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From 1 July 2020, the Coronavirus Job Retention Scheme (CJRS) is changing. Businesses will be given the flexibility to bring furloughed employees back to work part time and still claim under the CJRS. But, for claims from 1 July onwards, CJRS will only be available to employers that have already used the scheme and subject to some limited exceptions, only in respect of employees they have previously furloughed for the current minimum of three weeks. On 12 June 2020, HM Revenue and Customs (HMRC) published further updates to the official guidance on CJRS, providing more detail of how the scheme is changing and will be operated from 1 July until it closes on 31 October 2020. We await an updated Treasury Direction to bring these changes into force. Connie Cliff and Jane Fielding of Gowling WLG set out the changes and the tricky bits to note.
This article was first published on the Gowling WLG website on 17 June 2020.
It remains the case that, to be eligible to claim under the CJRS, the employer must have:
a UK PAYE scheme started on or before 19 March 2020
enrolled for PAYE online
submitted a report under the Real Time Information (RTI) reporting system for that employee on or before 19 March 2020
a UK bank account
A new requirement is now added: the employer must have furloughed that employee for at least three consecutive weeks between 1 March and 30 June 2020. The new requirement means that from 1 July, the CJRS will only be available to employers that have previously used the scheme in respect of employees they have furloughed for a full three-week period at some point between 1 March and 30 June (see exceptions below).
As is the existing position, employers make a collective claim for the group of furloughed employees under the CJRS (not for individual employees). From 1 July, the number of employees an employer can claim for in any claim period cannot exceed the maximum number of employees claimed for under any single claim ending by 30 June.
For example, an employer had previously submitted three claims between 1 March 2020 and 30 June, in which the total number employees furloughed in each respective claim was 30, 20 and 50 employees. Then the maximum number of employees that employer could furlough in any single claim starting on or after 1 July would be 50.
This will be a relevant consideration where the employer has been operating rotating furlough arrangements under the current rules as it may impact on how many staff it can bring back part time under flexible furloughing within a particular claim period.
There are limited exceptions for employees returning from some forms of family related leave (see below).
Until 1 July, the minimum furlough period remains three consecutive weeks. From 1 July, flexible furlough agreements can last any amount of time (including under three consecutive weeks) and employees can enter into a flexible furlough agreement more than once. Although flexible furlough agreements can last any amount of time, the period that an employer can claim for must be for a minimum claim period of seven calendar days, unless the furlough period bridges a month end (see below).
As stated above, the scheme will only be available to employers that have previously used the original scheme in respect of employees they have furloughed for a full three-week period before 30 June. The employee doesn't have to be on furlough at the point the new scheme is introduced on 1 July, provided that they have been validly furloughed before that. This will allow an employer to re-furlough employees who were subject to a rotating furlough arrangement before the introduction of the new scheme.
However, if a previously furloughed employee starts a new furlough period before 1 July this furlough period must be for a minimum of three consecutive weeks. This remains the case even if part of the three consecutive week minimum period runs after 1 July. For example, under a rotating furlough arrangement:
Employee A furloughed for the three-week period of 11 to 31 May, then returned to work
Employee B furloughed for the three-week period of 1 to 21 June, then returned to work
Employee A goes back on furlough on 22 June
In the above scenario, the employer could potentially agree a flexible furlough agreement with Employee B from 1 July. However, a flexible furlough agreement can only be agreed with Employee A from 12 July, being three weeks after 22 June. It is not possible to convert the post 1 July portion of the three-week furlough period to flexible furlough.
Parents returning from statutory:
shared parental leave, or
parental bereavement leave
can be validly furloughed for the first time after 10 June (so without a full three-week furlough period completed before 1 July) provided:
the returning employee works for an employer who has validly furloughed other employees pre-1 July;
the returning employee started the statutory leave before 10 June and has returned from that leave after 10 June, and
the returning employee was on the employer's PAYE payroll on or before 19 March 2020 (with an RTI submission notifying payment having been made on or before 19 March 2020)
The exceptions also apply when calculating the maximum number of employees that can be claimed for in a claim period. This means the maximum number of employees that can be claimed for in a post-1 July claim period is the maximum number claimed for in any one claim before 30 June, plus any employees furloughed for the first time due to them returning from statutory leave.
