s. 76 of the Coronavirus Act 2020 ("Act") states that HMRC are "to have such functions as the Treasury may direct in relation to coronavirus or coronavirus disease". The Directions dated 15 April 2020 and the accompanying schedule ("Schedule) arise directly out of s.76 of the Act, and therefore should be treated as having statutory force. Although HRMC has published their own guidance (the latest being on 17 April), we take the view that the guidance stands in second priority to the Schedule. Therefore we have divided this note into Section A which discusses the Schedule, and Section B which discusses the latest HMRC guidance.
This note should be treated merely and only as a guide to the Schedule and not a definitive statement of the law as intended by the Scheme or as our opinion as to the intended legal effect of the Schedule. You are advised to refer to the Schedule as the primary reference material of the Scheme. This does not constitute and cannot amount to any form of legal advice. Any reference below to "para" is a reference to the paragraphs of the Schedule.
The duration of the Scheme runs from 1 March 20201 to 31 May 2020[1] in respect of earnings paid or payable by the employer to furloughed employees in addition to employer national insurance contributions (NICs) and pension payments paid or payable on those earnings (para 12).
[1] This has now been extended to 30 June 2020.
2.1. An employer may make a claim for a payment under the Scheme if the employer has a pay as you earn ("PAYE") scheme registered on HMRC's real time information ("RTI") system on 19 March 2020 ("a qualifying PAYE scheme") (para 3.2)[2].
2.2. This is potentially problematic in relation to those employees who were hired in late February whose pay run may not take place until late March whose pay information therefore would not have been submitted until after 19 March 2020.
2.3. Employees in respect of which an employer wishes to make a claim under the Scheme must be furloughed employees that meet following criteria (para 6.1):
2.3.1. The employee has been instructed by the employer to stop all work in relation to their employment[3] (para 6.1(a));
2.3.2. The period that relates to 2.3.1 must be at least three consecutive weeks (para 6.1(b); and
2.3.3. The instruction referred to in 2.3.1 must arise as a result of coronavirus disease (para 6.1(c)). This is sufficiently broad to not require employers to show any particular financial effect on their organisation.
2.4. The condition under para 6.1(a) is met "only if the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment" (para 6.7).
2.5. This requirement to have agreement in writing is a major shift from the HMRC guidance which only required employer's confirmation to be put in writing. We interpret that unless and until the employer has obtained express consent in writing from purported furloughed employees, the employer would not be eligible to claim under the Scheme. (Please refer to Section B below where we discuss the HMRC guidance which has a less stringent requirement)
2.6. An employee can undertake training activities relevant to their employment in agreement with the employer during the period of furlough (para 6.8).
2.7. If a purported furloughed employee is entitled to be paid statutory sick pay ("SSP"), then the employee cannot be placed on furlough leave until after the related sick leave has expired (para 6.3).
2.8. This is conceptually different to the guidance of 15 April (or 17 April) which allowed those on sick leave to be placed on furlough leave and receive furlough pay although it prevented them from receiving SSP and furlough pay at the same time.
2.9. If an employee is on unpaid leave or unpaid sabbatical, then the employee cannot be placed on furlough leave until after the expiry of those leaves (para 6.4) and the employer cannot make a claim under the Scheme in respect of that employee either before or after 19 March 2020 (para 6.5).
[2] Employers with more than one qualifying PAYE scheme should refer to para 4.
[3] This requirement is diluted in the case of a director of a company (para 6.6).
3.1. An employer may make a claim for costs under the Scheme in respect of an employee if (para 5(a)):
3.1.1. The employer has paid the employee through the PAYE scheme on or before either 28 February 2020 or 19 March 2020;
3.1.2. The employer "has not reported a date of cessation of employment on or before that date"; and
3.1.3. The employee is a furloughed employee as per para 6.1.
3.2. This is not an exhaustive list of conditions for qualifying costs and there may be other criteria under the Schedule which may disqualify an employer from being able to claim from the Scheme[4].
3.3. The reference salary for a fixed rate employee[5] is the amount payable in the latest salary period ending on or before 19 March 2020. However, if the employer had already made a determination in accordance with a previous guidance by the HMRC that the reference salary should be based on the employee's pay as at 28 February 2020, then this salary can be used as a reference salary (para 7.16 and 7.17).
