A further update on the Coronavirus Job Retention Scheme – the legal framework
On 15 April 2020, a Treasury Direction and updated guidance were issued on the Coronavirus Job Retention Scheme (“CJRS”).
The Direction essentially sets out the legal framework for the CJRS although it is possible that further Directions may be issued as a number of aspects (particularly in relation to holiday) remain unresolved. The key points are:
Who is eligible?
The date on which a furloughed employee must be registered on the employer’s PAYE payroll for the employer to be eligible to recover the employee’s wage costs through the CJRS has changed to 19 March 2020 (from 28 February 2020). This brings a number of otherwise excluded employees into the scope of the CJRS. The employer’s PAYE scheme must be registered on HMRC’s real time information (RTI) system for PAYE as at 19 March 2020 (RTI is a means through which tax information and other deductions under the PAYE system is transmitted to HMRC by the employer every time an employee is paid). Therefore, an employer can only claim for the wage costs of furloughed employees who were on the employer’s payroll on or before 19 March 2020 and which were notified to HMRC on an RTI submission on or before 19 March 2020.
Further clarity on who can be furloughed
The Direction makes it clear that employers may only claim under the CJRS for employees who are furloughed by reason of circumstances arising as a result of coronavirus or coronavirus disease. There is no need for an underlying redundancy situation, or threatened redundancy, to furlough employees. The scope is broad and it is likely to cover an employee who refuses to attend work due to fears over their health and safety.
Written agreement required
For an employee to be furloughed, an employer and an employee must agree in writing that the employee will cease all work. The written agreement can be an email. Previous guidance only required written notification to the employee. This change is significant because an employer may only claim under the CJRS for the recoverable wage costs of a furloughed employee if an employee has been furloughed validly.
In our view, employers who have “furloughed” on the basis of notification, and not written agreement, should revisit this and obtain the employee’s written agreement. There is no requirement in the Direction for the written agreement to predate the period of furlough and so provided a written agreement exists, there should, in our view, be no barrier to accessing the CJRS.
What can be claimed?
“Regular” wages or salary can be claimed provided they are not conditional on any matter. This is problematic and means that the calculation of regular salary or wages is uncertain. For example, does overtime form part of regular pay? Previous guidance had made it clear that past overtime was part of regular pay and therefore could be claimed but the Direction now casts doubt on this. In our view, only guaranteed overtime is likely to form part of “regular” pay. Payments based on performance, discretionary payments, tips and benefits in kind are not part of regular wages or salary.
It has also been confirmed that employers who run a weekly payroll will be able to submit a claim weekly but only one claim per pay period will be accepted.
What about employees who automatically transfer to another employer under the TUPE rules?
Previous guidance confirmed that employees who automatically transferred to a new employer under the TUPE rules after 28 February 2020 were eligible under the CJRS. However, under the Direction, employees appear to only qualify where the automatic transfer to the new employer takes place after 19 March 2020. Whether or not those who automatically transferred to a new employer between 28 February and 19 March are eligible under the CJRS is now unclear.
Can directors be furloughed?
Directors can be furloughed but the only work they can undertake is to file the company’s accounts or provide other information relating to the administration of the company. This is a very narrow interpretation of directors’ duties and, therefore, it may make it impractical for directors of smaller businesses to be furloughed.