HMRC has published the long awaited Guidance on how the Coronavirus Job Retention Scheme is changing from 1 July 2020. The details are now contained in a series of updates to existing Guides and publication of new Guides. A number of detailed worked examples have also been provided to help demonstrate calculations and a summary page of the changes.
This commentary is divided into the following 4 parts;
- Guides / Documents containing the changes.
- What we knew before this Guidance.
- What’s new and what has been clarified.
- Concluding comments.
GUIDES / DOCUMENTS AVAILABLE
The details of how the Scheme will operate is now spread out into the following Guides and documents:
- Updated Guide: Check if you can claim
- Updated Guide: Check which employees you can put on furlough
- New Guide: Steps to take before calculating your claim using the CJRS
- New Guide: Calculate how much you can claim
- Updated Guide: Claim for your employee’s wages online
- Updated Guide: Report a payment in PAYE Real Time Information
- New Document: Summary of the main changes
- New Document: Flexibly Furlough Worked Example
- Updated Document: Worked examples
WHAT WE KNEW BEFORE THIS GUIDANCE
On 29 May 2020 HMRC provided the broad details of how the Coronavirus Job Retention Scheme (CJRS) would change.
This confirmed that:
- The Scheme will close on 31 October 2020.
- Employees will continue to receive 80% of their wages, up to a cap of £2,500 per month for the time they are being furloughed throughout the Scheme.
- The Scheme closed to new entrants from 30 June 2020 (with the exception of those returning from statutory family leave). Employers can only furlough employees that they have furloughed for a full 3 week period prior to 30 June
- From 1 July 2020, employers can bring furloughed employees back to work for any amount of time and any shift pattern, while still being able to claim CJRS grant for the hours not worked.
- For June and July 2020, the government will pay 80% of wages up to a cap of £2,500 for the hours the employee is on furlough, as well as employer National Insurance Contributions (ER NICS) and pension contributions for the hours the employee is on furlough. Employers will have to pay employees for the hours they work.
- From 1 August 2020, the government will pay 80% of wages up to a cap of £2,500 for the hours an employee is on furlough and employers will pay ER NICs and pension contributions for the hours the employee is on furlough.
- From 1 September 2020, the government will pay 70% of wages up to a cap of £2,187.50 for the hours the employee is on furlough. Employers will pay ER NICs and pension contributions and top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500, for time they are furloughed.
- From 1 October 2020, the government will pay 60% of wages up to a cap of £1,875 for the hours the employee is on furlough. Employers will pay ER NICs and pension contributions and top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500, for time they are furloughed.
- The number of employees that you claim for in any single claim period starting from 1 July 2020 cannot exceed the maximum number you previously claimed for.
WHAT’S NEW AND WHAT HAS BEEN CLARIFIED?
The Guidance confirms that if you flexibly furlough employees, you will need to agree this with the employee (or reach collective agreement with a trade union) and keep a new written agreement that confirms the new furlough arrangement.
This may mean entering into a new agreement each time the flexible furlough working patterns changes unless your new agreement is carefully drafted and accommodates further changes. Whilst a verbal agreement with the employee is sufficient, it still must be recorded in writing. The new flexi furlough agreement should reflect the new working arrangement that has been agreed.
Flexible Furlough / Fully Furloughed
The Guidance confirms that you can continue to fully furlough employees if you wish and can have a combination of employees flexibly furloughed, fully furloughed and/or working.
Minimum Furlough Periods
Any employees you place on furlough prior on or before 30 June 2020 must be furloughed for a minimum of 3 consecutive weeks.
This clarifies a point that was previously ambiguous i.e. whether a previously furloughed employee could start a new furlough period after 11 June 2020 as there was no longer a full 3-week period. As we expected, this is permitted. The guidance clarifies that all furlough periods commencing in June 2020 must still be for a minimum of 3 consecutive weeks despite the fact that that period will end after 1 July 2020.
