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Your questions on furlough answered: amended guidance

Gateley Legal

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Further details of how flexible furloughing will work were announced on Friday 12 June 2020. This is the next and apparently last stage of the Coronavirus Job Retention Scheme.

The introduction of flexible furlough allows for part time working from July, a month earlier than expected, but it also means there will be a tapered reduction to the amount of Government contribution from August to the end of the Scheme on 31 October 2020. It also ends the employer’s ability to place new employees on furlough after 10 June 2020 for the first time with the important exception of employees returning from periods of statutory maternity leave or similar.

The revised Treasury Direction that covers how the scheme will work until the end of June 2020 will need to be further updated to take account of these changes. 

For a short guide to frequently asked questions on the changes to the scheme please click here.

This document is a comprehensive FAQ on the scheme incorporating the changes effective from 1 July. 

For guidance on collective consultation and HR1 issues please click here.

The headline features of the Job Retention Scheme:

  • The Coronavirus Job Retention Scheme will continue until 31 October 2020
  • The Government contribution is currently 80% of gross wage costs up to a maximum of £2,500 per month per furloughed employee 
  • Up until the end of July 2020 the grant will also cover employer national insurance and compulsory employer pensions contributions on top 
  • Subject to some exceptions it will not be possible to place an employee on furlough if they have not already completed a 3-week furlough period before 1 July 2020. The last date an employee could have been placed on furlough for the first time was 10 June 2020
  • As an exception to the rule employees returning from maternity leave or any other form of extended parental leave (and also returning armed forces reservists) that began before 10 June will be eligible for the flexible furlough scheme even if they have not previously been furloughed
  • From 1 July 2020 the complete prohibition on furloughed employees working for their employer will be relaxed allowing employers to claim wage grants for employees who can continue to work for them on a part time basis.  
  • From 1 August 2020 the Government will no longer pay employers NI or pension contributions on the 80% grant contribution. Employers must do so to remain eligible.
  • From 1 September the £2,500 cap will be reduced to £2,187.50 and 80% contribution reduce to 70% of wages if less. The employer will need to make up at least 10% of wages. 
  • From 1 October the cap will be reduced to £1,875 and the maximum contribution will be 60%. The employer will need to make up at least 20% of wages.
  • All employers are eligible to participate in the Scheme provided they had created and started a payroll on or before 19 March 2020.
  • Employees can only be furloughed if on pay roll and HMRC had received the RTI submission confirming they were on pay roll as at 19 March 2020.
  • It is now too late to furlough employees who are unable to work because they have caring responsibilities resulting from Coronavirus or shielding because they are extremely vulnerable for the first time (10 June was the cut-off date for these employees).
  • Up until 1 July 2020 employees must still not work for their employer during a period of furlough which must be for a minimum period of 3 weeks. Furloughs that start on or after 1 July 2020 do not need to be of any minimum length
  • The agreement to furlough must be in writing or confirmed in writing and must be retained until at least 30 June 2025. This may include a collective agreement between the employer and union. It will need to be suitably worded to permit flexible working. 
  • For ‘fixed rate’ employees, the reference salary for furlough pay is the amount payable before tax, in the pay period on or before 19 March 2020. (Employers that had followed initial Government guidance and had calculated reference salary as at 28 February 2020 were allowed to process their first claim on this basis but had to use 19 March 2020 salary for all further claims). 
  • Employees TUPE transferred after 10 June 2020 may also be furloughed as long as they have been previously furloughed for at least 3 weeks between 1 March 2020 and 30 June
  • Where pay is variable any discretionary payments are excluded from the calculation of the Government contribution. 
  • All usual deductions apply for income tax, national insurance and auto enrolment employee pension contributions.  
  • Both the Apprenticeship Levy and Student Loans should continue to be paid as usual but will not be claimable.
  • Payments usually take six days to be processed after claims have been submitted through the HMRC online portal. 

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Your Questions Answered

  1. The Chancellor said there was a cut-off point on 30 June 2020, what does this mean?

    The revised scheme from 1 July will be available in respect of all employees who have completed at least one complete 3-week furlough period between 1 March and 30 June.

    This means 10 June was the last day an employee could begin a furlough period for the first time to qualify for the scheme from 1 July.

    An important exception to this is that anyone returning from a period of maternity leave or similar family related leave which started before 10 June will be able to be furloughed even if they have not been furloughed before.  This also applies to armed forces reservists.
     
  2. What contribution will we need to make when the scheme changes in July?

    The key point is that under the scheme the employee needs to continue to receive as a minimum 80% of their regular wages, capped at £2,500 per month (and if you have agreed a top up that would continue to apply unless you agreed something different).

