The Government has provided a direction to HMRC regarding the payment and management of amounts to be paid under the Coronavirus Job Retention Scheme.

The direction has flagged up some new issues that have not previously been seen that employers need to be aware of to ensure that they are reimbursed for those employees that they have placed on furlough leave and to note that additional employees may now be covered by the scheme. So what is new?

Qualifying employees

Employees who were employed on 19 March 2020 (previously 28 February 2020) will now be eligible to be furloughed, providing that the employer has also submitted real time information payroll data by 19 March 2020 to HMRC. Whilst this may result in an increase of those eligible for the scheme, employers beware. If the RTI submission was not made until after 19 March 2020 due to the timing of payroll then the employee may not be eligible for the furlough scheme and the employer will not be able to be reimbursed.

The provision can apply to any who is furloughed “by reason of circumstances as a result of coronavirus or coronavirus disease.” This means that those who would have been made redundant but for this scheme are eligible to be furloughed but it goes wider than just those who would have been made redundant and can include those who would have been laid off, placed on short time working, or those who left but have applied to the former employer to be reinstated ‘by reason of circumstances as a result of coronavirus’.

Written agreement with employee required

To be able to claim reimbursement from the Government, the direction provides that employer and employee must have agreed in writing that the employee will cease all work.  Previously the guidance to employers only required the employer to have notified the employee that they were being furloughed, not necessarily agreed it. This is potentially very significant.  If the employer does not have the written agreement of the employee, this may mean that many employees who have already been furloughed may not fall within the meaning of the Scheme and employers may not be able to claim reimbursement from the Government. If you do not have written agreement, and require a copy of a furlough agreement to send to your employees, we have one ready drafted for you to use, please contact us.

Furloughing directors

There had been some confusion as to whether directors could be furloughed as it was unclear how they could still carry out their statutory directors duties when furloughing required no work to be undertaken at all for the employer. The guidance was subsequently updated to confirm that directors could be furloughed and could continue to undertake their statutory duties whilst furloughed. The direction to HMRC indicates a much stricter interpretation as to when reimbursement can be claimed in respect of directors, meaning that some employer’s may not be able to claim the £2500 pm from the Government for directors that they have furloughed. The direction indicates that a director who is furloughed can only undertake work to fulfil a duty or other obligation arising from an Act of Parliament relating to the filing of company’s accounts or provision of other information relating to the administration of the director’s company.  This is a very narrow interpretation of directors’ duties, resulting in many directors not fulfilling the criteria to enable the company to reclaim monies from the Government under the Scheme.

Amount to be reclaimed

The amount of salary for the employee must disregard anything which is not “regular salary or wages”.  This means that any performance related bonus, discretionary payments (including tips), conditional payments (for example where a threshold or condition must be met) and any non-financial benefits eg medical insurance, will need to be disregarded.

The employer cannot claim for any salary which is “conditional on any matter”.  This may exclude any salary payments which the parties have agreed are conditional on the Job Retention Scheme paying out but this is unclear.

The employer can claim for earnings which it “reasonably expects to be paid” to the employee which seems to include deferred earnings, such as deferred earnings until the Scheme pays out (provided they are not conditional on the Scheme paying out).

Annual leave

The Direction is completely silent on annual leave which still continues to be completely unclear.

Some commentators query whether annual leave can be taken at all during furlough leave or whether taking annual leave breaks the furlough period. This seems unlikely, given that we have so many bank holidays in April and May when the furlough scheme is due to take place.

The issue of payment is also unclear. ACAS guidance states it should be paid at 100% of normal pay. However, this is just guidance. If the employee has agreed to their remuneration being reduced whilst on furlough leave then arguably their pay for holidays may also be payable at a reduced rate. This would instead create a practical problem. Why would employees take holiday now and only receive reduced pay when they could take it on their return to work and receive 100% of pay?

What is clear is that a number of practical issues still remain unanswered and employers will need to be mindful of ensuring they comply with the furlough scheme criteria if they wish to receive reimbursement! If you need any assistance or have any queries in relation to the above, please do not hesitate to contact a member of our employment team.

Andrew Gilchrist                    07791 921903

Angela Gorton                        07714 522008

Joan Pettingill                        07467 941979

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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