The guidance on the CJRS was originally published on 26 March 2020 (please see our Legal Update) and a further update was made on 4 April 2020 (please see our Legal Update). A scheme of this nature would ordinarily take two years to develop. HMRC has had a few weeks. It is perhaps unsurprising that HMRC has been overwhelmed with queries on the mechanics of the CJRS, necessitating revised guidance. The CJRS online portal is due to open on 20 April 2020 and HMRC has committed to paying employers within four to six working days after they have submitted their claim.
The government guidance provides the full detail available on the CJRS. The key clarifications to note from the latest guidance are as follows:
Grants under the CJRS are not counted as ‘access to public funds’, and you can furlough employees on all categories of visa.
No work for linked or associated organisations
To be eligible for the grant, when on furlough, an employee cannot undertake work for, or on behalf, of the organisation or any linked or associated organisation. It is clear that this will be an area of close review by HMRC in terms of any challenge to a grant made.
The guidance reminds employers that the CJRS is not intended to be used to pay for short-term absences from work due to sickness. The guidance states that short term illness/ self-isolation should not be a consideration in deciding whether to furlough an employee. However, if for business reasons an employer wants to furlough an employee who is currently off sick, they are eligible to do so. In these cases the employee would no longer receive sick pay and would be classified as a furloughed employee.
The guidance makes it clear that employers can furlough employees on long-term sick leave. It is possible to claim back from both the CJRS and the SSP rebate scheme for the same employee, but not for the same period of time. Please see below (Returning from statutory leave) for further information on the pay a sick leave returner would receive.
Sickness during furlough
The guidance gives employers the discretion whether to move an employee who becomes sick during furlough leave from furlough to Statutory Sick Pay ("SSP"). If the furloughed employee is moved onto SSP, employers would no longer be able to claim for the furloughed salary under the CJRS. Employers are required to pay the SSP themselves, although in some circumstances may qualify for the rebate of up to two weeks SSP.
If the employee remains on furlough despite being sick then furlough pay can be claimed by the employer through the CJRS. In these circumstances we believe SSP is deemed included in the furlough pay and cannot ordinarily be separately reclaimed under the SSP regulations.
Employers with generous contractual sick pay provisions over and above SSP may wish to consider a provision in furlough agreements that confirms that any sick pay that becomes payable on furlough leave can be reduced to SSP or that company sick pay will be paid at the same rate as furlough pay so that the contractual variation in relation to sick pay is clear. Employees are unlikely to request sick pay over furlough pay if it is no different or less favourable.
Employees who are unable to work because they are shielding in line with public health guidance (or need to stay home with someone who is shielding) can be furloughed. The requirement that this individual must be at risk of redundancy has been removed.
Contractors with public sector engagements in scope of IR35
Public sector bodies are directed towards the Crown Commercial Services guidance in the vast majority of cases. In a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist the coronavirus response, it may be appropriate to claim under the CJRS.
Transfer of Undertakings (Protection of Employment) Regulations 2006
Much welcomed clarification has been given that employees who transfer under TUPE and on change of ownership after 28 February can fall within the CJRS. The guidance states: "A new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 28 February 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership".
Where a group of companies have multiple PAYE schemes and there is a transfer of all employees from these schemes into a new consolidated PAYE scheme after 28 February 2020, the new scheme will be eligible to furlough those employees and claim the grants available under the CJRS.
Benefits in kind and salary sacrifice schemes
The guidance makes it clear that all the grant received to cover an employee’s subsidised furlough pay must be paid to them in the form of money. No part of the grant should be netted off to pay for the provision of benefits or a salary sacrifice scheme. Where the employer provides benefits to furloughed employees, including through a salary sacrifice scheme, these benefits should be in addition to the wages that must be paid under the terms of the CJRS. HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.
Returning from statutory leave (including maternity, paternity, shared parental, adoption, sick and parental bereavement leave) - In line with other employees, claims for full or part time employees returning from statutory leave after 28 February 2020 should be calculated against their salary, before tax, not the pay they received whilst on statutory leave. Claims for those on variable pay returning from statutory leave, should be calculated using either the same month’s earning from the previous year or average monthly earnings for the 2019-2020 tax year. This clarification reduces the financial hardship many returners who are now being furloughed would have faced.
