The government has published some much needed further guidance in respect of the job retention scheme and in particular for furloughing employees. This was published on Saturday 4^th April.

We hope the below will clarify some of the questions we have all been wrestling with since the limited initial guidance was published.

Thankfully, none of the updated guidance goes against what we have been advising our clients to date.

We are pleased with this as it means we will not need to depart from the suggested course of action clients have been taking. That said, it does provide us with much-needed clarity and certainty.

The key issues that have been clarified are below. The full link can be found at: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

The following will focus primarily on what is new information and what we consider to be important to bring to your attention.

Who is eligible and do we have to justify why they are being furloughed?

This was already clear however it has now been clarified beyond doubt.

All employees who were enrolled on an employers PAYE payroll by 28^th February 2020 will be eligible to be furloughed.

Importantly, it has been clarified that any employee can be furloughed and is not a requirement to prove that they would otherwise have been made redundant, if they were not furloughed.

This clarification is important as it should allow employers more peace of mind and flexibility in deciding who to furlough as opposed to worrying about justifying the same to HMRC at a later date.

To be clear, if any employee for any reason has been paid cash in hand or not via PAYE payroll, they will not be eligible.

To be more precise about this, they would not be eligible to benefit from the scheme as this would be denied as they were not on payroll.

What is new and that we did not know before is that to be eligible for the refund under the scheme, the employer must be enrolled for PAYE online.

If for any reason you have not yet done this, we would suggest you urgently speak to your accountant and/or payroll team as we are of the understanding it can take up to 10 days for this to take effect.

Finally, the employer must have a UK bank account to be eligible for the scheme.

Apprentices

It is been confirmed apprentices can be furloughed in the same way as other employees, subject again to the requirement of being on PAYE payroll by no later than 28^th February 2020.

Public sector organisations who receive public funding

If employers receive additional funding towards staff costs, and that funding is continuing, the government expects employers to use that money to continue to pay staff in the usual way and therefore not furlough them and claim via the scheme.

In short, if you are receiving public funds either as a public body or private organisation, you cannot furlough the employee and claim through the scheme. This is because it would result in you potentially receiving 100% of the public funds in the normal way and in addition you would receive the 80% from the scheme. This makes good sense as the purpose of the scheme is not for businesses to profit.

What happens to individual employees, like a chef or cleaner?

People who employ individuals for services such as a private nanny, housekeeper, chef etc can furlough those employees, however, in order to do so they must be paid via PAYE and subject to the above points.

Again, if they are paid by any means other than PAYE they will not be eligible for the scheme.

Can you reinstate employees who were made redundant on or after 28th February 2020?

It is confirmed that you can reinstate them, if you wish. An employer can then put them on furlough and claim for the wages through the scheme.

This would also apply to someone who has resigned and seek their job to be reinstated so they can be furloughed. Presumably this will be because the new employer has rescinded their job offer or asked to delay it due to the current uncertainty and economic climate.

Again this would only apply if the employee resigned and left employment after 28^th February 2020.

We must stress it is optional for the employer to do this as there are some potential pitfalls, which are discussed below.

Firstly, if you reinstate somebody their continuity of employment will continue and this means they may accrue more than two years’ continuous service, which would then become more problematic when the time comes to end their employment, as you would then have to dismiss them or they would have to resign again. However, at that point they would have ordinary unfair dismissal rights.

There is also a risk that HMRC later scrutinise this decision and consider it to be fraudulent and therefore decide not to reimburse the employer.

Also, and perhaps most importantly, it may result is cash flow difficulties. Until the scheme is up and running, which has not yet been confirmed and whilst it is suggested it will be the end of April, given the scale of what we are talking about it would not surprise us if that is delayed.

The point here being until that scheme is up and running and the government is able to reimburse employers, you will be responsible to pay the 80% of wages whilst they are on furlough. This needs be carefully considered before agreeing to reinstate someone.

Finally, dependent on the nature of the employee leaving, there may be general reluctance on the employer’s part to reinstate them. To be clear, it is entirely at the discretion of the employer. You will see from our above comments on this, it does appear that it could potentially produce more problems than it is worth.

The scenario in which we could see employers being mindful to take people back, is if the employee was reluctantly made redundant before this scheme was announced and the employer would have rather kept them if at all possible. In this scenario it would make some sense that an employer would consider reinstatement and using the job retention scheme.

Can an employee be on furlough leave whilst they are sick and what should they be paid?

This was also in line with what we had considered likely and have been advising clients.

It has been clarified that if an employee is sick then they should inform you as an employer at which point they are entitled to SSP or your own sick pay provisions.

An employee cannot be both on sick leave and on furlough leave.

When the employee recovers from the sickness and reports to you as fit to work, they can be put on furlough at that point and then they will receive the furlough related pay.

On a practical note, we see it as unlikely an employee who has been placed on furlough leave actively informing the employer they are sick, as at that point there would be a financial loss to the employee.

