Covid-19......Latest on Furlough
 
Sentient Group Ltd
 
Info Update 2020/16                                                         Issue Date: 06/04/2020
 
COVID-19......Latest on Furlough
 
Over the weekend HMRC has published an update to the Coronavirus Job Retention Scheme Click here
There are important clarifications, confirmations and some new details. The key ones being:

Duration of the Scheme
It has been clarified that the scheme was for a fixed 3 month period, which commenced on the 1st March 2020. This means the scheme will end on 31st May, unless, the Chancellor of the Exchequer chooses to extend the scheme beyond this date.
 
Re-hiring those made redundant since 28th February
In earlier guidance it seemed that only those made redundant could be re-hired and placed on Furlough. The new guidance makes it clear that this applies to those who stopped working for you for any reason. Though why you would want to take back on anyone who had been dismissed for say conduct related reasons is questionable. However, those who, say, resigned, so they could care for someone in their household who might be in a vulnerable group might welcome the chance to get 80% of their previous wages.

Working elsewhere during Furlough
Employees with more than one job can be Furloughed by one employer and continue working for another. They are distinct and exclusive situations.

What’s more surprising is employees on Furlough can start a new job (sometimes referred to as secondary employment in your terms and conditions) provided this is permitted within the contract of employment. Usually the employee would be required to seek permission before taking such employment so that you can exert some control who they take work with. You would not for example want them to pick up work with a competing organisation. Where the contract of employment prohibits taking secondary employment then it is possible to waive that restriction temporarily.

When taking secondary employment during Furlough it might well mean they end up earning 80% of the old wage/salary and 100% of a new one. This is a very surprising move as whilst it was not prohibited in the earlier guidance this new guidance expressly allows it.

Apprentices
Apprentices can be furloughed in the same way as other employees and they can continue to train whilst furloughed.

However, you must pay your Apprentices at least the Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage (AMW/NLW/NMW) as appropriate for all the time they spend training. This means you must cover any shortfall between the amount you can claim for their wages through this scheme and their appropriate minimum wage.
 
Commission / Bonuses / Overtime etc.
It was already established that where pay is variable, then you can claim either the amount based on earnings in the same pay month last year or the monthly average of the tax year ending 5th April 2020 – whichever is the higher, subject to a cap of £2500.00 per month.

The new guidance unfortunately does not provide the clarity that we would have liked. It states that an employer can reclaim 80% of any ‘regular payments’ you are obliged to pay your employees. This includes wages, past overtime, fees and compulsory (presumably meaning contractual) commission payments.
  
It is not clear if this is referring to the commission from past sales, where the commission payment falls due during a period of furlough leave (obviously, employees cannot do any work including completing new sales whilst on furlough leave); or whether commission and overtime etc, is taken into account. That is, when calculating the claim based on earnings in the same pay month last year or the monthly average of the tax year ending 5th April 2020 – whichever is the higher, subject to the monthly cap of £2,500.

Whilst not explicitly stated, we believe that ‘regular payments’ would include contractual bonus payments. However, in the new guidance, it clearly says that discretionary payments such as bonuses, tips, commission and non-cash payments should be excluded from the calculation.

If you are topping up employees’ pay during Furlough to normal pay then this won’t be a problem. You will get what you can from the state through the HMRC claim process. However, if you can only afford to pay the amount you can get back you will have a dilemma.

Given the lack of clarity of what you can claim, the dilemma is what you pay your employees now. Our view is that you should pay what you know you will be able to recover – this may mean simply paying basic pay to your employees whilst on furlough. Then submitting a claim for the full amount that you believe might be claimed, and then immediately pass on any monies recovered from HMRC over and above the basic pay to your employees. We recognise that this is a pragmatic interpretation on what you might be able to do to keep within what the new rules say – and we may need to advise differently as information becomes clear. If adopting this approach, then you should get you employees agreement so as to better avoid potential non-payment claims.
 
Non-monetary benefits
The 80% you can claim back does not include non-monetary benefits (e.g. the value of health insurance or a car).

Company Directors
Company directors can be furloughed. However, they cannot do any work during Furlough apart from performing their statutory duties.

Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.

Multiple periods of Furlough
Employees can be furloughed multiple times, i.e. they can be furloughed, brought back to work, then re-furloughed (subject to each furlough period being at least three weeks). This means you could rotate employees doing the same or similar jobs in minimum periods of 3 weeks. This might enable you to share out the “pain” of either being on furlough or having to be in work, depending on how you and your employees view things.

Claiming for Fees
This is a change from what has been said previously. Employers can reclaim 80% of fees (whatever that means) from HMRC. The previous guidance said they could not. We are not sure what HMRC mean by “Fees” yet.

Written confirmation of Furlough
A new requirement is that employers must notify employees of their furlough status in writing and keep the record of that written notification for five years. This includes where a variation to the employment contract is necessary when there is no contractual right to lay someone off. Sentient clients have access to our on-line document library including template letters for such purposes. We have updated this letter today to include relevant content from the above.

There is also important clarity on Who you can claim for?
  • Employers on your PAYE scheme on 28th Feb 2020. including full-time, part-time, agency, flexible or zero-hour contracts. Foreign nationals are eligible to be furloughed.
  • Shielding Employees. i.e. those shielding in line with Public Health England guidance, (or need to stay at home with someone who is shielding) when they are unable to work from home and you would otherwise have to make them redundant.
  • Employees with Caring responsibilities. Employees who are unable to work because they have caring responsibilities resulting from coronavirus (COVID-19) can be furloughed. For example, employees that need to look after children.
  • Employees on fixed term contracts can be furloughed. Their contracts can be renewed or extended during the furlough period without breaking the terms of the scheme. Where a fixed term employee’s contract ends because it is not extended or renewed you will no longer be able claim grant for them.
  • Eligible individuals who are not employees. As well as employees, the grant can be claimed for any of the following groups, if they are paid via PAYE:
 
  1. office holders (including company directors)
  2. salaried members of Limited Liability Partnerships (LLPs)
  3. agency workers (including those employed by umbrella companies)
  4. limb (b) workers

There are specific details in the HMRC guidance that relate to these groups who are paid via PAYE but who are not necessarily employees for employment law purposes. We therefore recommend you also check the HMRC guidance thoroughly and take accounting and payroll advice on how these might apply to your circumstances.

Areas still unclear
Directors ‘Statutory Duties’ – what do they actually cover?
What should be paid and claimed if employees take annual leave when on furlough.

Stay tuned for further updates on this when things become clear. 
 
 
The advice and comment in this update is not meant to be an authoritative statement of the law. The articles and summaries should not be applied to any specific set of facts and circumstances without seeking further advice. Whilst every care is taken to ensure that the content is correct Sentient cannot accept responsibility for the accuracy of statements made nor the result of any actions taken by individuals after reading such.
 
 
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