On 20 March 2020, the UK government announced the Coronavirus Job Retention Scheme (“JRS”) to support employers who cannot maintain their current workforce because their operations have been severely affected by coronavirus (“COVID-19”).
Last updated: 13 May 2020
Employers can “furlough” employees (ie. place them on leave of absence) and apply for a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month, plus the associated employer national insurance contributions (“NICs”) and pension contributions (up to the level of the minimum automatic enrolment employer pension contribution) on that furlough pay.
The government’s guidance on the JRS has been updated a number of times since the scheme was announced, most recently on 30 April 2020. On 15 April 2020, the Treasury also issued a direction to Her Majesty’s Revenue and Customs (“HMRC”) providing formal details of the JRS (the “Direction”).
The JRS portal opened on 20 April 2020 and it appears there has been a high level of uptake among employers.
Nevertheless, certain aspects of the JRS remain unclear. The following sets out what we know to date.
Which employers can use the JRS?
The JRS is open to all UK employers who created and started a PAYE payroll scheme on or before 19 March 2020, are enrolled for PAYE online and have a UK bank account.
The guidance states that the JRS is designed to help employers whose operations have been severely affected by COVID-19 to retain their employees and protect the UK economy. It appears that this covers employers who would otherwise be required to make redundancies as well as those who are facing “different impacts from coronavirus”.
Public sector organisations and administrators are eligible to use the JRS in limited circumstances.
Which employees are eligible for the JRS?
Employers can claim JRS grants in respect of employees who were on their PAYE payroll on or before 19 March 2020 and which were notified to HMRC on a Real Time Information (RTI) submission on or before 19 March 2020.
The JRS initially covered employees who were on the employer’s PAYE payroll on or before 28 February 2020, although the cut off date was extended to 19 March 2020 on 15 April 2020. At the same time, the government added the requirement that employees needed to be notified to HMRC on an RTI submission, which depending on the employer’s payroll practice potentially makes some new joiners ineligible for the JRS.
On 23 April 2020, the government published the below table to clarify which employees are eligible for the JRS:
| 28 February 2020
|| On or before 28 February 2020
| 28 February 2020
|| On or before 19 March 2020
| 28 February 2020
|| On or after 20 March 2020
| 19 March 2020
|| On or before 19 March 2020
| 19 March 2020
|| On or after 20 March 2020
The JRS covers a wide range of categories of employees, further details of which are covered below (see Employee Eligibility).
Can employers re-hire and furlough employees who been made redundant or stopped working?
Yes, provided in the case of:
- an employee who was made redundant or stopped working after 28 February 2020, they were on the employer’s payroll as at 28 February 2020, which means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 28 February 2020;
- an employee who was made redundant or stopped working after 19 March 2020, they were employed on 19 March 2020 and on the employer’s payroll on or before 19 March 2020. This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 19 March 2020.
In each case, employees who were made redundant or stopped working for the employer can qualify for the scheme if the employer re-employs them and puts them on furlough leave. The JRS grants will apply from the date on which the employee was placed on furlough leave. This applies even if employees were re-hired and furloughed after 19 March 2020.
The re-hiring of employees whose fixed term contract has expired for the purpose of placing them on furlough leave is dealt with below (see Employee Eligibility).
How long will the JRS be available for?
The JRS is a temporary scheme that was initially due to last for a period of three months, from 1 March 2020 to 31 May 2020.
On 17 April 2020, the JRS was extended for an additional month until 30 June 2020.
On 12 May 2020, the government announced that the JRS would be extended for a further four months until 31 October 2020. Based on the announcement, we understand that the JRS will only exist in its current form until 31 July 2020, with certain changes to the scheme applying from 1 August 2020. In particular, we understand that from 1 August 2020 furloughed employees may be permitted to carry out part-time work and employers will be asked to share the liability for the furlough leave grants with HMRC. However, at this stage the changes have not yet been detailed in full.
Can employers claim back payment under the scheme?
