On 15 April 2020, the government issued a Treasury Direction under the Coronavirus Act 2020 setting out the legal framework for the Job Retention Scheme which allows employers to furlough employees by reason of circumstances arising due to coronavirus. On the same day, HMRC updated its guidance on the Scheme.
This update summarises the revised guidance and the key points from the Treasury Direction. Although there is some further clarification around who the Scheme applies to, there is still no information about annual leave during furlough. There has now arisen an inconsistency between the Treasury Direction and the guidance in the rules around furloughing employees on sick leave.
What is the Treasury Direction?
This is the formal rules upon which the government will be relying when assessing claims under the Scheme.
What are the key changes in the recent guidance and the Treasury Direction?
Change to the payroll eligibility date to 19 March 2020
- In what is a significant amendment to the Scheme, the key payroll eligibility date has been changed from 28 February 2020 to 19 March 2020, therefore bringing a large number of otherwise excluded employees into scope of the Scheme. Employees employed on 19 March are eligible for furlough, provided they were notified to HMRC on an RTI submission on or before that date. RTI (or real time information) is a means through which information about tax and other deductions under the PAYE system is transmitted to HMRC by the employer every time an employee is paid.
Employees must have agreed in writing to being furloughed
- To claim under the Scheme, the Treasury Direction provides that employer and employee must agree in writing that the employee will cease all work. This differs from the guidance which only required written notification. It is now arguable that an employer may not be able to claim for the pay of any employee who has not agreed in writing to cease all work at the time they were furloughed. Employers who have "furloughed" on the basis of notification, and not written agreement, should revisit this and consider seeking that written agreement (and put in place plans to obtain it) in our view.
More clarity on who can be furloughed
- The Treasury Direction makes it clear that an employer may only claim under the Scheme for employees who are furloughed by reason of circumstances arising as a result of coronavirus or coronavirus disease.
- In particular, the Treasury Direction provides that "No CJRS claim may be made in respect of an employee if it is abusive or is otherwise contrary to the exceptional purpose of CJRS." It provides that the purpose of the Scheme is to provide for the costs of furloughing employees "arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease".
- In our view, this gives definitive clarification that the Scheme is not limited to employees who would otherwise be made redundant, but claims must relate to circumstances arising due to coronavirus.
- If an employee started unpaid leave after 28 February 2020, they can be furloughed. If, however, an employee went on unpaid leave on or before 28 February, the revised guidance provides that they can't be furloughed until the date on which it was agreed they would return from unpaid leave. The Treasury Direction also sets out new rules regarding employees who have taken unpaid sabbaticals.
- The revised guidance confirms that if an employee (i) had multiple employers over the past year, (ii) has only worked for one of them at any one time, and (iii) is being furloughed by their current employer, their former employer(s) should not re-employ them and put them on furlough.
Can employees on sick leave be furloughed?
- The guidance was recently updated to provide that if employers want to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees. The guidance says that an employer could choose whether to continue to furlough employees who fell sick during the period of furlough, rather than pay SSP.
- However, the Treasury Direction appears to contradict this. It indicates that where the employer gives the instruction to cease work at a time when SSP is payable or liable to be payable to the employee, the period of furlough cannot commence until the actual or deemed period of SSP has ended. That is so irrespective of whether the employer has claimed SSP. Given that the Direction has the force of law, we consider that employers should follow the Direction rather than the guidance.
Changes on how to calculate your claim
- The Treasury Direction clearly makes a distinction between "fixed rate" employees and those on variable pay. Broadly, fixed rate employees are those on an annual salary with no contractual entitlement to other pay or variation according to business, economic or seasonal considerations.
- For employees on a fixed rate salary, the employer can claim for 80% of their salary "in their last pay period prior to 19 March 2020" (rather than their salary as at 28 February 2020 as in previous guidance). However, if, based on previous guidance, an employer has calculated their claim based on the employee’s salary as at 28 February 2020 (and this differs from their salary in their last pay period prior to 19 March 2020), the employer can choose to use that calculation for their first claim.
- In calculating the reference salary of any employee, whether pay is at a fixed rate or variable, no account is to be taken of anything which is not regular salary or wages. This principle was relatively clear in the previous guidance. However, the Treasury Direction now defines what is meant by "regular". The definition itself creates some ambiguities (such as the treatment of overtime) but in general terms, the payments which should be disregarded include payments based on performance, discretionary payments, conditional payments and benefits in kind.
- The Treasury Direction provides that payment from the Scheme may reimburse the gross amount of earnings paid or “reasonably expected to be paid” by the employer to the employee. It is not clear what this covers but it is arguable that this would cover a situation where the employer has deferred pay due to uncertainty about whether the Scheme applies to them.
How to make a claim depending on number of staff furloughed
- If an employer has fewer than 100 furloughed staff, it will be asked to enter details of each employee it is claiming for directly into the system – this will include their name, NI number, claim period & claim amount, and payroll/employee number (optional).
- If an employer has 100 or more furloughed staff it will be asked to upload a file with the information rather than input it directly into the system.
- Employers should retain all records and calculations in respect of their claims.
If you have any questions or would like advice on these issues, please get in touch with your usual Clyde & Co contact.
For more Coronavirus (Covid-19) information please see our Coronavirus hub here.