For example, a previously furloughed employee can start a new furlough period on 22 June 2020 that then has to continue for at least 3 consecutive weeks ending on or after 12 July 2020. After 12 July 2020, the employee can be flexibly furloughed for any period. However, after 1 July 2020, employers cannot make claims that cross calendar months, so the employer will need to make a separate claim for the period up to 30 June 2020.
From 1 July 2020, agreed flexible furlough agreements can last any amount of time. Employees can enter into a flexible furlough agreement more than once.
Although flexible furlough agreements can last any amount of time, unless otherwise specified the period that you claim for must be for a minimum claim period of 7 calendar days.
Despite some commentary that holidays would be prohibited, the Guidance confirms that furloughed employees can continue to take holiday whilst on furlough. The Guidance continues to state that the position with holidays will be kept under review and therefore this could change.
The Guidance acknowledges that the employer and employee can agree to vary holiday entitlement as part of the furlough agreement. In relation to foregoing or buying back holidays, businesses can only do so in relation to any holidays above 28 days / 5.6 weeks.
The Guidance also states that employers have the flexibility to restrict when leave can be taken if there is a business need and the correct notice is given. However care needs to be taken when fixing holidays that previously the employee would have had discretion to choose. In those circumstances we suggest that you may want to contact us for further advise.
The Guidance is unchanged in relation to training and so employees can continue to complete training during any furloughed periods.
Returning from Maternity, Shared Parental, Adoption, Paternity Or Parental Bereavement Leave after 10 June
HMRC previously confirmed that you can furlough those returning from the above types of statutory leave after 10 June 2020 even if you are furloughing them for the first time.
The guidance states that the following eligibility conditions will apply that:
- you have previously furlough another employee for the minimum 3 weeks between 1 March 2020 and 30 June 2020;
- the employee you wish to furlough for the first time started maternity, shared parental, adoption, paternity and parental bereavement leave before 10 June 2020 and has returned from that leave after 10 June 2020;
- the employee was on your PAYE payroll on or before 19 March 2020. This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 19 March 2020.
In addition the Guidance permits you to adjust the cap by these newly furloughed employees. Its states that ‘employees you are furloughing for the first time (due to them returning from parental leave) should be added to any previous maximum.’ This means the maximum number of employees you can claim for is the maximum you claimed prior to 30 June 2020, plus any employees that you are furloughing for the first time due to them returning from parental leave.
Steps to take before calculating your claim using the Coronavirus Job Retention Scheme
This new Guide (number 3 above) is an important one to read for those engaged in calculating the wages and submitting claims. In addition those responsible for doing the calculations will also want to read the Worked Examples including how to calculate the amount you should claim for an employee who is flexibly furloughed.
This Guide covers:
- Deciding the length of your claim period;
- Find out what to include when calculating wages and;
- Working out your employees’ usual and furloughed hours before you calculate how much you can claim.
This is a complicated section setting out a number of do’s and don’t’.
The first day that you can make claims for days in July will be 1 July 2020; it is not possible to claim for periods in July before this point. The last day you can submit a claim for claim periods ending on or before 30 June is 31 July 2020. After 1 July 2020, you cannot make claims that cross calendar months.
Where a previously furloughed employee’s three consecutive week period ends after 1 July 2020, you will need to make separate claims to cover the days in June and the days in July, even if the employee is being furloughed continuously.
Claim periods starting on or after 1 July 2020 must start and end within the same calendar month.
Although flexible furlough agreements can last any amount of time, unless otherwise specified, the period that you claim for must be for a minimum claim period of seven calendar days. This may mean that your claim periods will differ from the pay periods you use.
When claiming for employees who are flexibly furloughed you should not claim until you are sure of the exact number of hours they will have worked in the claim period. However it does also state that if your employee works more hours than you have informed HMRC you should correct it in your subsequent claim. You will be asked to declare this in your next claim that will then be reduced by the amount of overpayment.
