The HM Revenue and Customs (HMRC) guidance on the Coronavirus Job Retention Scheme confirms that each period of furlough must last for a minimum of three consecutive weeks (21 calendar days). Where an employee is furloughed more than once, it is each individual furlough period that must last at least three weeks, not the total time the employee is furloughed. For example, if an employee returns to work after a three-week period of furlough and is later placed back on furlough, the second period must also last at least three weeks for the employer to be able to claim for that period under the scheme.
A period of furlough can last more than three weeks. For example, an employer can claim under the scheme for an employee who has been furloughed for a period of five weeks. The HMRC guidance confirms that a period of furlough can be extended for any amount of time (up to the scheme end date) while the employee is on furlough.
What does being “furloughed” mean?
There are three conditions that must be met for an employee to be furloughed:
- the employee must have been instructed by the employer to cease all work in relation to their employment.
- the period for which the employee has ceased (or will have ceased) work is at least 21 days, and
- the instruction not to work was given to the employee because of circumstances arising as a result of coronavirus.
A furloughed employee remains employed throughout the period of furlough. Continuity of employment is not affected. The employee is simply placed on a form of temporary leave of absence.
The Coronavirus Job Retention Scheme
The Coronavirus Job Retention Scheme is an unprecedented scheme under which the Government will award grants to employers, covering a significant proportion of the wage costs of those employees who are not working as a result of the coronavirus (COVID-19) outbreak.
All employers in the private, public and not-for-profit sectors are eligible to claim under the scheme, provided that they were operating a PAYE scheme that was registered on HMRC’s real time information (RTI) system on 19 March 2020.
The scheme allows an employer and employee to agree that the employee should be “furloughed”. Provided that the period of furlough is at least three weeks, the employer can obtain a grant from HMRC to reimburse 80% of the wage costs of that employee, to a maximum of £2,500 per month. In addition, the employer can claim the associated employer national insurance contributions and minimum automatic enrolment employer pension contributions due on that subsidised wage. All the money paid to the employer under the scheme must be used to reimburse the wage costs of that particular employee.
The employer pays the furloughed employee through its PAYE system, with any payment continuing to be taxed as normal. The scheme does not in itself change the employee’s contractual entitlement, so the employer must pay the employee on their normal contractual pay dates unless it obtains their agreement to vary the contract.
The amount the employer can claim from HMRC will be based on the employee’s pay in the last pay period prior to 19 March 2020 (although where the employer has based its calculation of salary on pay at 28 February 2020 in accordance with previous HMRC guidance, this calculation can be used for the first claim if there is a difference). Where the pay is variable, the employer can claim for the higher of either the same month’s earnings from the previous year or the average monthly earnings from the 2019/2020 tax year. Where the employee has been employed for less than a year, the employer should take an average of their earnings since they started work.
The government guidance says that employers can choose to top up the amount they can claim from HMRC and pay the employee more than 80% of their earnings. This is potentially misleading, as the scheme does not purport to change the employer’s contractual obligations towards its employees. What the employer is obliged to pay employees if it sends them home without work is a matter for the contract of employment and is not affected by the scheme. In many cases, an employer will be obliged to continue paying an employee in full, unless the employee agrees to accept a temporary variation in the contract.
Which employees are covered?
Originally the scheme was limited to those employees who were on the employee’s payroll system as at 28 February 2020. The key cut-off date has now been pushed forward to 19 March 2020. However, by that date the employer must have made a real time information (RTI) return to HMRC in respect of the employee. This will exclude many employees – particularly those paid monthly – who started work after 28 February but before 19 March.
As long as they are paid through PAYE, the scheme applies to all employees and workers including part-time, temporary and casual workers as well as those on zero hours contracts. Agency workers can be placed on furlough, although that is a matter for their agency to determine rather than the end user.
If an employee was made redundant, or the employment terminated in some other way, after 28 February 2020, the employer can rehire them, place them on furlough and make a claim for them under the scheme, provided that they had been notified to HMRC on an RTI submission by the relevant date. If the employment terminated after 28 February 2020, the employee must have been notified to HMRC on or before 28 February 2020. If it terminated after 19 March 2020, they must have been notified to HMRC on or before 19 March 2020.
How long will the scheme last?
Initially the Government committed to running the scheme for the three months running from the beginning of March to the end of May. The Chancellor has since announced that the scheme will be extended until at least the end of June 2020. Further extensions will also be considered.
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