is more akin to volunteering. Nor are carrying out such duties likely to fall into the second category of providing services to the employer. There is no guidance yet on whether being placed on furlough prevents an employee carrying out duties as an employee or trade union representative, so the position is not clear. However, since employers are required to use employee representatives in certain circumstances, such as collective consultation for redundancies or to carry out an information and consultation exercise in relation to a TUPE transfer, the employer may have no option but to let them continue with their duties. For this reason, and for reasons of sheer practicality, it seems more likely than not that employees may continue with their “work” as a representative while being on furlough.
What happens if a furloughed employee becomes sick?
In light of the Treasury direction, the position is not clear. The 9 April 2020 update to the Employers’ CJRS guidance states that furloughed employee retain their statutory rights, including their right to SSP. This means that furloughed employees who become ill must be paid at least SSP. The guidance advises that it is up to employers to decide whether to move employees who become sick during furlough onto SSP or whether to keep them on furlough, at their furloughed rate.
Arguably, this is reflected in the latter part of paragraph 6.3 of the Treasury direction. It provides that an employee cannot be furloughed while eligible for SSP and then goes on to state “but any subsequent entitlement to statutory sick pay by virtue of the employee becoming unfit for work again after the original SSP has ended must be disregarded”. The meaning of those words is not entirely clear, however.
It is clear that someone who has been furloughed following a period of entitlement to SSP coming to an end and then falls sick again during furlough can remain on furlough and reimbursement is not affected. However, the use of “again” means that this explicit confirmation on continuing eligibility for reimbursement arguably only applies where there has been a previous period of SSP entitlement. It is possible that the Treasury direction is silent on other circumstances because it was only felt necessary to clarify the position on subsequent sickness. If that is correct, then any sickness which occurs during furlough may be disregarded for the purposes of eligibility for the CJRS. This would be consistent with the guidance.
The guidance states that if a furloughed employee who becomes sick is moved onto SSP, the employer can no longer claim for the furloughed salary. However, if the employer keeps the sick furloughed employee on the furloughed rate, they remain eligible to claim for these costs through the furloughed scheme. There therefore appears to be no advantage to the employer in moving a furloughed employee onto SSP if they become sick, subject to any requirement to do so under the Treasury directive.
If the employee is entitled to contractual sick pay which equates to 100% of normal earnings, they may remain entitled to pay at that level if they become sick during furlough (on the basis that furlough ends for the duration of their sickness), unless the employer has specifically provided for contractual sick pay to be reduced to reflect furlough pay in the furlough agreement.
How should an employer keep in touch with employees on furlough?
An employer should consider what methods of communication it would normally use when an employee is not working (for example, because they are on a period of family-related leave). It is likely to be helpful to agree with an employee, before they are furloughed, how best they can be contacted during furlough (keeping in mind what technology the employee has access to at home) and who their point of contact at the employer will be. An employer should also check that the contact information it holds for an employee is up-to-date and accurate, ideally as part of the process of obtaining consent to furlough.
Given that an employee must cease all work while they are furloughed, an employer should refrain from excessive communication with a furloughed employee which may suggest that the employee is, in fact, working. However, keeping an employee informed of developments by a weekly email (for example) is unlikely to be problematic. In addition, an employer may agree with a furloughed employee that they undertake training, although the nature of the training that can be carried out is currently unclear.
Where an employer is aware that a furloughed employee is particularly vulnerable (for example, because they have a disability), the employer should consider what “keeping in touch” arrangements may be particularly helpful for that employee. For example, an employee’s line manager (assuming that they are not also furloughed) may agree that they will call the employee on a weekly basis to touch base, answer any questions and provide any relevant updates. The manager should discuss with the employee in advance what communication methods are likely to work for them, having regard to their condition and what facilities they have available at home.
Do disciplinary proceedings have to be paused while an employee is on furlough?
In early May 2020, Acas published Disciplinary and grievance procedures during the coronavirus pandemic which states that existing employment law and the Acas Code of Practice on Disciplinary and Grievance Procedures (the Acas Code) continue to apply during the COVID-19 pandemic.
The guidance notes that it is for an employer to decide if it would be fair and reasonable to carry on with, or start, a disciplinary or grievance procedure while an employee is furloughed, social distancing and other public health guidelines are being followed, or an employee is working from home. It suggests some practical measures that employers can take, depending on whether a workplace is open or not.