On 19 June 2020, the HMRC guidance was updated to add an exception for military reservists returning to work from a period of mobilisation after 10 June 2020. The requirements for this exception to apply mirror those as apply in the case of the family-related leave exceptions.
It remains possible (though not required) for employers to agree to furlough employees who are shielding, on sickness absence, self-isolating or have caring responsibilities. However, to do so from 1 July, the employee must have been furloughed for at least three consecutive weeks between 1 March and 30 June 2020. There is no exception to this requirement.
It will continue to be the case that, where a TUPE transfer takes effect after 28 February 2020, the new employer can claim for the employees of the transferred business if either the TUPE or CJRS business succession rules apply to the change in ownership. This includes TUPE transfers from an insolvent business.
Where the TUPE transfer takes effect after 10 June, the transferee employer will be able to furlough those employees who transferred in as long as those employees had previously been validly furloughed for at least three consecutive weeks between 1 March and 30 June by the transferor. The maximum number of furloughed employees that can be claimed for under a post-1 July claim period will be the total of:
the maximum number of employees the transferee claimed for in any one claim ending on or before 30 June; plus
the number of employees that are being transferred to the transferee who the transferor had validly furloughed before 30 June, subject to the maximum cap the transferor was subject to
Employers can bring back to work employees that have previously been furloughed for any amount of time and any shift pattern, and still claim CJRS grant for their normal hours not worked.
It remains the case that for claim periods up to 30 June if an employee is working, but on reduced hours, or for reduced pay, they will not be eligible under the CJRS.
For claim periods starting after 1 July, employers and employees can agree a mix of working time and furlough time within the furlough period.
For the hours not worked under the flexible furlough arrangement (the 'furloughed hours'), the existing 'no work' rule continues to apply. During the furloughed hours, the employee must not do any work that makes money for or provides services for the employer's organisation or any organisation linked to or associated with the employer's organisation related to their employment. This remains the case even if they receive a top-up wage.
It will continue to be the case that training or carrying out duties as an employee or union representative will not be classed as 'working' for the purposes of the CJRS.
As is the current position, employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.
A new furlough agreement will be needed which permits the employee to have a mix of working and non-working hours during a flexible furlough period and deals with the circumstances in which the employer can require the employee to work. As is the current position, the HMRC guidance states ‘employers must have confirmed to their employee (or reached collective agreement with a trade union) in writing that they have been furloughed’ and ‘the employee does not have to provide a written response.’
However, it goes on to state that ‘if you flexibly furlough employees, you'll need to agree this with the employee (or reach collective agreement with a trade union) and keep a new written agreement that confirms the new furlough arrangement’. It does not go on to state that ‘the employee does not have to provide a written response.’ This leaves some uncertainty as to whether written confirmation of their agreement to flexible furlough is required from the employee. We will have to wait for the revised Treasury Direction to clarify the position. It will most likely be that the flexible furlough agreement must be made in writing or is confirmed in writing by the employer as is the current position. However, to be on the safe side, written confirmation from the employee (which may be by way of a simple email) is preferable and particularly when changes are being made to any existing or previous agreement.
The HMRC guidance also requires a written record of the agreement to be kept for five years. While the specific retention period for the agreement is five years, elsewhere in the guidance it requires, ‘a copy of all records’ in relation to a claim under the CJRS to be kept for six years. It is therefore advisable to retain a copy of the furlough agreement for six years.
The basic principles governing holiday during furlough will continue post 1 July. The BEIS Holiday entitlement and pay during coronavirus guidance is unchanged.
