Your restaurant or non-essential shop is closed in accordance with government guidance. Or your plummeting cashflow forces you to close all or part of your business temporarily. There are three alternatives:
- Lay-off if closure is for less than three weeks, or short-time working if you can keep your employees on but for fewer hours. But first check your employment contracts: can you impose ‘lay-off’ or short-time working? Your employees will be entitled to a minimal statutory guarantee payment, and the right to claim a redundancy payment if lay-off or short-time work exceeds a certain number of weeks.
- If you have already closed - or are closing or partially closing - for at least three weeks, and your employees can’t work for you at home, you can put eligible employees on furlough under CJRS and claim a certain proportion of their salary back from HMRC - this is a grant not a loan. A guide to CJRS and furlough is below.
- Redundancy? If your business is closed down temporarily rather than permanently and you make your employees redundant, the employment tribunal might say this is unfair dismissal. Under CJRS you can re-employ certain employees.
Furlough
The purpose of the scheme is to cover employers’ costs of employment in respect of furloughed employees arising from the health, social and economic emergency in the UK. It is not limited to employees who would otherwise be made redundant, but they must be furloughed for a minimum of three weeks. The duration of the scheme is 1 March to 30 June 2020 (extended from 31 May on 17 April) and may be extended again.
What can you claim? 80% of your eligible employees’ salaries from HMRC up to £2500 a month, backdated to 1 March, plus associated employment costs (see below). The HMRC portal opened 20 April and apparently payments will be made in six working days. Salaries will be subject to tax and other deductions. You can top up your employees’ salaries to 100% if you choose. Your employees must not receive less than the National Minimum Wage.
What is included in your claim to HMRC? Payments you are obliged to make including past overtime, compulsory commission, employer’s National Insurance Contributions, pension contributions up to the level of the minimum automatic enrolment employer pension contribution. But not discretionary payments such as tips, or conditional payments, or non-monetary benefits.
What if your employees’ salaries vary? Base your payment on the same month last year, or the average monthly pay for 2019/2020 - whichever is the higher. But if the employee has been with you less than a year, go by their average monthly earnings.
Who is eligible? You can furlough employees on your PAYE scheme who were employed by you on or before 19 March 2020 (the gov.uk site previously said 28 February) as long as you have notified HMRC through a real time payroll information submission of payment in respect of that employee on or before 19 March 2020. An employee can’t insist on being furloughed.
TUPE Are you a new employer of your employees? On 19 March did they have a former employer whose business you have now taken over? You may have registered your new employees on the HMRC’s real time information for PAYE after 19 March, but if on 19 March your employees were employed by another employer who was registered on HMRC real time information for PAYE they are covered by this scheme.
The scheme is open to all employers. The government expects employers who receive public money for staff costs to pay their employees and not furlough them. But what of charities who receive public funding grants and whose staff cannot be redeployed to assist with the coronavirus response? Unless the public money is given to the charity with the specific intention of paying staff costs this is a grey area.
How to select employees. The government has mentioned two specific categories who are unable to work at present:
- Those with childcare or other caring responsibilities arising from coronavirus
- Those who are ‘shielded’ or who need to stay at home with someone who is shielded - if they cannot work from home. What is shielding? The NHS is sending letters to people with certain underlying health conditions advising them to stay at home.
Make sure you have a documented selection plan with defined criteria. A collective consultation processes may be required. Remember that equality and discrimination laws continue to apply. Most employees will be keen to be furloughed as they will feel safer at home. You can provide for employees to take it in turns on the furlough scheme: employees may be furloughed multiple times, but each must be for a minimum of three consecutive weeks.
You can also claim for office holders (including directors), salaried members of LLPs, agency workers (by the agency), and Limb (b) Workers.
Employee on SSP You can furlough employees currently on sick leave, but you can only claim back either furlough payment or statutory sick pay at any one time for any employee. Employees do not qualify for SSP if they are on furlough. The solution to this is for employers to continue to make furlough payments.
If you tell an employee to stop working and they are on SSP - or are entitled to it – the calculation of the minimum period of three weeks doesn’t start until this period of SSP has ended. But if there is a subsequent entitlement to SSP - if your employee becomes sick again, whether or not they receive SSP - this is disregarded for the purposes of totting up the amount of time on furlough.
Employee on sabbatical If an employee is on sabbatical or other unpaid leave, or is due to go on it, their furlough can’t start until this period of unpaid leave is over.
Confirm agreement in writing. It is essential to confirm your and your employees’ agreement for them to “cease all work” in writing - this can be electronic - and to retain it for five years. This vital requirement is in the Treasury Direction to HMRC of 15 April and may leave some employers wondering whether they have sufficient paperwork for employees who are already on furlough. It is to be hoped the Government will provide clarification. Some commentators foresee Judicial Reviews if this is not remedied.
Can you afford to pay until CJRS payments kick in? Consider applying for a Coronavirus Business Interruption Loan. Otherwise, will your employees agree to wait for HMRC to pay?
Your employees don’t agree to go on furlough. If you don’t pay them, they have a claim for unpaid wages. The options are to dismiss them in accordance with their employment contract if you have employed them for less than two years, or to make them redundant. It is thought most employees will prefer to be on furlough as it’s safer at home, and they’re being paid.
Re-employment If you made eligible employees redundant, or they left their job, on or after 28 February 2020, you can re-employ them and put them on furlough, even if you don’t do this until after 19 March 2020.
What can employees do during furlough? They can get another job and receive a salary from another employer as well as their furlough payment - as long as they aren’t prohibited under their employment contract. You can waive this, of course. Certain vital sectors are recruiting, eg fruit pickers, delivery drivers, supermarkets. The government advises employers to encourage their employees to undertake training during furlough. They can also do voluntary work. But they cannot work for your business at all (or any business linked to it) or they will forfeit their entitlement. The exceptions to this rule are certain statutory duties of directors related to filing company accounts or the provision of other information.
Annual leave Furloughed workers can request and take holiday - including bank holidays - and they must be paid in full, but employers can of course claim the 80% grant from HMRC. The government is keeping the policy about holiday pay during furlough under review.
The end of the scheme. Your employees’ contracts of employment continue; they will be returning to work when the scheme ends unless you lawfully terminate their contract by dismissal or redundancy. Grievance and disciplinary procedures, and redundancy consultations, can take place during furlough.
For help or guidance on this or other employment law matter, please speak to Emma-Louise Hewitt e.hewitt@sydneymitchell.co.uk or call 0808 166 8860.
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