The guidance expressly states that, for most disciplinary and grievance meetings held by video, there will be no reason to record the meeting.
The guidance states that a furloughed employee can take part in a disciplinary or grievance investigation or hearing as:
However, the participation must be voluntary (an individual must be “doing it out of their own choice”) and take place in accordance with current public health guidance.
It is unclear how the Acas guidance should be read alongside the HMRC guidance and the Treasury direction, which require employees to cease all work in relation to their employment during furlough. Arguably, acting as a meeting chairperson, notetaker or even a witness could amount to “work” for the purposes of paragraph 6.1 of the Treasury direction and is providing a service for the employer contrary to the Employers’ CJRS guidance. Accordingly, following the Acas guidance could mean that an employer is unable to claim for reimbursement of an employee’s wages under the CJRS.
The requirement for an employee’s participation in a grievance or disciplinary procedure to be voluntary is also difficult to reconcile with the nature of disciplinary proceedings, where an employee’s attendance would rarely be characterised as being “out of their own choice”.
The Acas guidance states that, in deciding whether the procedure can still be carried out in a fair and reasonable way, the employer should consider:
There may be other practical difficulties that an employer should consider including:
In practice, similar principles will apply to those that are relevant when an employee is on sick leave.
What should an employer do where an employee’s annual bonus is due for payment during furlough?
Ideally this issue should be dealt with in the agreement between the employer and employee. If there is a contractual entitlement to payment of bonus during furlough, then that right will not be extinguished unless the contract is varied to that effect. Putting an employee on furlough will not, in itself, cancel any contractual right to bonus because their terms and conditions of employment will remain in force during any period of furlough (except to the extent that any variation is agreed with the employee). At the time furlough is being agreed, the employer should therefore consider seeking waiver or deferral of bonus payment. The employer should ensure that doing so does not bring an individual below 80% of pay or £2,500 (given that, arguably, contractual bonuses are included in the calculation of pay for CJRS purposes).
In practice, many bonus schemes involve partial discretion. An employee will have a contractual entitlement to participate in a specified bonus scheme, with only the amount of bonus being within the employer’s discretion. In such cases, an employee will have the right to a rational and non-arbitrary exercise of discretion by its employer as to the amount of bonus.
Depending on the terms of an employer’s bonus scheme and the nature of its discretion, it may be possible for an employer to rely on its discretion to avoid paying an annual bonus (assuming that custom and practice has not created an implied right to payment of some bonus amount). However, an employer must have regard to its implied duty not to act irrationally, arbitrarily or capriciously in exercising its discretion. In addition, an employer should avoid treating employees inconsistently as this may expose it to discrimination claims as well as breach of contract claims.
Bonus schemes often provide that a bonus will not be payable if an employee is under notice at the time that a bonus payment is due so if notice is given or received by the employer during furlough then this could affect bonus entitlement, depending on the terms of the scheme.
Can an employer make employees on furlough redundant?
The Employees’ CJRS guidance confirms that an employee can be made redundant while on furlough or afterwards, and that an employee’s redundancy rights will not be affected by being furloughed. However, an employer cannot claim reimbursement of redundancy payments under the scheme (Employers’ CJRS guidance). While the government has put many measures in place to assist struggling employers, including the CJRS, some businesses will still be forced to close, particularly if the pandemic is protracted, making redundancies inevitable. However, where the business is continuing, there is the potential for the dismissal to be unfair.
We consider it likely that employee and trade union representatives, who may need to be consulted on redundancy during furlough, can perform their duties without breaking their furlough but see the section “Can employee and trade union representatives continue with their duties while on furlough?” for more information.
There are obvious practical difficulties that could arise in undertaking redundancy consultation while the vast majority of the affected employees are on furlough. The employer would need to consider virtual meetings and, where the employees concerned do not have the facility to participate in a video call, the possibility of conducting consultation meetings by telephone or in writing.
Can an employee on furlough be served with notice and what notice pay are they entitled to?
We are not aware of any reason that a furloughed employee could not be served with notice of termination of employment.
How should employers approach redundancy pooling where some employees are furloughed and others are not?