Under the flexible scheme employers will have to:
calculate the claim for the hours employees are on furlough leave by reference to their usual hours worked in a claim period
report hours worked, and
report the usual hours an employee would be expected to work in a claim period
Claims must now start and end within the same calendar month. The claim must be for at least seven days. If the claim only covers the first few days, or the last few days in a month then the claim can be for under seven days.
While claims can range between a few days or full weeks and must be within a calendar month, the overall furlough period for any employee can still overlap from one month to the next.
Employers must make only one joint claim for any period including all employees flexibly furloughed during that period in that single claim. Where employees are furloughed continuously, the claim periods, if looked at together, should appear continuous, without any gaps in dates.
Employers must calculate and submit details of the usual hours the employee would work in the claim period, the number of hours they will work, or number of hours they have worked, plus the number of furloughed hours for that claim period. Employers should keep records of the usual working hours, as well as all other information, including details of their calculations. Employers should ideally claim once they are sure of the exact number of hours being worked during the claim period.
The calculation varies depending on whether the employer has previously calculated the grant on the basis of a fixed salary or variable pay (depending on the hours worked), but in each case an employer is required to calculate a ‘baseline’ number of ‘usual hours’ in order that it can be compared with the actual hours worked. The government has prepared a number of examples to assist with the calculation and has updated its guidance and calculator, including:
Calculate how much you can claim
The basic position is that:
for employees who work fixed hours and whose pay does not vary, the contractual hours used to work out claims should be the hours in the last pay period ending on or before 19 March 2020
for employees who work variable hours and pay, the usual hours are either the highest of:
the average number of hours worked in the tax year 2019 to 2020, or
the wages from the corresponding calendar period in the tax year 2019 to 2020 so for eg July 2019 or August 2019.
In working out the usual hours, items such as annual leave and overtime are included. Note, where the pay varies by the amount of time worked, the number of hours worked will be shown on an employees' previous payslips in line with legislation introduced in April 2019. Employer should therefore have records of the number of hours worked.
The calculation complexities are compounded by the need to ensure claims are contained within the same month (see above), and also the government's advice that an employer should not claim until it is sure of the exact number of hours an employee will have worked during the claim period. There is, however, now a mechanism under which a claim can be corrected (see below).
If an employee is flexibly furloughed, you'll need to work out your employee's usual hours and record the actual hours they work as well as their furloughed hours for each claim period. The HMRC guidance uses a starting point of the hours your employee was contracted for at the end of the last pay period ending on or before 19 March 2020. Unfortunately the HMRC guidance does not cater for a situation where separate to furloughing, the employer and employee have agreed a contractual variation to contracted hours. How you determine 'usual hours' not worked in a situation where the employer has agreed short time working in conjunction with periods of furlough is arguably unclear as not specifically referred to in the guidance. As it appears that usual hours as at the last pay period ending on or before 19 March 2020 are to be used for the calculation, flexibly furloughed employees would be financially better off not only compared to those on full furlough, but also those who have been working on reduced hours for reduced pay throughout.
For example, before 19 March 2020, Employee X normally works full time five days a week. On 23 March, all employees agreed contractual variations to reduce their hours by 20% to four days a week for 80% pay, with the possibility of also going on furlough at some point. Employee X furloughs for three weeks from the 1 June and returns to work on 22 June to work four days a week in accordance with the contractual reduction in hours. If Employee X is placed on flexible furlough on 1 July to only work two days a week for which the employer pays them two days' full pay, is the 80% grant under the scheme based on three days not working or only two days not working? The HMRC guidance suggests the former but we await the Direction for confirmation.