Claim periods must be for a minimum of 7 days. You can only claim for a period of less than seven days, if the period you are claiming for includes either the first or last day of the calendar month, and you have already claimed for the period ending immediately before it.
Working out your employee’s usual and furloughed hours
This will only apply if the employee is flexibly-furloughed and not if fully furloughed.
HMRC distinguishes between employees with fixed / usual hours and those with variable hours. Variable hours are described as those who do not have contracted fixed hours or their pay depends on the number of hours they work. It provides a step-by-step method for working out variable hours and a hyperlink to other examples.
The Guidance states that the working pattern does not have to match their pay period and provides the example that an employee can be contracted to work 40 hours per week but paid monthly.
Calculating how much you can claim
This Guide (number 4 above) then sets out the steps to calculate your furlough claim in any claim period. It breakdowns the calculations for: wages; national insurance contributions and; pension calculations. It is another Guide that those responsible for the calculations will want to know.
Whilst a detailed summary of it is beyond this commentary one example may help understand the basis of the calculations:
‘Work out your employee’s minimum furlough pay
The minimum furlough pay is the lesser of either:
- 80% of their usual wage
- the maximum wage amount
If your employee is flexibly furloughed the minimum furlough pay depends on their working and furloughed hours.
- Start with the lesser of:
- 80% of their usual wages
- the maximum wage amount
- Multiply by the employee’s furloughed hours.
- Divide by the employee’s usual hours.
This is the minimum amount you must pay your employee for the time they are recorded as being on furlough. You can choose to pay more than this but you do not have to.
If any of the furlough hours are taken as paid holiday or annual leave, you need to top up the pay for these hours to the employee’s full contracted rate.
Work out how much you can claim for your employee’s furlough pay
For periods ending on or before 31 August 2020 you can claim a grant for the full amount of the minimum furlough pay.
For periods starting on or after 1 September you will need to calculate the grant amount as follows:
- Start with the amount of minimum furlough pay.
- Divide by 80.
- Depending on which month you’re claiming for, multiply by:
- 70 for September
- 60 for October’
A couple of noteworthy points:
- It is worth repeating that you can only claim for the amount of hours that you have furloughed employees as the Company is responsible to pay the employees for all hours that they work;
- You must decide the length of your claim period before starting the calculations;
- Additional records must be kept (for 6 years) for flexibly furloughed employees which show the details of the usual hours worked, actual hours worked and your calculations;
- You now must distinguish between the maximum wage amount and the maximum amount you can claim under the scheme. In September and October 2020, the maximum wage amount is the amount you will have to pay a furloughed employee; the amount that you can claim for will be lower.
- Wage caps are proportional to the hours an employee is furloughed. For example, an employee is entitled to 60% of the £2,500 cap if they are placed on furlough for 60% of their usual hours.
We understand that HMRC will be providing a file upload template to complete for claim periods starting on or after 1 July 2020.
Notwithstanding that the calculations and claims under the new Flexible Furlough Scheme are fiendishly complicated, the flexible furloughing scheme itself is very welcome. It will allow your Company to bring the workforce back in a phased way while continuing to receive financial support under the Scheme. Hopefully it will also allow Companies some breathing space to take stock, recover, retain jobs and avoid potential redundancies, if not all then some.
Companies should now:
- Consider the hours and shift patterns that they want employees to work on their return;
- Consider the criteria they will use to select those to be flexi-furloughed, fully furloughed and asked to return to work so as to avoid legal claims;
- Consider the position of holidays and training and if employees will be asked to take holidays / train during furlough periods;
- Communicate and consult with previously furloughed employees to agree any contractual changes and confirm these in writing (including if you are extending their fully furloughed period);
- Agree any new flexi furlough arrangement and confirm that agreement in writing;
- Decide your claim period.
- Consider the long-term position and the financial ability of the Company to sustain employees on furlough.
As always we will continue to keep you updated with any developments that occur and please contact the Legal Team if you have any questions.