We consider it unlikely that the fact that some employees are furloughed should affect the employer’s identification of selection pools. In deciding whether a redundancy selection was fair, a tribunal must decide whether the employer’s choice of pool was within the range of reasonable responses. The usual approach is to consider the type of work, which is ceasing or diminishing, and which employees perform that kind of work. If the employer confined its selection pool to those already furloughed, this may be regarded as unfair because the selection process for putting employees on furlough may not have been as vigorous as is required where dismissal is being considered. We think it likely that the conventional approach of identifying those who perform the same or similar work (whether they are currently furloughed and therefore not performing that work, or not) should be adopted.
Are employees who transferred under TUPE after 28 February 2020 eligible for furlough?
Under the current version of the guidance, an employer can claim under the CJRS in respect of employees who transferred after 28 February 2020.
Between 15 April and 30 April 2020, the Employers’ CJRS guidance stated that an employer who inherited employees through the operation of a TUPE transfer prior to 19 March 2020 would be in the same position as any other employer in terms of eligibility.
However, on 30 April 2020, the Employers’ CJRS guidance was updated to change the relevant date for TUPE transfers from 19 March 2020 back to 28 February 2020 (the date given in the guidance until it was updated on 15 April 2020 to refer to 19 March 2020).
The previous change of the relevant date from 28 February to 19 March 2020 meant that, where a transfer took place before 19 March 2020, the transferee still had to comply with the requirement to have made an RTI submission for any furloughed employees on or before 19 March 2020 in order to be eligible for reimbursement for the transferred employees under the CJRS. If the transferred employees’ pay was processed for the first time in the March payroll towards the end of the month, which may have been the case where, for example, there was a TUPE transfer during early March, the cut-off date for the RTI submission of 19 March 2020 may not have been met The reversion to the 28 February 2020 date will benefit those transferees.
The Treasury direction has not yet been amended to reflect this change. Paragraphs 9.1 to 9.3 still refer to 19 March 2020 as the relevant date.
If employees transferred under TUPE after 28 February 2020, can the new employer put them on furlough?
Yes, but arguably not where there has been a service provision change (SPC).
The situation in relation to TUPE transfers was not dealt with in the guidance until the 9 April 2020 amendments. The Employers’ CJRS guidance now provides that a transferee is eligible to claim under the scheme in respect of “employees of a previous business transferred after 28 February 2020, if either the TUPE or PAYE business succession rules apply to the change in ownership”. That date was changed from 19 March 2020 by the 30 April 2020 amendments to the guidance (see the section: “Are employees who transferred under TUPE after 28 February 2020 eligible for furlough?)”
However, the Treasury direction has not yet been changed. It currently states that a new employer may make a claim under the scheme in relation to a “relevant employee” and be treated as if they had a qualifying PAYE scheme and had made a payment to that employee on or before 19 March 2020. An employee is a “relevant employee” if:
The circumstances referred to in paragraph 10 (9.10) are as follows:
The guidance and the Treasury direction each refer to the first limb of the definition of a relevant transfer (regulation 3(1)(a) (business transfers), but not the second limb (regulation 3 (1)(b), SPCs) (i.e. where a client engages a contractor to do work on its behalf, reassigns the contract to another contractor or brings the work back “in house”). The Treasury direction also includes the non-cessation/succession rules from the PAYE Regulations that only apply on a transfer of a business.
Therefore, based on the wording of both the guidance and the Treasury direction, it seems likely that the CJRS is only intended to apply in relation to business transfers that are caught by TUPE and not most SPCs. Some SPCs may also amount to a business transfer under the TUPE Regulations, or otherwise be such that they amount to the transfer of all or part of a business or undertaking (and therefore satisfy the requirements in paragraph 10 (9.10)). However, the use of the business transfer language does suggest an intention to exclude scenarios which fall only within the SPC provisions.
What is the position if employees are transferred under TUPE to a new company that did not have its payroll set up on 28 February 2020?
The 30 April 2020 update to the guidance states that where a group of companies have multiple PAYE schemes and there is a transfer of all employees from these schemes into a new consolidated PAYE scheme after 28 February 2020, the new scheme will be eligible to furlough those employees and claim the grants available under the CJRS. The relevant date was amended from the 19 March 2020 date given in the guidance between 15 April and 30 April 2020.
Will employees continue to accrue holiday during furlough?
On 17 April 2020 the Employees’ CJRS guidance was updated to confirm that employees will continue to accrue annual leave during furlough (and the 80% guidance also reflects this position). This is unsurprising and in accordance with the Working Time Regulations 1998. The position is analogous to an employee on sabbatical in this respect.