    The required employer contributions will be as follows:

    July: no change

    1 August: employer national insurance and pension contributions

    1 September: 10% of employee wages (up to £312.50) plus employer national insurance and pension contributions

    1 October: 20% of employee wages (up to £625) plus employer national insurance and pension contributions

    The Government will taper down its contribution to 70% in September and 60% in October.
     
  3. What do we need to have in place for a valid furlough of employees?

    A written agreement or written confirmation that the employee will cease all work for a minimum period of 21 days was needed for furlough to 30 June.   The agreement or confirmation could be in an electronic form such as email, and a copy kept for at least 5 years. A new written agreement will be needed for those starting furlough on a flexible basis on or after 1 July (unless the existing agreement is worded in a way that covers of the extension to the scheme and the ability to work on the flexible basis required by the employer). Collective agreement with a union is permitted.

    Employers should have regard to section 1 of the Employment Rights act 1996 relating to particulars of employment when making amendments to working patters under a flexible furlough arrangement. 
     
  4. Are the employer NICS, pension contributions and other benefits covered by Job Retention Scheme Grant? 

    Up to 31 July 2020 employers will receive a grant covering employer’s national insurance and minimum auto enrolment pension contributions on the 80% payment. This will be in addition to the £2,500 cap. 

    With effect from 1 August 2020 the grant will no longer cover any employer’s national insurance and minimum auto enrolment pension contributions.  These will have to be met by the employer for it to remain eligible under the scheme.

    Employers cannot to claim for additional national insurance or pension contributions made where they have chosen to top up the salary.

    Employers cannot claim for payments to the apprenticeship levy.

    Employers need to continue to fund benefits due under the contract too unless it has been agreed that they will be discontinued during the period of furlough.
     
  5. How is the value of the wage costs calculated to work out the furlough pay? 

    This depends on the type of contract the employee is on. A full or part time employee on a salary will have an entitlement based on their monthly salary as at 19 March 2020.

    Where the employee has variable hours or their pay varies from month to month the amount payable will be calculated by taking either the earnings from the same pay period the previous year or, if higher, an average from the 2019-2020 tax year. 

    If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.

    Employers should include in the calculation all regular payments the employer is obliged to pay to employees including past overtime, fees and compulsory commission payments.

    However discretionary bonuses, tips (including those distributed through troncs) and commission payments are excluded. This is likely to cause some confusion in practice as in many cases the issue of whether a commission or other payment is compulsory or discretionary will not be clear. The Treasury Direction refers to the payments being due under “a legally enforceable agreement, understanding, scheme, transaction or series of transactions”. This is quite a wide description and the references to transactions may bring within scope extra payments where a legal right could be established by way of custom and practice.  

    The revised Treasury Direction has now omitted the confusing reference to payments only being relevant if they are “not conditional on any matter”. 
     
  6. How do we work out the hours to claim for an employee on flexible furlough through the scheme?

    You will be able to claim the grant for the hours your employees are not working calculated by reference to their “usual hours” worked in a claim period. The cap will be proportional to the hours not worked. You will need to report hours worked and the usual hours an employee would be expected to work in a claim period.

    The guidance has numerous examples of how to work out the usual hours.  The intention is to establish the usual hours worked in the claim period.  The employer will then track actual hours worked in that period.  This number is the subtracted from the usual hours number to establish.
     
  7. Can we agree a pay cut for the hours worked under flexible furlough from 1 July?

    There is nothing to prevent this in the guidance. National Minimum wage legislation will have to be adhered to for all hours worked. 

    It would appear possible, therefore, to agree a reduced salary/hourly rate for the time working, whilst the time furloughed will be based on the pre- scheme rate in line with the formula set out in the scheme for working out furlough pay. 
     
  8. Can we pay less than the 80% contribution (£2,500 cap) under a furlough agreement?

    No. The Treasury Direction refers to it being one of the conditions that have to be met in order to make a claim for a grant under the Scheme.   

    This will remain the case when the Government contribution starts to taper off in August 2020.
     
  9. Do we need to be able to prove that furloughed employees would have been made redundant if they were not furloughed to access the grant?

    No. The HMRC guidance provides a number of examples of situations in which employees may be furloughed regardless of whether there is any threat of redundancy. The Treasury Direction states the “purpose of CJRS 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.”
     
  10. Does an employee need to have any period of minimum service in order to qualify as within the scheme? 

    No (but they generally need to have been on the payroll as at 19 March 2020 and HMRC must have been notified at that point they were on pay roll through the RTI submission process). 
     
