Further to the government's recent release of this scheme, we publish further guidance for employers regarding their duties from a formality perspective, financial perspective, and an operational perspective.
The scheme is intended to apply only to employers who cannot cover staff costs due to COVID-19. This is in an attempt by the government to reduce the amount of redundancies where possible.
THE FORMALITIES
Formalities will be important.
‘Furlough’ – By definition
The word furlough generally means a temporary leave of absence from work.
Furlough leave has been introduced by the government during the coronavirus pandemic to mean leave offered which keeps employees on the payroll without them working. As the furloughed staff are kept on the payroll, this is different to being laid off without pay or being made redundant.
People who get furloughed must not work for the employer during the period of furlough but usually return to their job afterwards unless redundancies follow.
Employees who can be ‘furloughed’
The employees that can agree to being furloughed are those working for businesses that would otherwise have to dismiss as redundant or lay off part or all of their workforce.
Employees must be consulted and agree to being furloughed. Changing the status of employees always is subject to existing employment law.
The 80% wage guarantee will not cover zero-hour contracts or casual workers, unless they work on the PAYE system.
It is not yet clear as to whether directors who take a small salary can be included.
Furthermore, there is no guidance relating to employees with differing hours.
If there is no lay off provision in the existing contract the employer will need to agree with the employee that they going to become furloughed because no work is available. Inevitably employees will mostly agree to this. The alternative would be dismissal by reason of redundancy with the possibility of a delayed redundancy payment or no redundancy payment (for employees who have worked for less than two years). In most cases employees will agree where the alternative is redundancy.
Some employers may feel that the long-term effect on their business will be inevitable closure or rationalisation. If employers feel furlough is likely to be followed by redundancies it may help to select employees for furlough using a process similar to redundancy selection. This would involve using objective criteria, such as a scores matrix based on skills, productivity, previous appraisals etc.
THE FINANCIALS
From a financial perspective, under the Coronavirus Job Retention Scheme (JRS), all UK employers who would otherwise have dismissed employees during this crisis can access payments for part of the employees’ salary. This is a grant which employers do not have to pay back. The details we have confirmed are as follows:
· JRS is intended to run for at least three months from 1 March 2020, but it will be extended if necessary.
· Businesses may face cash flow issues in paying these workers. A number of options may be open to businesses, including the government’s Coronavirus Business Interruption Loan.
· HMRC are setting up anew online portal for reimbursement.
· HMRC will pay up to 80% of furloughed workers wages, up to a cap of £2500 per month
· The pay will be backdates to wages payable from 1 March 2020.
· It is open for workers who were in employment on 28 February.
· Any extra payment the employer chooses to make will be either the additional 20% of salary, or any amount in excess of £2,500. If management choose to pay more, it will depend upon the business’ overall health and cashflow affecting the ability to fund payments.
· The employers affected will have greatly reduced or eliminated income during these three or more months. So many employers will not be able to supplement the government's payment. Cashflow is key, therefore we suggest holding this back in order to increase the longevity of cashflow in the business.
· To qualify for the scheme, employees must not undertake work for the employer while furloughed.
· The grants do not cover the wages of employees working a reduced schedule due to the virus; the employees must not work for the employer at all during the furlough period.
The £2,500 may include employer’s NI and pension contributions, but this is not yet clear.
Therefore £2,500 may not be the precise maximum gross pay which the employee receives, if for example, pension contributions and employers NI are taken into account.
THE OPERATIONS
From an operations perspective, employers should adopt the following operational approach in order (specific to each employer’s circumstances):
· Identify those employees ‘at risk’ and potentially at risk of lay-off.
· Analyse pay from the last 12 weeks up to the end of February (estimated timeframe, government still to confirm). Use regular/basic pay- not overtime or bonuses.
· Establish the base pay that qualifies for 80% furloughed grant.
· Identify the employees where the £2,500 cap will apply.
· Calculate additional pay required to get to ‘normal’ pay (if required- most employers should consider saving this cash to increase the longevity of the business).
· Model options to manage any top up outside of the grant (if required).
· Identify employees required to remain in employment.
· Model options to flex remuneration for those employees not furloughed.
· Commence communication with all affected employees including illustrations of proposed payments. Advise this could change as announcements are made and more detail is released.
· Obtain employee agreement. This is crucial. Refer to the formalities process.
· Implement changes to payroll and pay elements and advise the payroll administrator.
· Prepare application to HMRC/ your payroll administrator is likely to do this.
· Register and log-on to new HMRC portal (when portal available- no opening date confirmed yet- this is being worked on).
· Submit required information to HMRC(likely which employees, NINO’s, and details of furloughed pay).
· Receive reimbursement via new system(likely to be end of April 2020 – not confirmed yet).
Key items awaiting clarification at the date of this publication:
· Whether directors on small salary can take advantage of the scheme (we are presuming the can)
· Whether the £2500 grant is inclusive of employers NI, and compulsory pension contributions.
· Date the portal for applications for the grant will be open.
· Date payments will be made (likely to be end of April 2020)