It appears that employers can claim back payment under the scheme until 1 March 2020, even though this predates the announcement of the scheme and would therefore predate any furlough agreements being in place with employees.
Employers would however need to show that the conditions of the JRS were met to claim back payment, including that the employees being claimed for carried out no work for the employer during that period due to COVID-19, which could be difficult to evidence in practice and may be subject to HMRC scrutiny.
It is not clear from the guidance whether claims in respect of employees who are re-employed and put on furlough leave, after being made redundant or stopping work for the employer after 28 February 2020 but before 19 March 2020, can be backdated to the date of termination or only to the date on which the employee is re-hired and placed on furlough leave.
How does an employer place employees on furlough leave?
To place an employee on furlough leave, employers must instruct them in writing to cease work for at least three consecutive weeks “by reason of circumstances arising as a result of coronavirus or coronavirus disease”.
It is currently unclear whether employees must agree in writing to furlough leave. In particular:
- The Direction states that a furlough leave instruction will only be valid 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”.
- However, the government updated its guidance after the Direction was published to state that, while employers needed to confirm furlough leave to employees in writing, the employee does not need to provide a written response so long as the employer’s confirmation was “consistent with employment law”.
We therefore consider that it would be best practice to obtain employees’ express written consent to furlough leave rather than simply notifying employees that they have been furloughed and relying on implied consent.
It is possible that HMRC will show some leniency in cases where employees were furloughed prior to 15 April 2020 (the date of the Direction), as prior to that point it had not been suggested that written agreement was required. However, in those circumstances it may still be advisable to seek employees’ retrospective written consent to furlough leave.
A record of the furlough communication must be kept for five years.
Collective agreement reached between an employer and a trade union is acceptable for the purpose of evidencing an employee’s furloughed status to claim under the JRS.
Do employers need to “top up” the JRS grants?
No, employers do not need to “top up” any gap between the JRS grants and the employee’s normal pay, although they may choose to do so if they wish. Note however that where the employer does not top up the difference, the employee must agree to the change in their pay.
An exception applies to periods of annual leave during furlough leave (see Annual Leave below).
Is there a minimum period of furlough?
Any period of furlough leave is subject to a minimum duration of three consecutive weeks.
This can be extended by any amount of time whilst the employee is on furlough, however the JRS end date is the last day employers can claim.
Can employees be rotated in and out of furlough leave?
While rotation is not expressly covered by the guidance, the guidance states that employees “can be furloughed multiple times, but each separate instance must be for a minimum period of 3 consecutive weeks”. This suggests that employers can rotate employees in and out of furlough leave, subject to the usual JRS conditions being met for each instance of furlough leave.
Do the employees need to be at risk of redundancy to be furloughed?
The guidance states that the JRS is designed to help employers whose operations have been severely affected by COVID-19 to retain their employees and protect the UK economy.
Upon its initial announcement, it appeared that the JRS was intended to be used as an alterative to redundancy. However, the most recent guidance and the Direction suggest that the JRS covers employees who are instructed to cease work “by reason of circumstances arising as a result of coronavirus or coronavirus disease”. This suggests that the JRS is intended to cover a broader range of scenarios rather than only being an alternative to redundancy.
More generally, the Direction states that no claim may be made under the JRS if it is abusive or is otherwise contrary to its exceptional purpose.
Can employees carry out any work for their employer during furlough leave?
No, employees placed on furlough leave must cease all work in relation to that employer to qualify for JRS grants. They cannot work reduced hours and may not carry out work for any other organisation that is linked or associated with the employer.
Furloughed employees can engage in training or take part in volunteer work, so long as in undertaking the training or volunteer work the employee does not provide services to or generate revenue for the employer or a linked or associated organisation. Employees must be paid at least the relevant rate of national minimum wage for time spent training (even if this exceeds JRS grants). The Direction states that such training should be disregarded for the purposes of the JRS where it is directly related to the employee's employment and agreed between the employer and employee before being undertaken. It may therefore be advisable for employers to include reference to any such training in any furlough agreement with the employee.