An employer could attempt to negotiate a change in contractual terms such that any annual leave over and above statutory leave does not accrue during furlough, but this may make it less attractive to employees. The Employees’ CJRS guidance states “You can agree with your employer to vary holiday pay entitlement as part of the furlough agreement, however almost all workers are entitled to 5.6 weeks of statutory paid annual leave each year which they cannot go below.” The guidance refers to varying holiday pay but we assume that it means holiday entitlement rather than pay given the subsequent reference to the statutory entitlement of 5.6 weeks. This interpretation is consistent with the wording of the holidays section in the 80% guidance.
Where a worker does not take annual leave in the relevant leave year because they were on furlough, can they carry it forward to the next leave year?
The government has passed emergency legislation relaxing the restriction on carrying over the four weeks’ leave derived from the Working Time Directive (2003/88/EC) (WTD leave) with effect from 26 March 2020. The Working Time (Coronavirus) Amendment Regulations 2020 (SI 2020/365) amend regulation 13 of the Working Time Regulations 1998 (SI 1998/1833) (WTR 1998) to permit the carry-over of any untaken WTD leave where it was not reasonably practicable to take it in the leave year “as a result of the effects of the coronavirus (including on the worker, the employer or the wider economy or society)”. The Working Time (Coronavirus) (Amendment) Regulations 2020 (Northern Ireland) (SI 2020/68) have the same effect in Northern Ireland.
The Acas guidance suggests that the new carry-over rule could apply where a worker has been put on furlough and is unable to take leave due to COVID-19. However, as we explain below, the Employees’ CJRS guidance states that employees are entitled to take annual leave during furlough. As it is possible for workers to take annual leave during furlough, it is questionable whether furlough, in itself, renders it not reasonably practicable for the worker to take the leave in the relevant leave year.
Even if annual leave is not taken during furlough, if the worker has enough time in the remainder of the holiday leave year to take their annual leave once furlough had ended then arguably the new rule on carry-over would still not apply.
However, the employer has the right to require the employee to not take their annual leave during furlough, which they may do for financial reasons. In that event, it would clearly not be reasonably practicable for workers to take their annual leave at that time. Further, on return to work, the employer may decide to suspend annual leave in order to have the full workforce available to focus on rebuilding the business following the pandemic.
We also consider it likely that if an employer simply says nothing about annual leave then the worker may reasonably assume that they are effectively on standby during their furlough and not entitled to take annual leave (and it was therefore not reasonably practicable to do so). In that case, the principle that workers may be entitled to carry forward their WTD leave if their employer has not provided sufficient information about their holiday entitlement may be. There may be a requirement to allow carry over of WTD leave in that scenario, regardless of the new regulations.
It is also potentially arguable that a period of furlough which coincides with a period of full or partial lockdown would render it not reasonably practicable that the worker could take their leave at that time on the basis that they are unable to enjoy rest and relaxation, although it may be a stretch to argue that being confined to home is equivalent to not being able to rest and relax.
The Acas guidance states that workers can take annual leave during furlough, but also that carry over may be required where an employee is furloughed and cannot take their annual leave due to COVID-19. We assume that this reflects the possibilities mentioned above that the employer may direct workers not to take annual leave during furlough, or that lockdown during furlough may mean it is not reasonably practicable for them to do so, but it is not entirely clear.
Only WTD leave can be carried forward under the new regulations. However, the 1.6 weeks’ additional leave provided under regulation 13A of the WTR 1998 may already be carried forward into the next leave year in accordance with a relevant agreement (regulation 13A(7), WTR 1998). In many circumstances where employers wish to take advantage of the new carry-over right, employers will need to put in place a relevant agreement (if one does not already exist) and permit carry-over of all statutory holiday, not just WTD leave, where such holiday is unable to be taken due to coronavirus. This is because the WTR 1998 oblige employers to allow workers the opportunity to take 5.6 weeks’ leave each year, regardless of whether it is reasonably practicable to do so. If an employer fails to allow additional leave to be taken and refuses to allow it to be carried over under a relevant agreement, this would amount to a breach of the WTR 1998.
Can annual leave be taken during furlough?