  11.  Are employees who have TUPE transferred after 28 February 2020 eligible for the scheme?

    Those employees who had transferred employment under TUPE after 28 February 2020 and who were on the transferor’s pay roll as at 28 February 2020 were entitled to be furloughed by the new employer. Employees transferred after 10 June 2020 may be furloughed but only if the previous employer had also furloughed them. 
     
  12. Could employees who left employment be re-employed and then furloughed?

    Employees who were employed and on the employer’s payroll on 28 February but who subsequently left the employer’s employment were entitled to be re-employed and then furloughed provided that the employer had an RTI submission notifying payment for that employee on some date on or before 19 March 2020.  That was the case whether the employment ended before or after 19 March.

    However, if the employee started work after 28 February and was not employed as at 19 March 2020, they were not eligible under the scheme.

    10 June was the last day this could have been done under the scheme.  
     
  13. What about the situation intra-group where employees moved onto a new PAYE scheme after 19 March 2020?

    Where a group of companies has consolidated its payroll schemes after 28 February 2020 then the employer operating the new scheme was able to furlough the employees on the pay roll provided they were on pay roll in another part of the group as at 28 February 2020.
     
  14. Could the employer ask for volunteers to go on furlough leave?

    Yes. 
     
  15. Could an employee on unpaid leave be furloughed?

    If on or after 1 March 2020 an employee had started a period of unpaid sabbatical or other fixed period of unpaid leave they could not be furloughed during that period of leave. If an employee began a period of unpaid leave before that date they could not be furloughed before the end of the agreed period unless that was uncertain which would have enabled the employer and employee to agree that the period of unpaid leave should end and the employee furloughed instead.

    10 June was the last day this could have been done under the scheme.
     
  16. Could an employee on sick leave or who is self-isolating be furloughed?

    Where Statutory Sick Pay was being paid the employee could not be furloughed. However, the revised Treasury Direction provided that the employer and employee could agree when the period of incapacity for work would end and the employee then be placed on furlough.

    10 June was the last day this could have been done under the scheme.
     
  17. Could employees who are shielding in line with public health guidance or who are carers for children/vulnerable adults be placed on furlough?

    The Guidance permitted this. If the employer did not wish to place the shielding employee on furlough, they had the safety net of being entitled to sick pay following changes to the Statutory Sick Pay Regulations made on 16 April 2020. The ability for the employer and employee to agree when a period of incapacity will end as provided in the revised Treasury Direction meant that both options are open. 

    The employer was also able to agree that an employee living with someone who was shielding could be furloughed, similarly, employees who were unable to work because they have caring responsibilities resulting from Coronavirus could have been furloughed including those who needed to look after children.

    10 June was the last day this could have been done under the scheme.
     
  18. What about others who were not employees but on pay roll?

    The guidance confirmed that the scheme applies to not only those engaged as employees but also any workers who are not in business on their own account; office holders including company directors; salaried members of Limited Liability Partnerships (LLPs) and agency workers including those employed by umbrella companies.  The key issue is whether they are paid through PAYE.

    10 June was the last day this could have been done under the scheme.
     
  19. Does an employer have to show a fair selection process where only part of the workforce will be asked to agree a period of furlough leave?

    The employer needs to have an agreement to furlough which should mitigate against grievances and discrimination claims to some degree.  However, as we move into flexible furlough from 1 July employers should take care to ensure that for those employees eligible for flexible furlough it is applied in an equitable way if practicable.  This is particularly relevant if redundancies are likely at some point.  Employees who are not given what they would perceive as an “equal opportunity” to work in comparison to colleagues may be more inclined to challenge any redundancy selection at a later point.  Employers must also be careful to avoid discriminating on the grounds of any protected characteristic.
     
  20. How is salary sacrifice treated for the purposes of calculating the amounts due?

    The grant will be based on the salary after sacrifice as this will be regarded as the amount due rather than the pre-salary sacrifice.

    Benefits provided through salary sacrifice schemes should not be included in the salary calculation. 

    Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. The guidance from HMRC does state that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.
     
  21. Can an employee be on intermittent furlough leave?

    Yes. Prior to 1 July a worker must have been furloughed for minimum periods of 3 weeks.  From the 1 July the employer and employee will be able to agree any length of furlough as often as they wish until 31 October. 

    However, any furlough period (applicable for employees who have already been furloughed on a previous occasion or have returned after 10 June from family related leave/armed forces duty) which commenced after 10 June and before 1 July must be for 3 weeks with no work being undertaken before flexible furlough can commence.