Employees must be paid at least the relevant rate of national minimum wage for time spent training (even if this exceeds JRS grants).
Based on announcements made by the government on 12 May 2020, it seems likely that the rules around carrying out work for the employer will be relaxed for periods of furlough leave between 1 August 2020 and 31 October 2020. In particular, it seems likely that furloughed employees will be permitted to work part time hours as part of a transition back to work, in which case the employer would be required to share the liability for the furlough leave grants with HMRC. However, full details of how this would work in practice have not yet been published.
Can employees carry out work for other employers during furlough leave?
Subject to the terms of their contract with the employer who placed them on furlough leave, employees are able to work for another employer whilst on furlough leave.
Similarly, an employee with more than one job may be placed on furlough leave by each employer and claim grants up to the maximum amount from each employer (subject to the usual eligibility criteria).
Will undertaking union and non-union representative activities disqualify furloughed employees from the JRS?
No. Employees on furlough leave who are union or non-union representatives may undertake duties and activities for the purpose of individual or collective representation of employees or other workers. However, this is subject to the general JRS requirement that such duties and activities must not generate revenue for the employer or a linked or associated organisation.
Will collective consultation obligations arise when seeking to place 20 or more employees on furlough leave?
Where an employer is asking 20 or more employees to agree changes to their terms of employment as a condition of furlough leave, such as reducing their pay to the level of the JRS grants, the employer will need to consider whether it needs to engage in collective consultation to procure agreement to the changes to the terms.
We consider that collective consultation obligations may not arise if the employer is confident that most employees will accept the changes to their terms of employment (eg. because they are temporary and more attractive than redundancy) such that the threshold for collective consultation is not therefore met. However, employers should keep the matter under review as it moves through the process, particularly if there are a large number of affected employees or if it becomes aware of significant pushback.
Are employers obliged to use the JRS?
The JRS is voluntary and employers are not under an obligation to use it. Note however that, where an employer decides to make redundancies rather than placing employees on furlough leave, this could potentially give rise to claims for unfair dismissal unless the employer has a good reason for not using the JRS or the redundancy is otherwise entirely unrelated to COVID-19.
Can an employee demand to be placed on furlough leave?
No. Furlough leave is subject to agreement between the employer and the employee.
Do employees continue to accrue statutory rights during furlough leave?
Yes. Employees remain employed during furlough leave and will continue to accrue statutory rights, including annual leave and continuous service for statutory purposes.
Can an employer make furloughed employees redundant following furlough leave?
Yes. If following the expiry of the JRS employers are still facing a redundancy situation affecting previously furloughed employees they may still effect redundancies (subject to the usual legal requirements).
CALCULATION OF JRS GRANTS
What elements can employers claim by way of JRS grants?
Employers can apply for a grant that covers 80% of furloughed employees’ usual monthly wage costs, up to £2,500 a month. “Usual monthly wage costs” broadly covers regular payments employees are obliged to make, including:
- Regular wages
- Non-discretionary overtime
- Non-discretionary fees
- Non-discretionary commission payments
- Piece rate payments
Employers can also claim the associated Employer NICs and pension contributions (up to the level of the minimum automatic enrolment employer pension contribution) on the capped furlough grants.
The government has made available an online calculator to assist employers to work out what costs they can claim via the JRS.
What elements are excluded from JRS grants?
Employers cannot take into account any payments that are discretionary or that are paid without any contractual obligation to pay, including:
- Tips (including those distributed through tronc systems)
- Discretionary bonuses
- Discretionary commission payments
- Non-cash payments
- Non-monetary benefits like benefits in kind (such as a company car) and salary sacrifice schemes (including pension contributions) that reduce an employees’ taxable pay.
The Direction also refers to the exclusion of payments that are "conditional on any matter" but it is not yet clear what this is intended to capture, especially in view of the payments expressly stated to be included as above.
How are JRS grants calculated for full/part-time employees, zero hours workers or other workers with variable pay?
