Government initiatives to support employers
As part of a range of financial support initiatives announced by the government recently to support businesses during the Covid 19 crisis, a number of measures were introduced around employees.
One of the main support initiatives is the ‘Coronavirus Job Retention Scheme’. This provides financial support to employers who want to ‘furlough’ employees for a limited period of time, by allowing them to claim 80% of employee wages back through the Coronavirus Job Retention Scheme. It is possible to claim back statutory sick pay (SSP) paid to employees due to Coronavirus. For details see: Financial support for businesses during coronavirus (COVID-19)
What is the Coronavirus Job Retention Scheme (JRS)
This scheme is temporarily in place for three months, starting from 1 March 2020. It is designed to help employers whose businesses are severely affected by the Coronavirus lockdown, in order to retain employees who would otherwise inevitably have faced redundancy. HMRC will reimburse 80% of furloughed workers wage costs up to a cap of £2,500 per month per employee.
Who is eligible for the JRS?
It is open to any employer which has already created and started a UK PAYE payroll scheme on or before 19 March 2020, which has a UK bank account and the company had fewer than 250 employees at that time. It can include full-time, part-time, agency or flexible or zero hour contracts.
Eligibility criteria can be found at: Check if you can claim for your employees’ wages through the Coronavirus Job Retention Scheme. It is worth noting that this guidance has been updated three times as of the date of writing this, therefore you should check for any further updates if you intend to use the scheme.
The definition of employee that covers this scheme is very wide. As long as an employee is employed through PAYE at the relevant time, then an employee will be eligible. For example, it includes individual employers, directors, office holders, employees on sick leave, on maternity leave, on unpaid leave etc.
It also applies to a ‘new employer’ who has taken on employees of a previous business transferred under TUPE or PAYE business succession rules.
It is also open to administrators of a company in administration if appropriate, i.e. if there is a reasonable likelihood of re-hiring the workers. Otherwise redundancy would be the preferred option to avoid any possibility of ‘adopting’ the employment contracts. The contract adoption point has been raised with the court in both the Debenhams and Carluccio administrations recently. For more discussion see: Furlough or forlorn? Employee issues post insolvency
What is very clear from the guidance is that in order to be eligible, an employee on furlough can’t undertake work for or on behalf of that organisation, including providing services or generating any revenue. If they are on reduced hours or working for reduced pay, they are not eligible for the scheme.
How does this work in practice?
Employers should refer to the government guidance on how to claim for employees’ wages, what they can claim for and what the parameters are in place in order to benefit from the scheme. You can do this by looking at the following guidance: Check if you can claim for your employees’ wages through the Coronavirus Job Retention Scheme.
There is similar guidance for employees wanting to know whether they can be eligible for this scheme. This may particularly apply if employees are unclear because they have been made redundant by their company, or they are on flexible or zero working hour contracts etc. Any concerned employee should look at the guidance at: Check if your employer can use the Coronavirus Job Retention Scheme.
Once a claim has been accepted HMRC will pay the company via a transfer to a UK bank account. Current indications are that this is taking between 4-6 working days after submission of the claim. Obviously, the employer must pay all of the grant to the employee. The employer is not obliged to top up employees’ wages beyond the 80% grant and the grant doesn’t include non-monetary benefits paid to employees such as benefits in kind or salary sacrifice schemes.
Government guidance says that furloughed employees retain the same rights as they did previously, including SSP entitlement, maternity rights, unfair dismissal, redundancy payments etc. What is less clear is the rights to annual leave and whether employees can take annual leave while they are on furlough or even whether employers can require them to take some of their holiday while they are on furlough.
What are the risks for directors and business owners of using this scheme and what are the benefits?
There are obvious benefits to using this scheme is that it allows a business to retain employees for a limited period of time during the Coronavirus crisis, when the alternative might be to make them redundant because the business is unable to pay their wages. This is beneficial for the employer, the employee and the general economy.
The risk for an employer is that if some employees are to be furloughed and some not, the employer will need to be very clear on why there is a differentiation, to avoid any claim being made for discrimination or unfair or constructive dismissal at a later date. Employers should protect their position by taking legal advice, and document all decisions fully in board minutes.
Depending on the type of company and the relationships therein, the preferred approach is to open up lines of communication with all employees to discuss why decisions are being made, and if possible to involve the employees in the decision-making process.
Outside of using this scheme, there are other methods of increasing cashflow which can assist with payment of wages, whether you are taking advantage of this scheme or not. For more detail see: How does a business pay its staff and survive during what could be the many months of COVID-19?
If you require assistance with the Coronavirus Job Retention Scheme, or with any issues around employees and furlough, contact our expert team at Francis Wilks & Jones who can go over all your options with you.