From August 2020, CJRS is to be slowly tapered. The tapering means:
June and July: The government will pay 80% of wages up to a cap of £2,500 as well as associated employer National Insurance contributions (employer NICs) and pension contributions. Employers are not required to pay anything
August: The government will pay 80% of wages up to a cap of £2,500. Employers will pay employer NICs and pension contributions—for the average claim, this represents 5% of the gross employment costs the employer would have incurred had the employee not been furloughed
September: The government will pay 70% of wages up to a cap of £2,190. Employers will pay employer NICs and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500. For the average claim, this represents 14% of the gross employment costs the employer would have incurred had the employee not been furloughed
October: The government will pay 60% of wages up to a cap of £1,875. Employers will pay employer NICs and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500. For the average claim, this represents 23% of the gross employment costs the employer would have incurred had the employee not been furloughed
After submitting a claim employers are required to keep a copy of all records for six years, including:
the amount claimed and claim period for each employee
the claim reference number
the calculations in case HMRC need more information
for employees flexibly furloughed:
usual hours worked including any calculations that were required
actual hours worked
tell the employees that a claim has been made and that they do not need to take any more action
pay the employee their wages, if not already paid
If claims are made in advance and employees end up working more hours, meaning the furlough claim was too high, the amount overclaimed must be paid back. If there have been overclaims then any subsequent claim can be adjusted to reflect the overpayment. A record of the adjustment must be kept for six years.
If there has been an underclaim, employers can contact HMRC to amend the claim which will conduct additional checks.
The CJRS closes on 31 October 2020. The employer will need to pay full salary and NICs as before the pandemic unless any other contractual arrangement is or has been agreed with the employee. Depending on the employer's circumstances, it may be necessary to consider reducing employees' hours, or a termination of employment (redundancy). Normal redundancy rules apply to furloughed employees.
HMRC will check claims. Payments may be withheld or need to be paid back if a claim is found to be ‘fraudulent or based on incorrect information’.
The warning in the latest guidance has been changed slightly from the earlier guidance which stated, ‘payments may be withheld or need to be repaid in full to HMRC if the claim is based on dishonest or inaccurate information or found to be fraudulent’.
The change in wording, indicates a simple honest mistake in the information provided will result in the grant needing to be repaid.
Employers should give careful consideration to what their staffing requirements will be from 1 July and how that will impact the employees they currently have on furlough and those who have been working on reduced hours:
Carefully consider who to bring back. Be mindful of employee individual circumstances, such as childcare needs, but do not make assumptions about them
Have a clear communication strategy. Ensure you communicate with employees in good time
If keeping employees on full furlough:
Check your furlough agreements to see if they need extension
Consider whether the required employer NICs, pension contributions and top-up payments coming in from 1 August will be affordable
If using flexible furlough:
Put in place a new flexible furlough agreement
Consider the new complex calculation requirements
Ensure record keeping procedures are in place in relation to the additional information required to be submitted
If rotating furlough previously used:
Consider the cap on the number of employees that can be furloughed in a given claim period before agreeing new arrangements
Remember the transitional provisions for those commencing a fresh furlough period between 11 and 30 June
Consider all staff. Consider the employee relations impact of bringing furloughed employees back under flexible furlough on staff who have been working on reduced hours throughout or staff who remain on full furlough with no top up pay. If those on flexible furlough are financially better off than colleagues, this may have a negative impact on employee relations
Consider what will happen from 1 November when the scheme is closed. For some employers, restructuring and/or redundancies may be needed, in which case it will be important to start planning and seek appropriate advice on your consultation obligations
10 June 2020: Any employees being furloughed for the first time must be placed on furlough by this date for a minimum period of three weeks.
12 June 2020: Further guidance to be published
30 June 2020: CJRS closed to new entrants
1 July 2020: The new flexible furlough scheme starts for employers who have used CJRS already but only in respect of employees previously furloughed. From 1 July, employees can be partly furloughed and partly working and the grant can be claimed for the hours not worked
31 July 2020: Final date for employers to make claims for the period to 30 June 2020
1 August 2020: Level of the grant employers can claim under the CJRS will progressively reduce. The government will pay 80% of wages up to a cap of £2,500. Employers will pay employer NICs and pension contributions
1 September 2020: The government will pay 70% of wages up to a cap of £2,190. Employers will pay employer NICs and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500
1 October 2020: The government will pay 60% of wages up to a cap of £1,875. Employers will pay employer NICs and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500
31 October 2020: CJRS closes
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