HMRC has published guidance on the CJRS through which employers will be able to claim back 80% of the wages (up to £2,500 per month) of employees who have been furloughed (i.e. put on a leave of absence) in response to the COVID-19 pandemic.
The guidance provides some detail on which businesses and employees will be covered, what counts as ‘furloughing’ for this purpose and how employees’ wages will be calculated. HMRC expects the scheme to be up and running by the end of April with pay being backdated.
The CJRS will be in place for at least three months from 1 March 2020. HMRC will establish an online portal where employers will be able to reclaim wage costs plus the employer’s NI contributions and the minimum automatic enrolment employer pension contributions on that wage. The scheme will be open to all UK employers so long as they have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
HMRC guidance states that the CJRS will cover employees who have been on the payroll since 28 February 2020 on any type of contract, including full-time and part-time employees, employees on agency contracts and employees on flexible or zero-hour contracts.
Significantly, employees who have been made redundant since 28 February can be furloughed if they are rehired. An employee is considered furloughed for the purpose of this scheme only if he or she does no work for the employer. The scheme therefore does not cover the wages of employees whose hours are reduced. Employers should discuss furloughing with their staff and make any changes to the employment contract by agreement. Employers should then write to their employees confirming that they have been furloughed and keep a record of this communication. The Bindmans LLP employment team can assist with communications to employees.
During the period of furlough, the employer should pay the employee at least the lower of 80% of salary or £2,500. The employer may choose to top up wages to 100% but is not obliged to do so. For full-time and part-time salaried employees, the employee’s actual salary, before tax, as at 28 February 2020 should be used to calculate the 80%. The guidance notes that fees, commission and bonuses should not be included. As for employees whose pay varies, in the case of employees who have been employed for at least a year, the employer will be able to claim for the higher of the employee’s earnings in the same month the previous year or the employee’s average monthly earnings in the 2019/20 tax year. In the case of an employee who has been employed for less than a year, the employer will be able to claim for an average of the employee’s monthly earnings since he or she started work. In the case of an employee who only started in February 2020, the employer will be required to pro-rate the employee’s earnings so far.
The guidance also covers the application of the national minimum wage (NMW) to furloughed employees. It states that, since employees are only entitled to the NMW while doing work, furloughed employees, who are not working, must be paid at the 80% rate (or £2,500) even if, based on their usual working hours, this would be below the applicable rate of NMW. If employees are required to undertake training while they are furloughed, then they must be paid at least the NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
If you would like to discuss any employment law issues, please contact Elizabeth McGlone on +44 20 7014 2117 for an initial free of charge telephone conversation.