On 24 March the Chancellor provided further clarity to parliament on some of the aspects of the CJRS (Coronavirus Job Retention Scheme)
Furloughing of any individual who has been subject to PAYE will be possible – meaning directors and casual workers will be able to be furloughed
There will be no provision to partially furlough staff. This means employees will need to be entirely non-active to qualify
CJRS relief can be backdated to the 1 March, but will be limited to being backdated to the day the employee completely stopped undertaking duties of the employment post 1 March. As employees are required to be completely in-active, CJRS will not apply to employees who have been put on reduced hours. So, if an employee had a reduced workload because of Coronavirus from the 8 March, and then completely in-active from the 15 March, the CJRS grant could only be backdated to the 15 March
Zero-houred furlough employees – employers will be required to use an average of their hours worked to calculate the amount available under the CJRS. However, we still wait clarification on what period of earnings will be used in this calculation
A concern for directors specifically, which has not been addressed here, is that directors will often take a low or no salary from the business. Instead they will often utilise dividends to top up their income, as and when they have the profits to do so. As dividends are not subject to PAYE, the dividend amounts are unlikely to form part of the CJRS calculation for the director. Directors in this position are likely to find that should they qualify for a CJRS grant, the amount paid would likely be 80% of a low salary.
A further concern is that a director must be non-active to be furloughed, but given they will continue to need to manage the business in some way, they are unlikely to be completely in-active and therefore may fail the CJRS requirements.
Updates on the scheme as of 24th March 2020:
While there are still many unanswered questions, last night, the Head of Tax John Endacott, for PKF Accountants was the first practicing accountant to be able to speak with both HM Treasury and HMRC on the Coronavirus Job Retention Scheme (CJRS).
We would stress that the following isn’t finalised or official guidance yet, but we hope that it is useful to understand how the treasury and HMRC are planning the scheme to operate. They have informed John that we can expect more guidance by the end of the week and they are working night and day on this.
The key takeaways from his conversations are:
If an employee has been furloughed, they can do no work meaning it may well be the case that employees can’t even look at or respond to a work email
If any element of employment duties are being performed it is likely to mean the employee will not qualify for the scheme
The 80% grant is going to be calculated by referring to a previous pay period. The previous reference period hasn’t been worked out yet and there is a desire to help seasonal workers, who traditionally have higher earnings in the coming spring and summer months
As the grant will be calculated from a previous pay period, increasing employee wages now will have no impact on what they would be paid with this scheme
The grant paid will be 80% of the reference period wage, plus employers’ NIC and the legal minimum pension contributions. For example, if the 100% wages per month are £1,000 and employers’ NIC was £115 and pension contribution £30, the total cost to the employer would be £1,145. It is this amount that the grant would be payable on. Therefore, in this situation, the maximum grant would be £916 per month
The employee is taxed to PAYE and employee NIC on the payment as normal
There may be some flexibility for a furloughed worker returning to work and then going back on furlough, but if any is provided, it will be limited
The view is that national minimum wage (NMW) will not apply as the employee will not be allowed to work. As NMW is concerned with working time, no work means any payment will be outside the scope of NMW. Therefore it will be quite possible for the 80% payment to take the employee below NMW. As an aside to this point, the employee could be eligible for universal credit if they are in this position.
Separately, there are rumours that additional support for the self-employed will be announced very soon. A proposed amendment to the coronavirus bill was put forward by the Liberal Democrats to provide support to the self-employed with a monthly grant of the lower of:
80% of self-employed earnings over the last three years, or
£2,917
While the above would be a sensible and potentially workable solution to provide more support to the self-employed, I would stress that this isn’t government policy and we await further confirmation from the Government on the proposals they will be introducing.
What it is and what will it cover?
The Coronavirus Job Retention Scheme will be a government grant – to reimburse employers for 80% of furloughed workers wage costs, to a cap of £2,500 per month.
The latest guidance says that employers can choose to top-up pay, either for the unfunded 20% of pay or the amount above £2,500 for higher earners, but this will not be a formal requirement to obtain access to the scheme.
Further, the scheme will be:
Backdated to March 1st
Open initially for at least three months but extended ‘for longer if necessary’.
Total funding pot available
As per the Chancellor’s speech “I am placing no limit on the amount of funding available for the scheme. We will pay grants to support as many jobs as necessary.”