    Many employers intend to rotate employees in and out of furlough, with an eye on treating people consistently and helping safeguard people’s physical and mental wellbeing. 
     
  22. Is there a minimum or maximum number of working hours for employees on flexible furlough?

    No, you can agree any working arrangement with an employee on flexible furlough. It appears that this could change from week to week – because, when claiming the grant for furloughed hours, employers will be able to report and claim for a period of just one calendar week at a time (the previous requirement to claim in minimum periods of 3 weeks is no longer applicable from 1 July).  
     
  23. If we currently rotate employees on furlough could we instead put them all on part-time furlough?

    It will not be possible to claim for more employees than you have previously in one claim period. 

    So if half your employees currently carry out work and you claim for the other half on a rotation basis you could not from July reduce hours to 50% and furlough them all if the new claim would exceed the number of employees you had claimed for previously in any one period.  

    By way of example if you have previously made claims for say 20, 30 and 50 employees, but in total there have been 70 employees furloughed altogether, from July 50 would be the maximum number of employees you could claim for in any claim period.
     
  24. Can an employee be on furlough during a period of notice of dismissal?

    If the employee is already on furlough, they may be given notice. Where statutory minimum notice applies, legislation requires an employer to pay full pay during that notice period if the employee is ready willing and able to work. This may well be the case during a furlough period.

    It would be possible to furlough an employee to cover the notice period by agreement provided the employee was eligible for furlough at that time. 
     
  25. What notice do I have to give to bring a period of furlough to an end?

    This will depend on the terms that you agree with your employee when furlough leave commences. The guidance is silent on this. It is advised that employers require their furloughed employees to sign a furlough agreement setting out the terms of their absence and making express provision for return to work and flexibility around furlough. 
     
  26. Will it be an unfair dismissal to make an employee redundant if they could have been placed on furlough leave as an alternative? 

    Remember employees generally need to have accrued two years’ service at the effective date of termination to have the right to claim unfair dismissal.  It would be a factor that the Employment Tribunal would take into account as an employer should always look at all alternatives to dismissal before dismissing for redundancy. The dismissal may still be fair if the employer is able to explain why it decided not to furlough the employee. The key is to document why furlough was not pursued. If the employer can offer a sensible explanation an Employment Tribunal should not interfere.
     
  27. Will the employee still need to receive national minimum wage for the hours they would have been in work had they not agreed to a period of furlough leave?

    No. This will not be working time for the purpose of national minimum wage calculations. If the employee carries out any training whilst on furlough this will need to be paid at national minimum wage. This may be covered by the Government grant but if not the shortfall the employer will need to make up the difference
     
  28. Does an employee continue to accrue paid holiday entitlement based on their normal wage during the furlough leave?

    Contractual rights in relation to holiday will continue unless amended by agreement. The employee will also be able to rely on statutory holiday rights under the Working Time Regulations 1998. These provide an employee with the right to accrue a minimum of 5.6 weeks paid holiday which normally have to be taken in the current leave year. However, amendments to the Working Time Regulations 1998 have been made which allow workers who have not been able to take holiday due to coronavirus issues to carry over up to 4 weeks unused leave into the next 2 leave years. The employer and employee remain able to reach a separate agreement if they wish to extend this to the full 5.6 weeks.
     
  29. Can an employee be on holiday whilst also furloughed?

    The Government guidance confirms that an employee can take holiday whilst on furlough. 

    This is also reflected in the ACAS guidance that states ‘furloughed workers’ can request and take their holiday. It also suggests that an employee may be required to take holidays. 

    Employers should not, however, view this a green light to force employees into lots of “holiday” during a furlough period.  That may well be unlawful under existing legislation and case law.  Some modest and agreed holiday may well be permitted, including the bank holidays as they fall due. 
     
  30. How would we calculate holiday pay during furlough?

    The guidance states that the pay received by a worker while they are on holiday should reflect what they would have earned if they had been at work and working.

    Where a worker has regular hours and pay, their holiday pay would be calculated based on these hours. If they have variable hours or pay, their holiday pay is calculated as an average of the previous 52-weeks of remuneration excluding weeks in which there was no remuneration.

    Holiday entitlement in excess of the 5.6 weeks statutory leave under the Working Time Regulations 1998 may be treated differently by agreement.
     
  31. Will an employee on furlough leave be able to take a second job during the hours that they would have been at work? 

    Subject to any restrictions in the employment contract the Guidance confirms that there are no restrictions on the employee undertaking work for another employer during the period of furlough.
     
  32. Would furlough leave be available where an employee has multiple jobs?

    The employee would be entitled to furlough leave in respect of any of these jobs if they are with different employers.
     
