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Under the Coronavirus Act 2020 the Treasury produced a Direction to HMRC on 15 April 2020 (the Direction) in relation to payments under the Coronavirus Job Retention Scheme (the CJRS). The Direction can be accessed here and employers utilising the Scheme should ensure they have read it in full. The Government also produced the fourth version of the guidance on the CJRS, which can be found here.
The Direction is the legal framework that will be used by HMRC when processing claims under the CJRS. However, it remains possible that further Directions will be issued, so it is still possible that further updates will be made. The Direction brings some clarity in some areas about how the CJRS works as well as some notable changes. In this briefing, we summarise the key points of note arising from the Direction.
Before the Direction, the date for eligibility under the CJRS was employment on or before 28 February 2020. This has now changed to 19 March 2020, so employees who were employed on or before this date are eligible for the CJRS provided the employer had a PAYE scheme registered on HMRC’s real-time information system by 19 March 2020.
The Direction makes clear that the CJRS is not limited to employees who would have otherwise been made redundant. There are some key conditions set out in the Scheme. It specifies that:
An employee is a furloughed employee if:
(a) the employee has been instructed by the employer to cease all work in relation to their employment,
(b) the period for which the employee has ceased (or will have ceased) all work for the employer is 21 calendar days or more, and
(c) the instruction is given by reason of circumstances arising as a result of coronavirus or coronavirus disease.
Employers will want a clear written record to evidence each of these points.
The Direction specifies that in order to make a claim under the CJRS, the employee must consent in writing that they will cease doing work for the employer during the furlough period. The Government guidance so far only required notification of furlough. This is a significant change, as it could mean that claims under the Scheme for employees who have already been placed on furlough may not be paid out or may be recouped following an audit if there is not evidence in writing of the employee’s agreement to cease working. We consider it will be sufficient evidence of consent to cease working where an employee has agreed to be furloughed in writing, and the letter notifying them about furlough made clear that it was a condition that they couldn’t work. Where you don’t have written agreement, this will need to be obtained urgently, and you may wish the written agreement to record what had previously been agreed verbally.
Statutory Sick Pay
Where Statutory Sick Pay (SSP) is payable to an employee at the time they are placed on furlough, the furlough period will not start until SSP period has ended.
Similarly, if an employee is on any form of statutory leave, unpaid sabbatical or other unpaid leave on or before 28 February 2020 and then placed on furlough, the furlough period would not begin until the expiry of the period of leave previously agreed.
No claims can be made under the CJRS for unpaid sabbatical or other unpaid leave beginning before or after 19 March 2020. This is a surprising requirement as it would mean anyone placed on unpaid leave because of coronavirus can’t now be paid under the Scheme until that unpaid leave has ended and the notification and consent requirements set out above have been met.
Calculation of pay
The Direction goes into further detail than the Government guidance about how pay is calculated under the Scheme.
The Direction introduces the concept of a fixed-rate employee. This is essentially very similar to someone who is a salaried hours worker for National Minimum Wage purposes. In summary, they are people who are entitled to an annual salary in respect of basic hours and are not entitled to any other payment in respect of those hours. The full list of conditions in paragraph 7.6 of the Direction should be checked in full. When calculating what can be reclaimed for fixed-rate employees, the CJRS will not pay out in respect of anything that goes beyond their basic salary at 19 March 2020.
For employees whose pay varies, the CJRS will not pay out in relation to anything that is not “a regular salary or wage”. This means that the Scheme will disregard payments such as:
- conditional payments
- payments based on performance
- gratuity or tips
- discretionary payments.
The wording of the Direction is ambiguous in relation to payments to staff whose pay varies relating to additional payments for things such as on-call or other payments that are made where an employee carries out additional duties. The guidance suggests that overtime and any regular payments you make to employees can be paid. If the guidance is followed, this would mean variable hours workers being treated more favourably than fixed-rate employees. This issue needs further clarification from the Government, and the guidance and Direction need to be updated and aligned with one another.
The CJRS will not pay out in respect of any payments that are conditional on any matter. .
Other statutory payments
The Direction goes on to state that employers cannot make claims under the CJRS for specific benefits that are payable to an employee during an employee’s period of furlough. These benefits are:
- Statutory Sick Pay
- Statutory Maternity Pay
- Statutory Adoption Pay
- Statutory Paternity Pay
- Statutory Shared Parental Pay
- Statutory Parental Bereavement Pay
Employers will need to take these benefits into account when calculating the amount being claimed.
Holiday during furlough
The Direction is silent on this issue. We consider the Direction is the legal framework that is likely to be used by HMRC when assessing whether payments should be paid to employers in respect of furlough in April 2020. As a result, we consider it is more likely than not that agreeing a period of paid holiday during furlough will not prevent HMRC paying out the amounts that can be recovered under the Scheme. However, cautious employers may want to await clarification by the Government on this issue given the way the approach has changed on a number of issues in the past week, and that we expect HMRC will do all they can to limit claims. For example, they may argue holiday pay is not “regular salary or wages”.
Please note that this ebriefing relates to certain specifics of the guidance and Direction only and is correct at the time of writing, 16 April 2020. It is not a substitute for legal advice on your specific circumstances. We expect further developments on the CJRS over coming days and weeks. For further advice about the CJRS, please contact Matthew Wort or your normal contact in our employment team.
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