The speed with which the Coronavirus has changed the way we live and work is unprecedented. Despite the HMRC portal for the government’s Job Retention Scheme (JRS) going live on Monday 20 April 2020, there is much we do not know about the JRS but it continues to be updated. The more recent guidance gives much needed clarity and fills in some of the gaps which were missing in earlier versions of the guidance, but there are still many questions unanswered.
Where relevant we have used wording from the HMRC or ACAS guides.
The advice with regards to the JRS is ever changing and below is for guidance purposes only. You are encouraged to always take specific advice.
Current HMRC and ACAS guidance
Here is a link to HMRC’s to the most recent guidance – updated on 12 May 2020:
Along with this HMRC guide, there is also the following government guidance:
- the online portal (which opened on 20 April 2020)
- a step-by-step guide for employers on how to claim through the JRS
- how to work out 80% of wages
- Treasury Direction on JRS
- HMRC guidance for employees on JRS and
- updated information on claiming back statutory sick pay
ACAS too have a dedicated advice page for employers https://www.acas.org.uk/coronavirus
JRS – Key Features
- Before being able to access the JRS, employees’ status must be temporarily changed to that of a “furloughed” worker. “Furlough” has not status in UK law but effectively refers to a worker who might otherwise be made redundant or laid off or cannot work because of Covid-19;
- Once furloughed and subject to conditions, qualifying employers can make an application under the JRS to recover up to 80% of monthly wage costs per furloughed worker up to a maximum of £2,500 (Gross), associated Employer NICs and minimum employers auto-enrolment pension contributions;
- Subsidised wages payable under the JRS are paid as a “grant” to employers;
- The JRS has been extended so that it will now run from 1 March to 31 October 2020;
- Employers must confirm the change to furlough status with employees in writing – see below for further information;
- Those furloughed must be furloughed for a minimum of three weeks; however, claims for the grant can be made before the end of that three week period;
- Employees may be furloughed “multiple times” and may be rotated (e.g. 3 weeks working, 3 weeks furloughed).
Which employers can claim under the JRS?
The scheme is open to all employers in whatever sector or size provided it has:
- Started a PAYE payroll scheme on or before 19 March 2020;
- Enrolled for PAYE online – this takes 10 days; and
- A UK bank account
Employers receiving public funds are not expected to furlough employees. However where an organisation is not primarily publicly funded and where staff cannot be redeployed it may be appropriate to furlough employees.
Administrators can access the scheme but it is anticipated that they will only do so if there is a reasonable likelihood of rehiring employees.
Employers do not need to place all (or any) of its employees on furlough. However, those employees who are placed on furlough leave and grants sought through the JRS cannot undertake work for their employer.
Which employees are eligible to be “furloughed” and their subsidised wages reclaimed through the JRS?
HMRC rules relating to the JRS have changed since its introduction on 20 March 2020. Now the scheme applies to a wider category of “worker” as well as being dependant on the following conditions:
- Workers for whom there is no work/cannot work because of Covid-19;
- Workers who have been notified of their change to furlough status in writing (however, see below);
- Workers who were on their employer’s PAYE payroll on or before 19 March; and
- Workers who were notified to HMRC on an RTI submission on or before 19 March 2020.
The recent introduction of an RTI notification is significant as the application of the scheme for certain employees will depend on when an employer’s payroll might be. This could exclude some newly appointed employees.
Here is a useful guide from the HMRC as to who can qualify:
Was the employee employed with you as of this date?
|Date RTI submission notifying payment was made to HMRC||
Eligible for 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||Yes|
19 March 2020
|On or after 20 March 2020||
On or after 20 March 2020
|On or after 20 March 2020||
Also, to be eligible those furloughed cannot undertake any work for or on behalf of the employer or any associated employer; this includes providing services or generating income.
Changes made to the JRS on 12 May 2020
- Furlough scheme extended until the end of October - meaning eight months of support will have been provided
- Until the end of July, no changes to current scheme
- August to October - "greater flixibility" to get employees back to work
- Employers will be able to bring furloughed employees back part-time
- Companies will be asked to "share with the Government" the cost of paying salaries
- Full details by the end of May
- Workers will still get 80 per cent maximum pay
- Full details will be available at the end of May
Is pay under the JRS subject to normal deductions?
Yes - Any subsided pay received through the JRS is subject to the usual employee tax and NICs deductions.
Agreeing furlough status in writing – do we need a written agreement?