For full or part time employees who are salaried, the employer can claim for 80% of the employee's wages, from their last pay period before 19 March 2020, up to a maximum of £2,500. Where an employer has already calculated a claim based on the employee’s wages as of 28 February 2020, and this differs from their wages in their last pay period prior to 19 March 2020, it can elect to use this calculation for the first claim.
If a variable pay worker has been employed continuously from the start of the 2019/2020 tax year, their employer can claim the higher of:
- 80% of the same month’s wages from the previous year (up to a maximum of £2,500 a month)
- 80% of the average monthly wages for the 2019/2020 tax year (up to a maximum of £2,500 a month).
If a variable pay worker started their employment after 6 April 2019, their employer can claim 80% of their average monthly wages since they started work until the date they are furloughed, up to a maximum of £2,500 per month.
Are JRS grants taxable?
Yes. Employers are required to make the usual PAYE payroll deductions (ie. income tax and NICs) from JRS grants payable to furloughed employees. This means the employees will only receive the net amount of the maximum £2,500 JRS grant.
Are JRS grants calculated on pre or post-salary sacrifice wages?
JRS grants are calculated on post-salary sacrifice wages. The guidance states that normally an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. It is noted that the HMRC agrees that COVID-19 counts as a life event for the purpose of any salary sacrifice scheme which could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.
ANNUAL LEAVE DURING FURLOUGH LEAVE
Can employees take annual leave during furlough leave?
Employees are able to take annual leave during furlough leave without breaking the period of furlough leave. This includes bank holidays that arise during furlough leave, where such days are usually worked by the employee.
What are employees entitled to be paid during annual leave taken while on furlough leave?
Employers are required to pay employees their “usual holiday pay” for any annual leave taken during furlough leave, ie. broadly speaking they would need to be paid their full rate of pay prior to furlough leave rather than at any lower rate agreed for the period of furlough leave.
This means employers are required to “top-up” employees’ pay for periods of annual leave taken during furlough leave, even if they are not topping-up their pay during furlough leave itself.
Can employers claim JRS grants covering periods of annual leave during furlough leave?
It seems that employers can claim JRS grants covering periods of annual leave during furlough leave. The JRS grants will only cover 80% of the employees’ usual monthly wage costs, up to £2,500 a month, notwithstanding the fact that employers are required to pay employees at their full rate of pay during annual leave.
Do employers have any say over employees’ annual leave during furlough leave?
While not expressly dealt with in the guidance, save for a reference to employers' flexibility to restrict when holiday is taken if there is a business need, we consider it likely that employers’ usual rights to direct the timing of employees’ annual leave are unaffected by furlough leave, ie. broadly speaking employers are able to require employees to take and/or not take annual leave at particular times during furlough leave (subject to statutory notice requirements).
Do employees continue to accrue annual leave during furlough leave?
Yes, employees will continue to accrue annual leave during furlough leave in the usual way.
Subject to employee agreement, it would be possible to reduce employees’ annual leave entitlement to statutory minimum levels when implementing the furlough leave, ie. remove any entitlement to contractual holiday allowance in excess of statutory holiday. In such cases, employers may need to stipulate the order in which contractual and statutory leave is deemed to be taken.
Can an employer furlough employees on fixed term contracts?
Yes, provided an RTI payment submission notifying payment in respect of that employee to HMRC was made on or before 19 March 2020.
Employers may renew or extend a fixed term employee’s contract to keep them on furlough leave during the COVID-19 crisis. Employers cannot claim under the JRS in respect of employees who started and ended the same contract between 28 February 2020 and 19 March 2020.
Can an employer re-hire and furlough employees whose fixed term contract has expired?
Yes, an employee on a fixed term contract can be re-employed, furloughed and claimed for if either:
- their contract expired after 28 February 2020 and an RTI submission notifying payment in respect of that employee to HMRC was made on or before 28 February 2020; or
- their contract expired after 19 March 2020 and an RTI payment submission notifying payment in respect of that employee to HMRC was made on or before 19 March 2020.
The JRS grants will apply from the date on which the employee was placed on furlough leave.