The Employees’ CJRS guidance, as updated on 17 April 2020, confirms that workers can take annual leave during furlough, and this reflects the position in the Acas guidance. Prior to this guidance it was not clear whether a period of annual leave would break furlough, and whether it was competent in terms of the CJRS to allow employees on furlough to take annual leave. There were concerns that taking annual leave would interrupt furlough or even negate the employer’s application for reimbursement altogether. The updated guidance to employees appears to clarify the position, and it is consistent with the position under the Working Time Regulations 1998 which allows workers to take annual leave in similar scenarios. However, it is notable that neither the Treasury direction nor the Employer’s CJRS guidance deal with the issue.
Although workers can take annual leave during furlough, employers may require them to defer taking annual leave because they will be entitled to their usual holiday pay during annual leave and employers will be obliged to pay the additional amounts due to the employee over the 80%/£2,500 cap. The calculation of holiday pay is dealt with in detail in the section “What pay is a worker entitled to where they take annual leave during furlough?”.
Although a worker may choose to take annual leave during furlough, there may be reasons that an employer cannot compel them to do so.
Can an employer require a worker to take holiday during furlough?
Employers looking at their short-term financial position, may decide not to instruct workers to take their annual leave during furlough as they will need to top up the furlough pay. Employers may go further than that and designate furlough as a period during which no annual leave may be taken. Given that it is possible to carry leave forward to the next two holiday years, the employer may be less concerned than it otherwise would be about workers having annual leave accrued on their return from furlough.
However, given that the 17 April 2020 update to the Employees’ CJRS guidance advises that employers can recoup an employee’s holiday pay via the CJRS up to the 80%/£2,500 limit, some employers may take the view that it would be cost effective to direct workers to take annual leave (giving the notice required under the WTR 1998).
From a WTR 1998 perspective, the government guidance at the time that the employer is considering requiring the worker to take the leave may also be relevant. In the context of self-isolation and annual leave, a period during which an employer is unable to enjoy rest and relaxation could not be designated as annual leave by the employer, and a worker would be entitled to reschedule pre-arranged annual leave during such a period. It may be arguable that a total lockdown which puts furloughed workers in effectively the same position as people who are subject to self-isolation could be interpreted as a period during which it is not possible to enjoy rest and relaxation. That argument is not without difficulties and, in our view, it is likely to be weaker in the current state of lockdown where the public is entitled to leave their homes for certain identified reasons such as exercise.
Can a worker be prevented from taking statutory annual leave during furlough?
The 17 April 2020 update to the Employees’ CJRS guidance confirms that an employee can take annual leave during furlough if they give the required. However, it is possible that an employer could exercise its right to designate furlough as a period during which no annual leave may be taken or otherwise give counter-notice in response to a holiday request. The employer may wish to provide that workers are not entitled to take annual leave during furlough.
Can an employer require employees to take accrued holiday once the furlough period comes to an end?
In principle, the employer could require that annual leave is taken once the furlough period comes to an end. However, this is subject to the following:
What pay is a worker entitled to where they take annual leave during furlough?
Statutory holiday pay entitlement depends upon whether the worker has normal working hours and how they are paid. The Acas guidance states that workers must receive their usual holiday pay in full. The update to the Employees’ CJRS guidance on 17 April 2020 confirms that holiday taken during furlough should be paid in accordance with the WTR but an employer can only recover the 80%/£2,500 cap from the CJRS in respect of any annual leave taken so the employer will need to meet the shortfall. However, this appears to be an over-simplification because the complicated rules under sections 221-224 of the ERA 1996 will continue to apply to the calculation of holiday pay (subject to the ECJ case law which has modified which aspects of remuneration are taken into account in relation to WTD leave by requiring that workers are paid their “normal remuneration”). These are explained below.
Normal working hours and remuneration does not vary with the amount of work done
This category of worker includes those who are entitled to be paid a fixed wage or salary. The holiday pay of workers in this category is calculated with reference to the basic pay payable for those normal working hours (section 221(2), ERA 1996). This is subject to the ECJ case law which has modified which aspects of remuneration are taken into account, at least in relation to their WTD leave. As the normal working hours of a worker who is on furlough have (arguably) not changed, there is a good argument that their annual leave is payable at the rate of a normal week’s pay, and not at the rate they are receiving for the temporary period that they are not working.