Before being able to access the scheme, qualifying employees must have their contractual status changed to that of a furlough worker. This change to a worker’s contract and status is however, intended to be temporary. There is some discord between the Direction issued by the Treasury and the HMRC guide as to whether employees have to agree in writing to the change in contractual status. The Direction states that there has to be agreement with any furloughed worker in writing; however, the HMRC guide states that the employer must write to the employee informing them of the change of status. However, as explained by HMRC in a separate communication to a barrister:
"...the employer and the employee must reach an agreement and an auditable written record of this agreement must be retained. It does not necessarily follow that the employee will have provided written confirmation that such an agreement was reached in all cases."
Our advice is to agree – where possible - the change in status and reduction in wages in writing with your furloughed workers and keep record of it (for 5 years). An email is sufficient. Certainly, as a minimum, all employees should be written to explaining the change of status and reduction in pay. It appears employees do not have to agree in writing before their furlough leave commences; however, employers would be advised to keep seeking written agreement.
Remember, HMRC have the power to audit claims – and we should expect they will.
Some contracts of employment may already include a short time or lay off clause allowing employers to reduce pay or send employees home where there is no work; although it would be prudent in the circumstances to write to employees explaining the situation, the change of status and that this is due to coronavirus.
However, remember that normal contractual rules relating to changing terms still apply. Claiming under the JRS means a reduction in pay which should be agreed in writing to avoid claims for unlawful deduction of wages or breach of contract claim. Also, employers may want to agree other changes to terms during this time – pension contribution changes, changes in holiday accrual for example. It would be advisable to seek agreement in writing, therefor.
A collective agreement reached between the employer and a trade union is also acceptable for the purpose of the JRS.
Has the definition of “employees” been widened?
Yes, subsequent incarnations of the HMRC guidance have widened the definition of employees to include:
- full-time, part-time, zero hours, flexible;
- agency employees;
- foreign nationals are eligible to be furloughed (this includes those here on certain visas as it has been clarified that the grant will not be considered to be “accessing public funds”);
- individuals can furlough employees (such as nannies);
- apprentices, although whilst training they must be paid the appropriate minimum wage rate with employers covering any shortfall in pay.
Employees, who are shielding in line with PHE guidance, or need to stay at home with someone who is shielding, cannot work and can be furloughed. Employees unable to work because of caring responsibilities resulting from COVID-19 can also be furloughed.
Are non-employees eligible to be furloughed?
Yes, updated guidance tells us that the following individuals may be furloughed – subject to the conditions outlined above (in particular, the point about being paid via PAYE) – and access to the JRS sought:
- Office holders – including company directors
- Limb(b) workers
- Salaried members of LLPs
- Agency workers
- Company directors with an annual pay period (new April 30 2020 addition)
The Government has issued separate guidance in respect of contingent workers in the public sector.
The guidance can be found here
In this note, “employee” includes workers etc. and vice versa.
Are any employees/workers/others excluded from the JRS?
Yes, as well as those who fall outside of the criteria above (e.g. PAYE dates and work availability), the JRS also excludes:
- Those employees who are already on reduced pay or reduced hours;
- Those who stated work from 20 March 2020;
- Employees who are sick/self-isolating who are in their initial period of entitlement to SSP
Employers of anyone who falls within these categories cannot access the JRS. However, when the employee’s sick note expires they could be furloughed if they meet the other criteria.
The self-employed are excluded.
Can fixed term employees be furloughed?
Yes – where an employee is on a fixed-term contract they can be furloughed and access sought through the JRS. Fixed term contracts may be renewed or extended during the furlough period at any time; however, once the contract ends without renewal no claim can be made. If a fixed-term contract ends, without extension or renewal, on or before 19 March 2020 the employee is not eligible under the JRS.
What about employees who are currently on unpaid leave or unpaid sabbaticals?
For unpaid leave after 28 February 2020 – employees can end their unpaid leave and be furloughed instead.
For unpaid leave on/before 28 February 2020 – employees cannot be furloughed until the date it was originally agreed they would return from unpaid leave.
What about employees who we have already been made redundant or who have left our employ?
If employees were made redundant, or they stopped working for you for other reasons on or after 28 February 2020, they can be re-employed then put on to furlough and their subsidised wages claimed under the JRS from the date on which they were furloughed, even if they are not re-employed until after 19 March 2020. Just to flag, this applies as long as the employee was on your PAYE payroll and an RTI submission made to HMRC on or before 28 February 2020.
Employers are not obliged to re-engage and there could be good reasons for not engaging. If in doubt, please take advice.