Who is eligible for the scheme?
All UK businesses are eligible (or in the Chancellor’s words “Any employer in the country – small or large, charitable or non-profit – will be eligible for the scheme.”)
Scheme administration
Coronavirus Job Retention Scheme (CRJS) will be administered by HMRC.
Employers will need to:
Designate affected employees as ‘furloughed workers’ (see further below)
Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required)
As noted above the grant is a reimbursement to the employer therefore the employer will make the wage/ salary payment to the furloughed worker and then be reimbursed by HMRC.
When will the scheme be live?
No set date but the following are indications it will not be immediate:
“HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.”
“HMRC are working night and day to get the unprecedented Coronavirus Job Retention Scheme up and running and we expect the first grants to be paid within weeks.”
“If your business needs short term cash flow support, you may be eligible for the Coronavirus Business Interruption Loan Scheme”
What is a furloughed worker?
Furloughing will be a new term for many employers, and is a term not previously defined in employment law. Our current understanding of the term in relation to the CJRS, is that it refers to a temporary non-active period for an employee.
The ability to put an employee on to furlough leave is something that employment contracts will unlikely provide for, given the term has not previously been relevant to employment law. With this in mind, to take advantage of the CJRS, employers will need to ensure that their employment contracts updated and employees are properly consulted on the changes to their contract to be able to take advantage of the CJRS.
Unanswered questions
When thinking about the answers to some of these questions, it’s helpful to understand the reasons for the introduction of the CJRS; it has been introduced to encourage businesses to follow the latest medical advice for Coronavirus and ensure businesses who rely on physical interactions close their doors to the public.
Where a business can carry on without those physical interactions, for instance by working remotely, it should be business as usual and the policy doesn’t appear to be designed as a catch all wage subsidy for the UK workforce.
I’m sure many clients will have unanswered questions as to how the CJRS will work for them and we hope to be able to answer these questions for you as we get further guidance in the coming days and weeks.
For me, the key questions we need guidance from government on are:
How do employers know if they can furlough an employee? Are there employment law and rights implications? The guidance from Citizen’s Advice would suggest there are limitations on when this can be done (https://www.citizensadvice.org.uk/work/leaving-a-job/redundancy/layoffs-and-short-time-working/), so will additional measures be put in place to allow for this to happen?
How long will employers have to wait to receive payment from CJRS? The initial guidance suggests the scheme will be paying out by the end of April at the latest, but there is no further guidance on whether particular businesses or sectors will be prioritised.
Can an employer delay making payment to employees until they receive funding from the CJRS? It would appear from the initial guidance that employers will have to make the payment initially, and are then reimbursed by the CJRS. However, there is no guidance on whether it will be possible to delay payment of wages becoming due this month until April, when the scheme should be up and running. The guidance does point to the ability to use the business disruption loan suggesting this can be used to bridge the cash flow until the employer is reimbursed by CJRS.
What happens if an employer has already had to terminate employees before the CJRS was announced? The initial guidance does suggest that the CJRS will look to support employer’s employees who were employed at 1 March, so some clarity is needed on whether terminated employees can be re-hired and qualify for CJRS.
The initial guidance says the scheme will be backdated to 1 March, does this mean that it will only apply to those employed on, or before, 1 March? No clarity has yet been given on the implications for those newly employed in March.
What will the CJRS payment be for someone returning from maternity leave post 1 March? Again, I would expect to see some form of historic pay averaging to calculate the CJRS payment, which rather than focus on an employees pay, looks at the period prior to maternity leave, perhaps factoring in any pay rises received while on maternity leave. This is another area we will need detailed guidance to ensure the calculations of what can be claimed in CJRS are correct.
The payments under CJRS look much more favourable to an employee than SSP, with that in mind, guidance will be need to determine when an employee must be included within SSP as opposed to the CJRS. From an employer’s perspective, lower levels payments attracted by SSP, may be less costly than using CJRS (should CJRS payments be subject to employer national insurance) and employers may prefer in such instances to pay SSP as opposed to CJRS.
Will holiday entitlement continue to accrue during the period in which the employee is furloughed?
Sources of further information
I would anticipate HMRC will carry details of CJRS in due course but for now I will be keeping an eye on GOV.UK website and specifically the document found here which does appear to be regularly updated.