Normal working hours where remuneration varies with the amount of work done, or where hours vary
For a worker with normal working hours whose remuneration varies with the amount of work done, holiday pay is based on the sum of the remuneration earned in the reference period (12 weeks, or 52 weeks from 6 April), divided by the total hours worked and then multiplied by a normal week’s hours.
For a worker with normal working hours whose hours vary (such as shift workers), holiday pay is based on the sum of the remuneration payable in the reference period (12 weeks, or 52 weeks from 6 April), divided by the total hours worked and multiplied by an average week’s hours.
However, in both cases, it is only average remuneration for working weeks which is taken into account. Whole weeks of absence are left out of the calculation. This means that whole weeks of furlough will likely not be taken into account, and holiday pay would be based on the relevant reference period prior to furlough starting. If the worker’s pay has been reduced for furlough then this means that they may, depending on their earnings during the reference period, be better off taking annual leave, if they are permitted to do so.
No normal working hours
For a worker with no normal working hours, holiday pay is based on the average weekly remuneration based on all remuneration payable in the past 52 weeks in which remuneration was payable by the employer. Non-working weeks are taken into account, but weeks where no remuneration was earned are not (section 224(3), ERA 1996). This means that the question in this context is whether furlough pay is remuneration. There is obviously no precedent for this, but we consider it likely that furlough pay is remuneration for these purposes and would be taken into account. However, there could be argument that furlough pay does not reflect “normal remuneration” and should not be taken into account as it will artificially lower the level of a week’s pay. If it is taken into account then workers with no normal working hours could be entitled to receive less pay for a period of annual leave during furlough depending on the precise calculation, but it is likely that in most cases their annual leave would be payable at a rate higher than their furlough pay.
If a worker has pre-arranged annual leave which falls during furlough, is the worker entitled to take that leave?
For the reasons set out in the section “Can annual leave be taken during furlough?” the employer may wish to cancel any annual leave which has already been booked, if there is enough time before the leave for the employer to give the required notice.
If a worker has pre-arranged annual leave which falls during furlough, is the worker entitled to cancel that leave?
The Working Time Regulations 1998 do not provide for cancellation of a notice to take annual leave by a worker. However, the contract of employment or the employer’s holiday policy may provide a mechanism for workers to do so.
In either event, employers would need to ensure that they do not breach the implied term of trust and confidence in refusing to accept a worker’s withdrawal of notice to take annual leave, or by issuing notice that the worker must still take annual leave on the days in question.
In addition, it remains unclear whether an employer can require a worker to take annual leave during furlough.
We expect that most employers will react reasonably where workers wish to cancel annual leave because their holiday plans have been cancelled. Even if the employer can direct workers to take annual leave during furlough (which remains unclear), a proportionate response which does not require workers to take large segments of their annual leave in one tranche during furlough (and partial or full lockdown) is likely to be appropriate from an employee relations perspective.
What happens to bank holidays which fall during furlough?
For the reasons set out in section “Can annual leave be taken during furlough?” the employer may wish to cancel any annual leave which falls within furlough (including bank holidays which have been designated as annual leave), if there is enough time before the leave for the employer to give the required notice.
If it is then not reasonably practicable for the cancelled annual leave to be taken in the remainder of the leave year, and if those days fall within the worker’s statutory leave entitlement, the leave should be carried forward to the next holiday year.
If the employer decides to continue to treat the bank holidays as statutory annual leave then they should be paid accordingly.
The Employees’ CJRS guidance, as amended on 17 April 2020, states that, if employees usually work bank holidays, their employer can agree that this is included in the CJRS grant payment. If the employee usually has bank holidays off, their employer will need to either top up their pay to their usual holiday pay or give the employee a day off in lieu. The guidance does not mention the requirement to give notice where the employer wishes to cancel statutory annual leave, but the fact that the guidance is silent on the point does not detract from the employer’s obligations to do so under the WTR 1998.
What is the procedure to end furlough?
The HMRC guidance and the Treasury direction do not provide a mechanism for ending furlough. Ideally, the furlough agreement would provide for the circumstances in which furlough ends, for example:
Whether the employer can dictate the end of furlough will depend on what has been explicitly or implicitly agreed between the parties. However, the absence of an explicit right to bring furlough to an end and require employees to return to work is unlikely to be an issue in most cases because employees are likely to be in receipt of less pay while they are furloughed and may be eager to return to work given the difficulties in securing alternative employment while the Covid-19 crisis continues.