Do we have to use furlough or access the JRS?
No, the scheme is optional. However, if your business/employees meet the criteria as outlined and agree to the change in writing, is there a reason not to? Similarly, employers are able to make employees redundant during this time; however, if the JRS is aiming to prevent redundancies, this may be a consideration in not making redundancies at this time. Speak to your advisers about making redundancies during this time and what the risks/implications might be, particularly if there are collective consultation issues.
One point to note is that normal employment rights are preserved during this time so rights to unfair dismissal, contractual notice, breach of contract and discrimination still apply.
From when can employers claim from under the JRS?
Employees’ wages should claimed under the JRS from the date they cease working (not the date the decision is made or they date they agree unless they are one and the same date).
What if employees do not agree to furlough?
Employees could disagree with the change of status and pay reduction; however, if the alternative is to be made redundant or laid off, many will choose to accept. If employees do not agree there are options such as making employees redundant (see point below about redundancy).
How do we calculate the wages subsidy where employees are paid differently?
Under the terms of the JRS, employers can claim back 80% of a worker’s normal wages up to £2500 per month – plus minimum automatic employer pension contributions and Employer National Insurance Contributions (on top of the £2,500 cap) – per furloughed worker.
Fixed salary/monthly pay – For full time and part time employees take their actual monthly salary before tax as at 19 March 2020 – this is the salary snap shot date, used to calculate the 80%/cap.
For variably paid employees - If an employees pay varies and they have been employed (or engaged by an employment agency) for a full twelve months prior to the claim, a claim can be made for the higher of either:
- the same month’s earning from the previous year; or
- average monthly earnings from the 2019-20 tax year
For ‘varied pay’ employees who have been employed for less than a year, an average of their monthly earnings since they started work should be used to claim.
What “wages” can employers use to base their calculations on?
Employers CAN claim for regular payments they are obliged to pay, including:
- past overtime
- compulsory commission payments
Employers can claim for enhanced contractual maternity etc. payments as a wage cost, less SMP (although it is unclear whether those on enhanced pay could be furloughed so treat with caution). The Treasury Directive talks about payments which have legal basis or where the worker reasonably expects payments to be paid.
Employers CANNOT include:
- discretionary bonus
- discretionary commission payments
- non-cash payments
- non-monetary benefits in kind (such as company car)
Within their calculation of “wages”
Employers cannot charge an admin fee etc. for claiming under the JRS.
Salary Sacrifice Schemes
Employers should use salary post-sacrifice as of 19 March 2020. Also, if any salary reducing benefits (including pension) are provided through a salary sacrifice scheme, take these out of the wage calculation. HMRC accepts that Covid-19 is a life event for the purposes of salary sacrifice schemes. Employers could therefore change their salary sacrifice arrangements by updating their contract (our advice – ask employees if they want to stop any items they are paying for out of their salary too).
Benefits in Kind and Pensions
Benefits in kind do not count towards the reference salary; however, they will continue unless employers can agree something different with their furloughed employees.
With regards to pension contributions, if employers do want to reduce the amount of pension contributions they pay this will depend on the terms of the contract and the rules/governing the pension scheme so take advice. The Pensions Regulator has announced that it will release employers from their obligation to undergo a 60 day consultation period to reduce the level of pension contributions, provided they meet certain conditions, including that this easing will only apply to furloughed employees for the period that they are on furlough. Further information in relation to the approach which the Pensions Regulator will take, and guidance on how to deal with different types of pension schemes at this time can be found at:
Employers should also consider the terms of any relevant agreements with trade unions or staff representative or whether the rules relating to pension consultation are enacted. Best to take advice.
As the period of furlough is temporary and particularly if not all your staff are being furloughed, there may be no advantage to reducing the terms of any benefit schemes. Always speak to your benefit provider at this time – particularly, if employees are on PHI (permanent health insurance).
National Minimum Wage (NMW)
Whilst an employee is on furlough leave and their wages calculated in accordance with the JRS, this could mean they are paid less than the relevant NMW rate. This is accepted in the HMRC guide and employers do not have to top up (unless they want to). However if furloughed workers are engaged in training they must be paid the appropriate NMW so the employer will have to top up to cover any shortfall (which cannot be reclaimed).
Do employers have to “top up” wages?
No - Employers can choose whether to top up (our advice - if the employer is not topping up, the employee will need to agree to the reduced wage to avoid a breach of contract/unlawful deductions claim).
