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Government announces Coronavirus Job Retention Scheme

21st March 2020

The UK Government has announced measures to assist employers and workers through the disruption caused by the coronavirus (COVID 19).

A number of measures have been announced to support businesses, including deferring (notably not stopping) VAT payments, suspension of payment of business rates for some businesses, and a Business Interruption Loan Scheme.

However, the most radical and wide-reaching announcement relates to the introduction of the Coronavirus Job Retention Scheme, which was announced by the Chancellor of the Exchequer on the 20th March 2020. Some information has been provided on the UK Government website about the scheme. It should be noted that the information provided so far (as at 21st March 2020) is rather sparse. I am sure that the devil will be in the details, and it will probably be a few weeks before the scheme is up and running.

The main objective of the Scheme is to support businesses and workers that are forced to send staff away from their work due to a lack of work arising from the measures that are being taken to combat the spread and impact of the coronavirus.        

During the announcement of the Scheme, the Chancellor referred to “Furloughed” staff. The term is an American one (itself deriving from Dutch), and is not a term that has any historic or set meaning under UK employment law. The term refers to staff that have been laid off indefinitely by their employer, without pay, that would otherwise be redundant. In others words it does NOT apply to those staff required to work shorter hours, nor does it apply to those workers that are off work due to sickness, nor to those that are staying at home in order to self-isolate (see separate article on measures effecting those workers and sick pay).

The Scheme will enable HMRC to re-imburse 80% of furloughed workers “wage costs” up to a cap of £2,500 per month. The Government website (at least at the time of writing this article) states that “Existing systems are not set up to facilitate payments to employers.” It states that the Government is working “urgently” to set up a system for re-imbursement. It goes on to state that for those businesses facing immediate, and short- term cash flow support that they may be eligible for a Coronavirus Business Interruption Loan. 

The Scheme applies to all UK businesses, whether they trade as a limited company, partnership, LLP, sole trader or as a charity.

Very basic details are set out in the notes from the Government, but they do give some basic information of the requirements that apply before an entitlement to the support may arise.

The information states that the employer needs:-

  • to designate the affected employees as “furloughed workers” and,

  • must notify their affected employees of this change in their status.

    NB An important point is then made, which is that changing the status of employees remains subject to existing employment law and, depending on the terms of the contract of employment may be subject to negotiation with the employee.

    - The information must be given by the employer to HMRC, using a new online portal (which has yet to be created). The full range of details required to be disclosed has not yet been listed, but the note from the Government indicates that HMRC will set out those further details on the information that will be required.

  • This indicates that the employees must know about the change to their status, and that in most cases it must be agreed with them.

    There will be some instances where the current version of the contract of employment allows the employer to lay-off the individual without pay – such as in the case of some zero hours workers and some casual workers. In all other cases the prudent and necessary step will be to discuss the situation with the employee and agree this with them. It is likely that most employees will agree to this measure, as the most obvious alternatives are either sending them away with no pay, or making them redundant. We can imagine some employees, perhaps those close to retirement, that may simply prefer to be made redundant instead. However, if the employer cannot afford to pay the resulting redundancy payment and notice payment to those employees because of lack of funds, they would have to bring their claims for the money to Government,- a process which both limits the amount that can be recovered, and takes time!   

    It is essential to note that the payments are not aimed at topping up salary for those employees that go onto shorter hours of work. Such employees are not “Furloughed,” so the Scheme would not apply to them. In order to qualify, it seems that the employee must be doing no work for the employer. The Guidance note that the Government has produced for employees on the Scheme indicates that in order to qualify, the employee must have done no work for the employer in the relevant period. It is also clear that an employee cannot simply decide of their own choice to be “furloughed”- it is clearly a choice to be made by the employer.

    A number of questions are unanswered at present. In regard to the 80% figure, it is unclear from the Government guidance if the employee will be paid up to 80% of a monthly salary of up to £2,500, or if the maximum payment will be £2,500 (ie 80% of £3,125, which equals £2,500). Another question is how far the term “work costs” extends, and how each element is to be ordered or prioritised, such as the employer’s pension contributions, the employer’s National Insurance contributions, or other benefits in kind. Does the employer have to make up the remaining 20% of the “wage costs”? The guidance for employers makes no mention of this, but the Guidance for employees states that the employer can choose whether or not to pay the remaining 20% of the wage costs.

    Naturally, a major challenge with such a Scheme is the time between the announcement and the implementation and how employers and businesses are going to survive the drop of work and income in that period. It remains unclear as to how the Scheme will work in relation to employees that are required to go on shorter hours in the period before the Scheme becomes operational, and how their payment entitlements would be calculated.

    If you need any further advice on any matter raised in this article do not hesitate to contact us at Hallett Employment Law Services Ltd.

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