If there is no contractual agreement in terms of ending furlough and a furloughed employee refuses to return to work in response to their employer’s request to do so, they are arguably not willing and able to work and the principles set out in the implied terms in employment contracts: Duty to pay wages. If they are contractually obliged to return to work and fail to do so, they are unlikely to be entitled to wages for the same reason, and they may be subject to disciplinary action for unauthorised absence.
However, an employer must consider whether there is any particular reason (such as shielding) to explain why an employee is not keen to return to work.
How much notice should an employer give employees that they are required to return to work?
An employer should give any required period of notice specified in the furlough agreement. If no period of notice was specified, the employer should aim to give reasonable notice, depending on the particular circumstances of both the employer and the employee.
Where an employer intends to change employees’ terms of employment on return from furlough, it should take into account any time required to consult with employees and employee representatives regarding the proposed changes in order to seek to reach agreement. Employers should also consider whether they need to consult regarding changes in work practices to comply with new health and safety requirements before employees return to work.
What information should an employer provide when it notifies an employee that their furlough period is due to end?
In addition to confirming the date the employer wishes the employee to return to work, employers should consider whether the following information will need to be provided:
Employers should also remember to also notify employees who have continued working on site throughout lockdown of the above matters where relevant.
If there is a phased return to work from furlough, how should an employer select which employees should return ahead of others?
When selecting which employees to return to work from furlough and which employees to keep on furlough, an employer should ensure that no discriminatory criteria are applied, except where this can be justified. The Employers’ CJRS guidance and the EHRC guidance make it clear that usual equality and discrimination laws apply in relation to the furloughing of employees.
Employers should ensure that they do not base their decision on financial considerations that could be discriminatory. For example, the EHRC guidance gives the example of an employer furloughing a pregnant employee to avoid its health and safety obligations towards her. This could extend to keeping a pregnant employee on furlough to avoid having to pay her in full if she would need to be suspended on health and safety grounds after the end of her furlough period.
Can an employer refuse to allow employees returning from furlough to take any annual leave for a period of time?
Yes. An employer could exercise its right to designate a period after furlough as one during which no annual leave may be taken, or otherwise give counter-notice in response to any holiday requests received.
However, employers who have also required employees to not take holiday during furlough should ensure that all employees are aware of their rights to carry over their annual leave from the current leave year to the next two years. Equally, an employer may wish to require its employees to take annual leave immediately after the furlough period ends.
Will it be an unfair dismissal if an employer makes someone redundant rather than placing them on furlough?
It is difficult to determine whether an employment tribunal would find such a dismissal to be unfair at this stage. In accordance with the test for reasonableness under section 98(4) of the ERA 1996, it will depend on the particular circumstances of the case, including the size and resources of the employer. For example, whether the employer makes the decision to make the employee redundant rather than furlough them before or after the scheme has commenced, and the financial position of the employer, are likely to be relevant circumstances. There will be cases where an employer cannot afford to furlough employees at this stage and pay the 80% of salary until HMRC has set up the scheme and reimburses it. While those employers could ask for the employees to agree to defer payment until it is reimbursed by HMRC, some employees will be unwilling to agree to this, or not be in a financial position to do so. In those circumstances, it may be fair for an employer to dismiss for redundancy.
Can an employee on furlough still claim a statutory guarantee payment under section 28 of the Employment Rights Act 1996?
To qualify for a statutory guarantee payment (SGP), an employee must be laid off in accordance with section 147(1) of the ERA 1996, which provides that they will be laid off for a week if:
An employee who is furloughed will arguably not meet the requirements of section 147(1)(b) because they are entitled to remuneration even though their employer is not providing work for them.
In any event, contractual remuneration (which will include furlough pay) can be set off against an employer’s liability to pay an SGP, and equally any SGPs made to the employee will go towards discharging an employer’s liability to pay contractual remuneration in respect of the same period (section 32, ERA 1996). Therefore, regardless of whether or not employees are entitled to receive SGPs during furlough, it will not make any financial difference to them.
Is statutory redundancy pay calculated on the basis of furlough pay or normal pay?
The calculation is based on the employee’s length of service, age and week’s pay (calculated in accordance with the provisions in the ERA 1996 and capped at the statutory maximum). The calculation of a week’s pay varies depending on the type of worker, so the extent to which furlough pay will be taken into account depends on the answer to that question. It will also depend on when the “calculation date” for calculating a week’s pay falls for a particular worker as this could potentially also affect whether furlough pay is taken into account.