If an employer chooses to top-up a salary, Employer National Insurance Contributions and automatic enrolment pension contributions (or other pension payments) payable on the top-up cannot be reclaimed through the JRS.
What can furloughed employees do whilst on Furlough Leave?
Not much! The rules are very strict. Furlough, and therefore access to the JRS, is only available to those who have no work or who are unable to work because of Covid-19 – this is the starting point. It is really important that those who are furloughed do not undertake any work – revenue generating work – for your business or that of an associated or linked business. If they do this will make the individual ineligible for furlough and therefore prevent their employer from claiming under the JRS.
Company directors are able to perform regulatory work such as filing accounts; however, the interpretation of regulatory work is expected to be narrow.
Furloughed employees can undertake training for your organisation whilst on furlough; however, their reduced JRS pay must be topped-up to the appropriate national minimum wage (NMW) so employers may need to top up. Any top up or associated costs with the top up cannot be reclaimed.
It may seem draconian but employers might want to think about blocking emails for those who are furloughed to avoid the temptation to answer an email.
Some employers are looking to rotate those who are on furlough leave – so maybe 3 weeks on furlough, 3 weeks working – however, if you are proposing to do this, it would be important to include this within your initial furlough agreement letter to avoid having to agree separate furlough leave every time.
Can furlough workers work for others during furlough leave?
Yes, employees who are furloughed are permitted find volunteer or new work with a different employer subject to compliance with PHE guidance and we would also add that this should also be subject to their contract of employment or other conditions you might wish to impose. Make sure you know what the individual is doing to ensure there is no conflict and also think about what is going to happen when you need them back to work.
What about those who are either due to go on family leave or who are on family leave now?
For those due to take family leave, the normal rules apply. Employees retain their rights to statutory maternity etc. leave and pay. They will simply move from furlough status to being on maternity leave/pay etc. when they are due to go on leave. Statutory pay entitlements for any period of parental leave should be calculated on the basis of the employee’s usual pay, not their furlough pay if the emplyee on furlough starts family-related statutory leave on or after 25 April 2020. If the employee started family-related statutory pay before 25 April 2020, entitlement to SMP may be affected. The same rules apply to adoption pay, paternity pay, shared parental pay and parental bereavement pay.
For those who are currently on maternity, adoption, paternity or shared parental leave, again they stay on this leave; however, when they are due to return – or if they give the correct notice to return early – then they can return and be placed on furlough (subject to the other conditions). The guide now says that employers should use a returning employee’s actual pay rather than what they were earning on family leave (which could be zero), when working out their JRS subsidised pay.
The HMRC guide states that employers can claim through the scheme for enhanced (earnings related) contractual pay for employees who qualify for either maternity, adoption etc. leave (less SMP etc.). Does this mean those who are on such eave can be furloughed? The guide is silent so we would say, no.
Can employees on long term sickness absence be furloughed?
Yes. Employers are entitled to furlough employees who are shielding or who are off work on long-term sick leave (subject to meeting the other JRS criteria). It is up to employers to decide whether to furlough these employees. In terms of what to pay an employee who on long term sick whilst they are on furlough, they come off their sick pay and the JRS calculation would be based on what they would be earning if not on sick leave. Please check with your PHI provider if this impacts upon PHI cover. Presumably, employees will return to sick leave/pay once the JRS ends but best to inform employees of this temporary change.
What happens if employees become sick whilst on furlough leave?
First and foremost, employees retain their rights to receive statutory sick pay (SSP) as well as employer enhanced sick pay whilst on furlough leave. However, the JRS is not a mechanism to reclaim SSP – employers with less than 250 employees may be able to reclaim SSP through other channels. Where an employee does become sick during furlough then it is up to the employer whether to move these employees onto SSP or to keep them on furlough, at their subsidised wage rate. If a furloughed employee is moved onto SSP, employers can no longer claim for the furloughed wage through the JRS.
Also, illness/self-isolation should not be a consideration in deciding whether to furlough an employee.
What about TUPE transferred employees?
Employers are eligible to claim under the JRS in respect of the employees of a previous business who transferred after 19 March 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.
Does holiday/annual leave accrue during furlough leave?
Yes – we know that during furlough leave, “employees still have the same rights at work” which includes the accrual of holidays – Working Time Regulation Holiday and contractual holiday. If employers do want to want vary holiday, it cannot go below basic Working Time Regulation leave.
Can employees take holiday whilst on furlough leave?
Yes – provided employees follow usual holiday request rules they are able to take holiday during furlough leave.
Can employers require employees to take holiday during furlough?