  33. Will an employee returning from maternity leave or other statutory family leave be able to agree a period of furlough leave?

    The guidance confirms that someone who returns from maternity leave or other family related leave after 10 June will be eligible for furlough even though they have not completed a 3 week furlough period before 1 July.

    This also applies to armed forces reservists.
     
  34. Would an employee need to terminate maternity leave and start furlough, or could they be on maternity leave and furlough at the same time?

    The guidance states that where the employee on maternity leave is receiving just Maternity Allowance she will need to end her maternity leave early by giving at least 8 weeks’ notice in order to be eligible for furlough pay.  

    Where the employee is receiving just Statutory Maternity Pay the guidance states that the normal rules for maternity and other forms of parental leave and pay apply and claims for reimbursement should be made through the normal procedures not through the Job Retention Scheme.  

    However, for the period up to 30 June there did not appear to be a prohibition on an employee being on furlough during maternity leave as the guidance stated an employer was allowed to claim in respect of enhanced (earnings related) contractual pay that the employees may be entitled to whilst on leave. This was to be included as a wage cost and the employer could recover this through the Job Retention Scheme subject to the limits on the Government grant. 

    However, if this had not been affected by 10 June for any particular employee, the position would appear to be that maternity leave will have to end for them to become eligible for furlough between 1 July and 31 October.
     
  35. Will a period of furlough leave before maternity leave be taken into account for calculating the amount of statutory maternity pay due?

    New legislation in force on 25 April 2020 requires that where the employee was on furlough during the relevant period for calculating maternity pay entitlement she shall be treated as receiving her normal pay rather than a reduced rate of pay for that period. The guidance states the new calculation will apply to employees who start their maternity leave on or after 25 April 2020.

    This will also apply to other forms of statutory pay for family related leave.
     
  36. Can employees volunteer or train whilst furloughed?

    Up until 1 July 2020 a furloughed employee can take part in volunteer work or training, “as long as it does not provide services to or generate revenue for, or on behalf of” the employer. They can provide voluntary services elsewhere whilst furloughed but the guidance states that an employer cannot furlough their employee and then ask them to volunteer in the same or a different role.

    The guidance confirms that if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the Government grant.

    From 1 July 2020 the furlough agreement may provide for the employee to be furloughed for some of their contractual hours and for them to work for the other hours. 
     
  37. Will an apprentice on furlough leave be able to continue to carry out their college studies?

    The guidance does confirm that apprentices may be furloughed and carry on training. It should be remembered though that they will be entitled to the appropriate minimum wage rates for all periods when they are undertaking training.
     
  38. How often can we submit a claim to HMRC for furlough pay?

    Employers can submit a claim as and when pay roll is due. The initial claim may be backdated for the period that the employee has been on furlough. The Guide says “You should make your claim using the amounts in your payroll - either shortly before or during running payroll. Claims can be backdated until the 1 March where employees have already been furloughed.” It also possible for claims to cover payments due in future pay roll runs that would be due in the next 14 days. The period that the employee was on furlough will need to be clearly identified and this should not be less than three weeks. Only one claim may be made for any period so it will be important to include all relevant employees in the claim form.  

What will need to be submitted to HMRC? 

The Guidance states that you will need:

  • to be registered for PAYE online
  •  your UK bank account number and sort code (only provide bank account details where a BACS payment can be accepted)
  • the billing address on your bank account (this is the address on your bank statements)
  • your employer PAYE scheme reference number
  • the number of employees being furloughed
  • each employee’s National Insurance number (you will need to search for their number if you do not have it or contact HMRC if your employee does not have a number)
  • each employee’s payroll or employee number (optional)
  • the start date and end date of the claim
  • the full amounts that you’re claiming for
  • your phone number and contact name

You also need to provide either:

  • your Corporation Tax unique taxpayer reference
  • your Self-Assessment unique taxpayer reference
  • your company registration number

If you’re claiming for employees who are flexibly furloughed, you’ll need to have agreed the furlough arrangement with the employee (or reached a collective agreement with a trade union) and keep a written agreement that confirms the furlough arrangement.

For the claim period you’ll also need:

  • the number of usual hours your employee would work in the claim period
  • the number of hours your employee has or will work in the claim period
  • you will also need to keep a record of the number of furloughed hours your employee has been furloughed in the claim period

For more information regarding the updated guidance to the Job Retention Scheme contact our expert listed below and for more information regarding COVID-19 visit our Coronavirus hub.

This article was originally published on 8 April 2020, it was last updated on 22 June 2020.

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