However, to be clear, if an employee is on furlough leave and they contact you to inform you they are sick, then at that point you should convert them on to your sick pay policy and also have them provide the relevant sick note which is likely to be a note via the 111 telephone system the NHS is currently operating.

What happens with employees who are ‘shielding’ or need to stay at home to care for someone – can they be furloughed?

Importantly, clarity has now been provided which confirms that those people who are ‘shielding’ in line with government guidance can be furloughed. These are the people who have been written to by the government and told they are a high risk individual and therefore should shield.

Helpfully, it has been confirmed that people who are employees and eligible, can be furloughed if they are unable to work because they have caring responsibilities resulting from COVID-19. This includes employees that need to look after children or family members. They can be furloughed under the scheme.

Can an employee start another job, when they have been furloughed?

This is new information and has confirmed that an employee can take another job with another employer whilst they are furloughed.

This is somewhat surprising as theoretically the employee could take another full-time job, receive pay from that new job whilst also receiving 80% of their salary, or more if you are topping up, via the scheme.

The rationale seems to be that they could do jobs that are essential to keep the public running such as supermarket jobs etc.

However, it is rather confusing as that would seem to encourage employees to not adhere to the lockdown advice by the government and might entice some employees to actually go out and find other work, thus exposing themselves to more danger in respect of potentially contracting COVID-19.

It is important to make clear that our understanding remains if a contract of employment is in place which contains a clause that states they should receive their current employer’s authority before taking on the other job, that will remain the case.

This means they would have to contact you and receive your agreement before undertaking work for another employer.

It has also been clarified that an employer can be furloughed from more than one job and receive up to 80% of the wages for each job.

An example being an employee with two jobs that are well-paid could receive £5,000 per month under the scheme, this being the maximum of 2,500 from each employer and job.

What if the employee is employed by an umbrella company?

It is now confirmed that this employee can also be furloughed by the umbrella company and benefit from the scheme.

Can company Directors be furloughed?

The answer is yes.

Directors can be furloughed; however, they will only receive 80% of their contractual salary. Furlough would not include any other payments such as dividends.

Clarity has also been given around what work they can do as obviously under the furlough scheme any work that creates profit for the business is prohibited whilst on furlough leave.

The scheme does allow for Directors to comply with their statutory duties.

Whilst the new guidance does not define what is considered as statutory duties, general consensus is it would be extremely limited and apply to basic things such as the filing of company accounts and the attendance at annual general meetings.

Importantly, we suggest that if the director is to be furloughed it must be dealt with formally and in accordance with company procedure and law. This would require a formal adopted resolution from the Board of Directors which is properly noted in the company records with a clear minute from that meeting. It must also be communicated in writing to the relevant directors.

Can an employee under undertake volunteer work whilst on furlough leave?

This was already clear but it has been reiterated that the answer is yes.

Importantly, we reiterate that any volunteer work cannot provide services to generate income for the employer who has furloughed them.

Additional guidance on this point has confirmed the employer who furloughs the employee can agree to help find furloughed employees new work or volunteering opportunities.

This is designed to allow employers to support employees who have been furloughed if they wish help and find volunteering positions or indeed other work.

Do I have to notify employees in writing they are being furloughed?

Yes. This was fairly obvious but has now been given absolute clarity.

We suspect this is a mechanism from HMRC to avoid fraud as perhaps at a later date, or as part of the claim and refund system, they will require a copy of this letter.

What is extremely important is the guidance has now made very clear that a copy of the furlough letter must be kept for a minimum of five years. This is new guidance and extremely important for your record-keeping.

Once again, we expect this is an anti-fraud measure and may form part of the subsequent audits HMRC carry out on businesses. A copy of that letter will be important evidence for you to keep and we therefore encourage you to do the usual things whereby you keep paper copies, electronic copies and backups.

What date can I claim from under the scheme?

Again this was very much common sense but it has been clarified that you can only claim from the date furlough leave begins, not the date you tell the employee. It is the actual date the furlough leave commences.

An example being you may write to the employee confirming that they have been furloughed but that does not commence until a few days after the letter has been sent. Your claim can only start from the first day of actual furlough leave. Anything prior to that, the employer is responsible for 100% of the employee’s pay in the usual way.

What can I claim for an employee whose pay varies?

You can claim for the higher of the following:

1. The same month’s earnings in the previous year i.e. if you furloughed employee in the month of April, you could base their earnings on April 2019. That will form their monthly earnings and you furlough them on 80% of that sum. That would then change month by month.

2. Alternatively, you can furlough them based on the average monthly earnings for the 2019 to 2020 tax year. This would be an average of the entire year’s earnings.

What happens with employer pension contributions if an employee is furloughed?

Under the scheme you can claim for the minimum auto-enrolment pension contributions payable on the subsidised wages paid to furloughed employees.

If you choose to top-up the salary, that element will not be recoverable.

Any additional pension contributions over the minimum auto-enrolment sum (currently 3% for employers) will not be recoverable and therefore payable by the employer.