3.4. The reference salary for employees with "variable pay"[6] is the greater of:
3.4.1. the average monthly pay for the 2019-20 tax year (or, if less, the period of employment) before furlough leave began; and
3.4.2. the actual amount paid in the corresponding calendar period in the previous year.
3.5. A reference salary does not include "anything which is not regular salary or wages" (para 7.3). The Schedule gives criteria of what may or may not be "regular salary or wages" in paras 7.4 and 7.5. Broadly, regular salary is a payment that cannot vary according to the performance of the business or of the employee or in accordance with discretion of the employer except in accordance with an employment contract; cannot be made conditional on anything; and is not a benefit of any other kind.
3.6. This definition is unclear at best and misleading at worst, especially para 7.4(b) which requires it not to be made "conditional on any matter". As a result there is lack of clarity as to whether overtime payment, for example, is a regular wage or not as this clearly requires that the employee work extra hours (i.e. conditional) before they can be paid their overtime.
[4] As per para 5(b).
[5] See para 7.6 for the definition of a "fixed rate employee". As per para 7.6(f), we think this excludes zero-hour contractors.
[6] The Schedule does not use the term variable pay.
4.1. The amount an employer can claim back under the Scheme is (para 8.1 and 8.2):
4.1.1. the lower of: £2,500 per month, and the amount equal to 80% of the employer's reference salary (this being the gross earnings paid or payable by the employer to an employee);
4.1.2. any NICs payable by the employer on those gross earnings; and
4.1.3. claimable pension contribution[7].
4.2. An employee's reference salary is their pre-furlough pay.
4.3. Although an employee on a family friendly leave or sick leave can be placed on furlough leave, the amount the employer can claim back from the Scheme in relation to those employees must not include the corresponding statutory entitlement such as statutory maternity pay or statutory sick pay (para 8.6 and 8.7)[8].
[7] Para 8.8 to 8.12 deal with claimable pension contribution.
[8] See para 8.7 for the list of "specified benefits" which must be reduced from gross earnings.
5.1. Para 9 relates to the transfer of employees into new employment and the new employer's ability to claim under the Scheme for the transferred employees.
5.2. Employees only qualify under the Scheme where the transfer to the new employer takes place after 19 March 2020 (para 9).
5.3. This is consistent with the 15 April guidance although is different to the 9 April guidance which allowed those transferred after 28 February to be furloughed (but this was clearly intended to align it with the change in the qualifying date from 28 Feb to 19 March).
6.1. Subsequent to the Schedule, HMRC has published further guidance on consent on 17 April as follows:
"To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. If this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming the CJRS. There needs to be a written record, but the employee does not have to provide a written response. A record of this communication must be kept for five years".
6.2. This seems to bring us back to the situation which allowed employers the discretion to inform employees of their furlough without obtaining consent if they deemed that this would be compliant with employment law.
6.3. However, you will note from the HMRC guidance for employees of 17 April which states that both employee and the employer "… must agree to put you on furlough … Once agreed your employer must confirm in writing that you have been furloughed to be eligible to claim". This is different yet again from the employer guidance of the same date, and more in tune with the Schedule.
6.4. One practical option for your peace of mind is to contact your HMRC relationship manager (if you don’t have one, then perhaps contact HMRC directly) and ask for their assurance in writing that following the HMRC guidance will suffice for the purposes of claiming back under the Scheme.
7.1. Although the Schedule is silent on redundancy, HMRC's Employer Guidance of 17 April states that employees who were made redundant after 28 Feb can be re-employed and placed on furlough, even if they were not re-employed until after 19 March.
7.2. This is on the proviso that the employee was on the payroll as at 28 Feb and had been notified to HMRC on an RTI submission on or before 28 Feb.
8.1. HMRC's Employee Guidance of 17 April (although not the Employer Guidance) states that:
8.1.1. A furloughed employee continues to accrue holiday "as per your employment contract";
8.1.2. You can take holiday whilst on furlough;
8.1.3. That employers are obliged to pay normal holiday pay during furlough period rather than at the furlough rate.
8.2. Interestingly the guidance states that employers "will have the flexibility to restrict when leave can be taken if there is a business need" during both furlough period and the recovery period. This suggests that employers will continue to have the right under the WTR to require employees to take holiday during furlough period.