Can employees on sickness absence be placed on furlough leave?
The position regarding the interaction between sickness absence and furlough leave is currently unclear.
The government guidance states that the JRS is not intended for short-term absences from work due to sickness, and practically speaking employers could not use it in this way given the minimum period of furlough leave is three weeks. However, provided the minimum furlough leave period is met, the guidance appears to give employers flexibility to decide whether to furlough or keep furloughed for business reasons employees who would are or otherwise become eligible for statutory sick pay (“SSP”) because they are sick, self-isolating or shielding in accordance with Public Health guidance.
However, the Direction seems to suggest that an employer can only furlough an employee eligible to receive SSP once any initial entitlement to SSP ends and they take a subsequent period of sick leave. There is a risk therefore that an employer may only be able to recoup furlough pay once an employee’s entitlement to SSP has ended (whether or not the employee is actually receiving SSP or any claim to SSP is made by the employer).
We hope that the situation will be clarified in due course.
If any employees are furloughed or kept furloughed in such circumstances and a claim is made under the JRS, the guidance is clear that SSP cannot also be recovered under the SSP Rebate Scheme for which small or medium size businesses may otherwise be eligible. The guidance also confirms that any claim under the JRS for an employee returning from sick leave should be based on normal salary (or the salary for a variable pay worker as above), not the pay received while on sick leave.
Can employees who are “shielding” due to COVID-19 be placed on furlough leave?
The guidance states that employees who are shielding (or need to stay home with someone who is shielding) can be furloughed like other employees.
Employees who are “shielding” due to COVID-19 have since 16 April 2020 been eligible for SSP. Given that most individuals that are shielding have been asked to do so for a minimum of 12 weeks, it is difficult to see how the terms of the Direction referred to above can apply to such employees without substantially reducing (or possibly eliminating) the period of time for which the employer can claim under the JRS. We await clarification in this respect.
Can employees with caring responsibilities be placed on furlough leave?
Employees who are unable to work because they have caring responsibilities resulting from COVID-19 can be furloughed.
Can employees on maternity or other forms of parental leave be placed on furlough leave?
The guidance states that the normal rules for maternity and other forms of parental leave and pay apply.
For furloughed employees on maternity leave, employers should therefore reclaim statutory maternity pay ("SMP") in the normal way up to the permitted amount. The Direction makes clear that any balance of SMP that is not reclaimable cannot be recovered under the JRS.
However, employers can claim through the JRS for enhanced (earnings related) contractual pay for employees on maternity leave and other forms of parental leave, which suggests that employees may be furloughed simultaneously with their maternity or other parental leave.
For employees who are furloughed on return from maternity and other forms of parental leave, any claim should be calculated against their normal salary (or the salary for a variable pay worker as above), not the pay they received while on leave.
It is possible that deliberately bringing maternity leave and other forms of parental leave to an end earlier than planned, in order to furlough employees and claim under the JRS could be considered a possible abuse of the scheme. Further, where such employees are on unpaid statutory leave, the following may apply.
Further to a Coronavirus amendment, the various regulations relating to statutory pay for family leave have been amended such that where a person's earnings are lower than they otherwise would have been as a result of their being furloughed, any statutory pay entitlements for leave taken on or after 25 April 2020 are to be calculated based on their usual, full earnings rather than their furlough pay.
Can employees on unpaid leave be placed on furlough leave?
Where an employee went on unpaid leave on or before 28 February 2020 (eg. a sabbatical), they cannot be furloughed until the date on which it was agreed they would return from such leave (or where the date is unspecified, until completion of the purpose for which the leave was taken).
Where an employee went on unpaid leave after 28 February 2020, the guidance states that they can be furloughed instead and should be paid at least 80% of their regular wages, up to the monthly cap of £2,500. The Direction has cast some doubt on this as it refers to the fact that no claim may be made for unpaid leave of an employee beginning "before or after 19 March 2020 (whether agreed or otherwise arranged conditionally or unconditionally on, before or after that day)". It is not clear what is intended by this provision and whether it in fact restricts the employer's ability to furlough employees on unpaid leave, at least where such leave began after 19 March 2020. We hope for further clarification in this respect.