The rules for calculating a statutory redundancy payment are modified slightly where an employee is made redundant during lay-off or short-time working. However, it is unlikely that a furloughed employee meets the definition of lay-off so those rules are unlikely to be relevant.
Normal working hours and remuneration does not vary with the amount of work done
This category of worker includes those who are entitled to be paid a fixed wage or salary. A week’s pay is calculated with reference to the basic pay payable for those normal working hours (section 221(2), ERA 1996). As the normal working hours of a worker who is on furlough have (arguably) not changed, there is a good argument that a week’s pay for statutory redundancy pay purposes is payable at the rate of a normal week’s pay, and not at the rate they are receiving for the temporary period that they are not working.
Normal working hours where remuneration varies with the amount of work done, or where hours vary
For a worker with normal working hours whose remuneration varies with the amount of work done, a week’s pay is based on the sum of the remuneration earned in the 12 week reference period, divided by the total hours worked and then multiplied by a normal week’s hours.
For a worker with normal working hours whose hours vary (such as shift workers), a week’s pay is based on the sum of the remuneration payable in the 12 week reference period, divided by the total hours worked and multiplied by an average week’s hours.
However, in both cases, it is only average remuneration for working weeks which is taken into account. Whole weeks of absence are left out of the calculation. This means that whole weeks of furlough will likely not be taken into account, and a week’s pay would be based on the relevant reference period prior to furlough starting.
No normal working hours
For a worker with no normal working hours, statutory redundancy pay is based on the average weekly remuneration. This is based on all remuneration payable in the past 12 weeks in which remuneration was payable by the employer. Non-working weeks are taken into account, but weeks where no remuneration was earned are not (section 224(3), ERA 1996). This means that the question in this context is whether furlough pay is remuneration. There is obviously no precedent for this, but we consider it likely that furlough pay is remuneration for these purposes and would be taken into account.
A week’s pay at the “calculation date”
A week’s pay in this context is based upon the employee’s week’s pay at the “calculation date”. If the employee was dismissed without notice or with less than their statutory minimum entitlement to notice under section 86 of the ERA 1996, the calculation date is the date on which their contract would have ended had statutory notice been given (section 226(5)(b), ERA 1996). In all other cases, the calculation date is the date on which, working backwards from the relevant date, the employer would have to have given notice in order to comply with the employee’s minimum statutory notice entitlement (section 226(5)(c) and (6), ERA 1996).
How is SMP calculated for an employee who has been on furlough prior to maternity leave?
Both entitlement to SMP and the rate payable depend on an employee’s normal weekly earnings. Normal weekly earnings are calculated as a weekly average of the employee’s total gross earnings from the employer and any associated employers during a reference period (the “relevant period”).
The relevant period ends with the last normal pay day on or before the end of the Qualifying Week (which is the 15th week before the expected week of childbirth (EWC)) and begins after the last normal pay day at least eight weeks earlier (regulation 21(3), SMP Regulations).
The following came into force on 25 April 2020:
Maternity Allowance, Statutory Maternity Pay, Statutory Paternity Pay, Statutory Adoption Pay, Statutory Shared Parental Pay and Statutory Parental Bereavement Pay (Normal Weekly Earnings etc.) (Coronavirus) (Amendment) Regulations 2020 (SI 2020/450).
Maternity Allowance and Statutory Maternity Pay (Normal Weekly Earnings etc) (Coronavirus) (Amendment) Regulations (Northern Ireland) 2020 (SI/2020/69).
Statutory Paternity Pay, Statutory Adoption Pay and Statutory Shared Parental Pay (Normal Weekly Earnings etc) (Coronavirus) (Amendment) Regulations (Northern Ireland) 2020 (SI 2020/70).
The regulations provide that where the woman starts maternity leave on or after 25 April 2020 and has been on furlough during part or all of the relevant period and her pay has reduced as a result, her normal weekly earnings for the purposes of eligibility and the rate payable for statutory maternity pay will be calculated based on the pay she would have received if she were not furloughed.
The regulations make similar amendments in respect of maternity allowance, statutory paternity pay, statutory adoption pay, statutory shared parental pay and statutory parental bereavement pay.