According to ACAS, yes employers can require employees to take holiday during furlough leave - https://www.acas.org.uk/coronavirus/using-holiday. Provided the employer gives twice the notice for the holiday it wants the employee to take, employees would need to take holiday when designated.
There could be good business reasons for wanting employees to take holiday during furlough; for example, using it up before employees come back ready to work or reducing the amount of accrued holiday pay if other decisions have to be made about ongoing employment. However, a word of caution, it might be prudent not to designate holiday during the first 3 weeks of furlough (the minimum furlough period) and also, it might not be wise for employers to simply “run-down” an employee’s accrued holiday entitlement when those furloughed (or any other worker for that matter) cannot enjoy their holiday as it was intended. If employers did want employees to take holiday during furlough, perhaps one way would be for employers to designate the holiday accrued during furlough leave be taken during furlough leave.
What should happen with Bank Holidays?
With four bank holidays during the furlough scheme period (10 April, 13 April, 8 May and 25 May), employers should check Contracts of Employment or Holiday Rules and see whether Bank Holidays are included or excluded within employee’s holiday entitlement. The guide states that if workers usually work bank holidays then employers can agree that this is taken as holiday or if it is not possible due to covid-19, it should be taken at another time (or carried over under new rules introduced). If employees usually take Bank Holidays as leave then the employer would either have to top up pay to the usual holiday pay (see below) or give employees a day of holiday in lieu.
Can employees cancel pre-booked holiday?
Possibly, but the employer would have to agree. Certainly the health and safety aspects of holiday would be an issue – if the employee can no longer enjoy their holiday for leisure and enjoyment because they are at home, looking after/schooling children perhaps allowing holiday to be taken at a later date or carried over would be recommended. Each business is different.
What are employees paid if they take holiday (and Bank Holidays) during furlough?
Holiday pay (including for Bank Holidays) should be paid at “normal” (pre-furlough leave) pay allowing the employer to continue to reclaim 80% under the JRS but top up the additional 20% (which cannot be reclaimed under the JRS).
Please note, the government says it is keeping its policy in this area under review - so this could change!
New rules on carryover
If the employee is prevented from taking holiday because of coronavirus, they are now allowed to carry over 20 days basic EU holiday for 2 holiday years after the end of their current holiday year – see http://www.legislation.gov.uk/uksi/2020/365/made
Collective consultation and JRS?
HMRC guidance states employers can make redundancies during furlough leave and the JRS. Please be aware that a collective redundancy process could arise if an employer proposes to dismiss 20 or more employees within 90 days at one establishment. If at the end of the JRS (or during) there is a risk that roles are affected and redundancies likely, this could trigger a collective redundancy process depending on numbers. Collective consultation must begin in good time - this is important. There is a "special circumstances" defence which would allow the usual collective consultation process to be changed and condensed but employers would be advised to take some steps to engage with the collective consultation process. However, whether the special circumstances defence is applicable is questionable in the current climate. Again, advice should be taken about this. In either case, Form HR1 should be filed to avoid criminal liability.
HMRC have confirmed that whilst on furlough, employees 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 in doing this, they must not provide services to or generate revenue for, or on behalf of your organisation or a linked or associated organisation.
How do Employers make a Claim under the JRS?
- When making a claim employers will need:
- their ePAYE reference number;
- the number of employees being furloughed;
- the claim period (start and end date);
- amount claimed (per the minimum length of furloughing of 3 consecutive weeks);
- the employer’s bank account number and sort code;
- a contact name and phone number.
- When making a claim employers should use the amounts in their payroll, shortly before or after running payroll
- The Guidance suggests that “if appropriate” a worker’s wages should be reduced to 80% of their salary before they are paid
HMRC are working on the basis of calendar days and not working days.
HMRC have the right retrospectively to audit all aspects of an employer’s JRS claim. HMRC may withhold, or seek to recover, grants in full if the claim is based on dishonest or inaccurate information or found to be fraudulent. Employees may also report their employers if they are abusing the scheme.
What happens when the Scheme ends?
Employers will have to decide whether they can take the furloughed worker back or if they have to be made redundant so be alert as to whether this could impact on rules relating to collective consultation (see advice above).
Government and ACAS advice concerning the Job Retention Scheme is changing so it is advisable to keep up to date.
However, during this time it is important to keep communicating with your people. Communication is key in these situations. Also, these are unprecedented time so be as flexible – (as you can be). This situation is changing rapidly, so processes and procedures may need to be flexed to protect the health and wellbeing of your people.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.