Can foreign nationals be placed on furlough leave?
Foreign nationals are eligible to be furloughed.
The guidance further states that JRS grants are not counted as “access to public funds” for immigration purposes and that employers can furlough employees on all categories of visa.
Can employees who transferred to an employer via TUPE after 19 March 2020 be placed on furlough leave?
Yes. The guidance states that a new employer is eligible to claim under the JRS for employees of a previous business who transferred after 28 February 2020 pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), notwithstanding that they may not have been employed by the new employer on 19 March 2020.
Can workers engaged via umbrella companies be placed on furlough leave?
Yes. Workers engaged via umbrella companies (including agency workers and “limb (b) workers”) can be placed on furlough leave by the umbrella company.
Can company directors be placed on furlough leave?
Yes. Company directors can be placed on furlough leave. This includes individuals who provide services through a personal services company of which they are a director.
Directors who are paid annually can qualify for the JRS provided they were notified to HMRC on an RTI submission on or before 19 March 2020, which relates to a payment of earnings in the 19/20 tax year.
Company directors who are furloughed may carry out duties to fulfil their statutory obligations during furlough leave. However, they may do no more than reasonably necessary for that purpose, ie. they should not carry out their normal work to generate commercial revenue or provide services to or on behalf of the company.
Furlough of a director should be formally adopted as a decision of the company and noted in the company records.
Can apprentices be placed on furlough leave?
As apprentices have employee status, they can be furloughed along with other employee, provided they meet the requirements of the JRS.
Apprentices cannot carry out employment duties but can continue to train during furlough leave. Apprentices should be paid at least the relevant national minimum wage rate for periods of training during furlough leave (even if this exceeds the amount of the JRS grants).
When will JRS grants be available?
The JRS portal opened for claims on 20 April 2020. The guidance states that eligible claims will be paid within six working days.
Should employers wait to receive JRS grants before paying furloughed employees?
Unless employers have agreed with employees to defer payment of their wages, they should continue to pay employees’ wages at the usual times and claim reimbursement from HMRC. Note that the entirety of the grant received must be paid to employees in the form of money and no part of it can be netted off to pay for the provision of benefits or a salary sacrifice scheme.
The guidance and Direction are clear that any grant must be returned to HMRC immediately should an employer become unable or unwilling to use it to pay its employees' salary and the employer national insurance contributions and pension contributions.
Can employers make more than one claim for a particular claim period?
No. The guidance states that employers cannot make more than one claim for a particular claim period and so should claim at the same time for all of the employees furloughed in that claim period. Employers will not be able to make another claim for the same period or one that overlaps. This suggests that employers should give detailed consideration to the timing of furlough leave periods and JRS claims to ensure that they can claim for all furloughed employees and for the entire duration of the period for which they are furloughed.
Can employers amend their claim for JRS grants once submitted?
It is not currently possible for employers to amend their claim for JRS grants once submitted, although HMRC stated on 23 April 2020 that it was looking to develop a process to allow for amendments to be made.
Is the payment of JRS grants subject to retrospective scrutiny?
Yes. The government has retained the right to retrospectively audit all aspects of the JRS with scope to withhold or claw back payment of fraudulent or erroneous claims. HMRC has put in place an online portal for employees and the public to report suspected fraud with respect to the JRS. The Direction also suggests that HMRC can ask for more information from employers at any time, including after a claim or payment of the claim is made.
Particular areas of concern include employers not passing JRS grants on to employees, asking employees to work while furloughed and/or backdating claims to include periods when the employee was in fact working.
How can I access the JRS portal?
The JRS portal is available HERE.
The government has created a guidance page dealing with practical points around using the JRS and an online wage calculator which is available HERE
The updated general JRS guidance page for employers is available HERE.
The Treasury Direction to HMRC in relation to the JRS is available HERE.