UK & Europe
The government has now published further details about the new flexible furlough scheme under the Coronavirus Job Retention Scheme which will run from 1 July until 31 October 2020, when the scheme closes. This further detail is set out in a Treasury Direction of 25 June which is the legal basis for the scheme, and the government guidance which was updated on 1 July 2020.
The Treasury Direction provides some more information on how certain aspects of the flexible furlough scheme will work and how employers can use it, following the government guidance published on 12 June. But it also leaves some ongoing areas of uncertainty.
We summarise below some key points to take away from the Treasury Direction and some of the areas which remain uncertain. Our Guide to the Second Phase of the Scheme sets out fuller details of how the flexible furlough scheme will work. It is being updated in light of the Treasury Direction.
The original furlough scheme was introduced in March 2020 to support employers pay the salaries of employees who agree to take a temporary leave of absence because of the difficulties their employer is facing due to the coronavirus. The original scheme, which operated until 30 June 2020, covered 80% of monthly "regular" wages, up to £2,500 a month, employer National Insurance Contributions and minimum employer auto-enrolment pension contributions. Under that scheme, furloughed workers were not entitled to work for their employer.
The new flexible furlough scheme covers claims made for the period 1 July 2020 to 31 October 2020. From 1 July, employers will be able to allow furloughed employees to work for some days (or part days) and be furloughed for others. The cap on the furlough grant will be proportional to the hours not worked by the employee. Employers are still free to fully furlough employees. From 1 August, employers will also be required to gradually contribute more towards the employment costs of those on furlough.
One option is for employees to stay on full-time furlough until the employer is able to take them off full-time furlough or the scheme closes.
Alternatively, employers can bring their furloughed employees back to work part-time, with them remaining on part-time furlough for the rest of their usual hours. However, there are complex calculations involved in flexibly furloughing employees, as explained below, which may mean some employers will choose not to do this.
Another option is to rotate employees between periods of full-time work and periods of furlough leave. It was hoped that this would be a way to avoid the complex calculations that flexibly furloughing employees entails but unfortunately this may not be the case (see below).
Employers must make all claims for reimbursement under the scheme for the period ending on 30 June by 31 July 2020 at the latest. From 1 July 2020, employers will be able to claim under the flexible furlough scheme for periods from 1 July.
Furloughed employees must receive at least 80% of pay from their employer for the hours they are furloughed (subject to the maximum cap of £2,500 which is reduced proportionately to the hours furloughed).
For July, the government grant will continue to cover 80% of wages up to a cap of £2,500 for the hours the employee is on furlough, as well as employer NICs and minimum employer auto-enrolment pension contributions. Employers will have to pay their employees for any hours that they work.
From 1 August 2020, the Scheme will no longer cover employer NICs and minimum employer auto-enrolment pension contributions. From 1 September, the government's contribution will be reduced to 70% of pay up to a maximum of £2,187.50, leaving employers to contribute 10% (in order to top up to 80%). From 1 October, the government's contribution will be reduced to 60% of pay up to a maximum of £1,875, leaving employers to contribute 20% (in order to top up to 80%).
The flexible scheme is only open to claims from employers who have previously used the original scheme which operated until 30 June 2020.
Only employees who have previously been furloughed for a minimum of 3 weeks during March, April, May or June 2020 can be furloughed from 1 July. The only exception to this is those returning from maternity or other family leave, who do not need to have been furloughed under the original scheme in order to qualify under the flexible furlough scheme, provided they meet certain criteria.
As with the original scheme, employers may only claim for employees who are furloughed by reason of circumstances arising as a result of coronavirus or coronavirus disease.
The Treasury Direction makes it clear that from 1 July 2020, all furloughed employees are "flexibly furloughed" under the Scheme, even if they are on full-time furlough. This may be a concern for employers given the complexity of the flexible furlough calculations (see below).
The flexible furlough calculations will not be required where employees are on full-time furlough for the whole of the claim period. So where an employer is putting employees who are on full-time furlough on rotation, the claim period and rotation schedule would need to be aligned to avoid the flexible furlough calculations for these employees.
Employers will need to agree new written flexible furloughing arrangements with employees before flexibly furloughing them. The agreements will need to cover the main terms and conditions on which the employees agree to do no work or agree that they will not work all of their usual hours.
The agreement must be made, or confirmed, in writing by the employer (this can be done electronically e.g. by email). The agreement can also be made by collective agreement between an employer and a trade union.
There was initially some uncertainty about whether a flexible furlough agreement had to be agreed in writing with a written response from the employee, but the Treasury Direction appears to confirm that it is sufficient for an agreement to be reached with employees which is then confirmed in writing by the employer.
The latest Treasury Direction casts some doubt over whether pay during redundancy notice periods can be reclaimed under the scheme. Although the position is unclear, we consider this to be a low risk for employers.
The Treasury Direction says it is "integral to the purpose" of the scheme that the grant paid to an employer in respect of a claim made under the scheme is used by the employer to continue the employment of employees. It is not clear whether the intention is to limit the use of the scheme to prevent employers from making a claim in respect of employees who are on notice. That said, if HMRC intended that claims cannot be made in these circumstances, you would expect this to be stated explicitly in the Treasury Direction and the guidance.
The rules for calculating how much can be claimed under the Scheme, set out in the Treasury Direction and guidance, are complex and employers may find this process onerous. Employers should refer to these resources to determine how these calculations should be made (Calculate how much you can claim, Treasury_Direction, example, calculator).
Where employees are on a flexible furlough arrangement, their furloughed hours are a proportion of their usual hours. The employer must pay their normal pay for the hours they have worked.
The calculations for the claim periods will be different from 1 September, when the government's contribution is reduced.
If the employer has made a mistake in a claim, for example, claimed too much, the guidance suggests this can be adjusted in the next claim. However, if there is no plan to submit further claims, the updated guidance now includes a process to follow so that the employer can repay any over claimed amount.
From 1 July 2020, all claims must start and end within the same calendar month (because the contributions made will change each month) – claims cannot cross calendar months. Although employers can make more than one claim each month, only one claim can be made for any claim period, and claim periods cannot overlap. So employers must ensure that all employees they want to claim for are included in one claim. If your employees have been on furlough continuously, the claim periods must follow on with no gaps in between the dates.
The minimum claim period is seven days. The only exception to this is if you are making a claim for a maximum of six consecutive days at the beginning or end of a month, referred to in the Treasury Direction as the "orphan period". Claims for an orphan period can only be made if a claim for the employee is made for the period immediately before the orphan period.
The guidance provides that employees can take holiday during furlough so where an employee is flexibly furloughed. So any hours taken as holiday during the claim period should be counted as furloughed hours rather than working hours. However, given that under the new scheme there is no minimum period of furlough, the temptation for employers is to furlough employees simply because they are on holiday so that a proportion of their pay is recoverable under the scheme. The guidance updated on 1 July makes it clear that this is not possible, stating clearly that employees should not be placed on furlough simply because they are on holiday for that period.
It is clear that there are some areas of uncertainty and complexity in the flexible furlough scheme and it is likely that the guidance will be updated to provide further clarification in the coming weeks.
If you have any questions or wish to take advice, please get in touch with your usual contact at Clyde & Co.