If an enhanced pension contribution is a contractual term, you should seek to agree that this will also be reduced to the current minimum, when you are consulting with them about being furloughed.

If you do not expressly agree this when furloughing, our understanding is the employer will have to continue paying the contractual agreed contribution, otherwise they risk being in breach of contract.

Can we delay payments until we have received the funds from HMRC?

There is no specific guidance on this.

We would suggest there are significant risks with delaying payments as that could result in a breach of contract claim by the affected employees.

If you are experiencing cash flow difficulties, you may be eligible for the Coronavirus Business Interruption Loan Scheme.

Can I claim for anything other than basic salary?

This has been changed and is new.

The following can be part of the claim under the retention scheme.

Wages, past over time (what this means is not entirely clear and if it may apply to you we would suggest you take further guidance from us and get in touch), fees and compulsory commission payments.

The last guidance excluded fees, however, again one of the problems we have is whilst we now know fees can be included there are no examples given as to what fees might be. It might include things like membership fees of professional organisations; however, we must urge caution around this point given it is not clear what fees will include.

The new guidance also includes compulsory commission payments. This would apply where a contract provides for a commission payment, then the sum that you can reclaim could include that commissioned payment.

This is welcomed news for employers who have employees that are paid low basic salaries but rely heavily on commission to make up their pay.

It is very important to remind you that any claim under the furlough scheme is always subject to the caps involved which are 80% of wages and the other things mentioned in this paragraph, subject to a maximum of £2,500 per month.

Please note that the guidance has made clear that discretionary bonuses are not included.

This would include things like tips, discretionary commission payments and discretionary bonuses.

Benefits in kind are also not included such as health insurance or a payment towards a company car. The value of those payments would not be reclaimable.

Can an employee be furloughed more than once?

Thankfully, this is in line with what we had already interpreted. It is confirmed that an employee can be furloughed multiple times.

This, coupled with the confirmation that the employee can be furloughed without the need to prove they would otherwise have made redundant, allows significant flexibility for employers.

This means an employee could be furloughed for three weeks and brought back to work for a period and then furloughed again at a later date for a further three weeks.

By way of reminder, under the scheme, the minimum amount of time you can furlough an employee for is three weeks.

This will assist some employers who are considering switching employees on a buddy type system.

There is nothing in the new guidance or existing guidance that renders this unfair under the scheme and we feel this might be due to the need for employers to potentially rotate employees on furlough leave for many reasons, including to keep their skill set up to date and keep them in practice.

It may also help with arguments around fairness which we are experiencing.

The general argument being employees who are asked to remain in work may consider it unfair that a colleague has been furloughed and not required to do any work but still receiving a significant percentage of their pay.

The ability to rotate freely may help with this as employers could share the potential of furlough leave if they so wish. This is of course subject to the employer’s own business needs and skills they require to service their own clients.

What things are still unclear?

Whilst we know that annual leave will continue to accrue whilst on furlough, it is not yet clear whether an employee can be asked to take annual leave, or voluntarily take annual leave whilst on furlough leave.

This possibility of taking annual leave whilst on furlough leave raises multiple complications, including if an employee can be asked to take annual leave what would they be paid during that period? Would they be paid the 80% of their pay in accordance with the furlough scheme, or would the employer have to top-up to 100% of pay during annual leave?

Leading commentators in the area have different views on this point.

Those who feel employees could be asked to use annual leave whilst on furlough, believe an employer would have to make up their pay to 100% in accordance with usual holiday pay rules.

If you are considering this we would urge you to take legal advice and think it through very carefully.

The current position, that we are certain of, would lead us to suggest that whilst on furlough leave, it is safer you do not ask employees to use annual leave as is currently to unclear what the position is.

You can, however, consider making employees use of some holiday before or after a period of furlough leave. For example they can be put on furlough for three weeks and when they return, the first week would be deemed as annual leave.

The employer will of course be responsible for paying that annual leave, the benefit to the employer being it would reduce the employee’s overall annual leave entitlement, which is something many employers are concerned about, in particular those employers whose holiday year runs from January to January.

The idea behind if we return to work in the second half of this year and all employees have the majority of the holiday to use, could create a logistical nightmare and also significantly reduce productivity if employees scramble to use the holidays and would also create problems by employers having to refuse holidays.

The thinking therefore is employers may want to impose upon employees the requirement to use holiday.

If you require advice on the legal process of making employees use annual leave, please let us know.

It is also still unclear as to the full scope of duties a director can carry out if they are furloughed, albeit we have given our thoughts and views on the matter above.

We also do not know what happens with employees who have been transferred under TUPE to the new employer after 28^th of February 2020.

This of course is problematic because those employees will not have been on the new employer’s payroll prior to the cut-off date.

If this scenario affects you, please let us know.

Whilst the new guidance is helpful, it is still not comprehensive. For now, it helps us and adds some more clarity, however, we would not be surprised if further guidance is published at a later date.