We take the view that where those returning have made flexible working applications that have been granted, the furlough pay would be the pro rata amount of their pay calculated in accordance with the above.
What you'll need to make a claim
Further information has been given clarifying what employers will need to make a claim:
- Your employer PAYE reference number
- The number of employees being furloughed
- National Insurance Numbers for the employees you want to furlough
- Names of the employees you want to furlough
- Payroll/works number for the employees you want to furlough
- Your Self Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number
- The claim period (start and end date)
- Amount claimed (per the minimum length of furloughing of 3 consecutive weeks)
- Your bank account number and sort code
- Your contact name
- Your phone number
Employer pension contributions up to the level of minimum automatic enrolment employer contributions based on subsidised furlough pay may be claimed through the CJRS. Further detail provided in the guidance explains that the maximum level of grant for employer pension contributions on subsidised furlough pay is set in line with the minimum automatic enrolment employer contribution of 3% of qualifying earnings.
Where employers are required to pay higher pension contributions than the automatic enrolment minimum which is included in the CJRS grant (e.g. where contributions are based on uncapped pay rather than the band of qualifying earnings; under the pension scheme rules, the employer contribution rate is set at more than 3%; or where the employees is an active member of a defined benefit pension scheme), the additional cost may not be claimed through the CJRS. Employers who use a different contribution structure (i.e. not 3% of qualifying earnings, the automatic enrolment minimum) will need to calculate 3% of qualifying earnings of furloughed staff as part of the process for making the claim for the total grant under the CJRS.
Further Pensions Regulator Guidance was published on 9 April 2020 providing helpful information for employers on their pensions obligations in view of the CJRS, and further pensions guidance is expected in the near future. Key points to consider include:
- The pension scheme rules, automatic enrolment and the pensions terms of the employment contract continue to apply.
- Your staff may choose to reduce their contribution or opt out but you must not encourage them or induce them to do so.
- The CJRS does not require employers to make any changes to existing pension arrangements or payroll processes.
- If employers need to make other changes (e.g. a reduction in employer contribution rate to a defined contribution scheme to the automatic enrolment minimum), amending the pension scheme governing provisions and terms of the employment contract may be required and legal advice and engagement with any pension scheme trustees should be sought/carried out as required. Also, employers with at least 50 employees with a defined contribution scheme are legally required to consult with members for 60 days if they are making changes that decrease employer contributions, however, the Pensions Regulator has confirmed that if certain conditions are met, it will not take regulatory action if an employer fails to consult for the full 60 days, although it encourages employers to carry out as much consultation as they can. The conditions are:
- you have furloughed staff for whom you are making a claim under the CJRS;
- you are proposing to reduce the employer contribution to your defined contribution scheme in respect of furloughed staff only (and existing rates will continue for non-furloughed staff);
- the reduction will only apply for the furlough period; and
- you have written to affected staff and their representatives to describe the intended change and the effect for the scheme and the furloughed staff.
The latest installment of the guidance provides welcome assistance for employers. However, due to the nature of the CJRS and the sheer scale of demand, it is likely that we will see further updates as HMRC grapple with thousands of queries.
A key issue for employers which has not yet been addressed is how the CJRS interacts with annual leave. With the holiday season upon us, employers have had to take a risk based approach to minimise exposure. Acas Coronavirus (COVID-19): advice for employers and employees guidance states clearly that if a worker is furloughed then annual leave can be taken and requested in the usual way. The Acas guidance also states that employees should receive their usual pay for any days taken as annual leave. However, what is not clear is whether taking annual leave breaks furlough leave and jeopardises payment under the CJRS due to the strict three week minimum periods of furlough required under the CJRS. Further guidance is anticipated. We will keep you updated.
If you would like any further information with regard to the issues raised in this update please contact your usual DWF contact or another member of the Employment Team.
Government CJRS guidance for employers
Government CJRS guidance for employees
Government support FAQs
Acas Coronavirus (COVID-19): advice for employers and employees
Pensions Regulator Guidance
DWF Legal Update on the CJRS guidance on 26 March 2020
DWF Legal Update on the CJRS updated guidance on 4 April 2020