COVID-19 - Employment law digest 15 June 2020
Late last Friday night (12 June 2020), the Government released the long-awaited guidance to the new flexible furlough scheme (the Scheme), which had promised to clarify the details and mechanics of the Scheme which will be in operation from 1 July 2020.
Rather than issue one new guidance document, the Government has provided amendments to five existing documents concerning the Coronavirus Job Retention Scheme, and three brand new documents.
We have collated the new guidance, below, along with the corresponding document reference.
From 1 July 2020, employers can bring back furloughed employees to work for any amount of time and any work pattern, whilst still being able to claim under the Scheme for the hours not worked.
[Source: "Claim for wage costs through the Coronavirus Job Retention Scheme" – the original employer guidance document which is now on version 14]
From 1 July 2020, only employees for whom an employer has previously successfully claimed under the Scheme will be eligible for more grants under the Scheme.
This means that they must have been previously furloughed for at least 3 consecutive weeks, taking place at any time between 1 March and 30 June 2020. For the minimum 3-week period to be completed by 30 June, the last day an employee could have started furlough for the first time was 10 June 2020. This was stated in the 'headline' guidance, albeit in a less clear way. Whilst we now have further clarity on this, it is of limited use to employers, given that the 10 June cut-off has already passed.
Exception to normal eligibility rules – returners from maternity, shared parental, adoption, paternity or parental bereavement leave
As indicated above, the default eligibility criterion for flexible furloughing is that an employee must have been previously furloughed for at least 3 consecutive weeks, taking place at any time between 1 March and 30 June 2020.
This is not the case in respect of those employees returning from a period of parental leave, as listed above.
Employers can furlough an employee returning from statutory parental leave after 10 June 2020, even where they are being furloughed for the first time. They can do this providing that the following criteria are satisfied:
- The employer has previously submitted a claim for another employee in their business, which was in relation to a furlough period of at least 3 consecutive weeks taking place at any time between 1 March and 30 June 2020.
- The employee to be furloughed for the first time started their parental leave before 10 June 2020, and has returned from that leave after 10 June 2020.
- The employee was on their employer's PAYE payroll on or before 19 March 2020. This means that an RTI ('Real Time Information') submission in respect of that employee must have been made on or before 19 March 2020.
Maximum number of employees in any one claim
From 1 July 2020, the maximum number of employees for whom an employer can claim in any single claim period cannot exceed the maximum number of employees for whom they claimed in respect of any claim period up until 30 June 2020.
The example given in the guidance is this: An employer had previously submitted three claims between 1 March 2020 and 30 June 2020, in which the total number of employees in each respective claim was 30, 20 and 50 employees. As a result of this, the maximum number of employees that the employer could furlough in any single claim starting on or after 1 July 2020 would be 50.
Exception to maximum number of employees in any one claim
Those employees who are being furloughed after returning from a period of parental leave (see above) do not need to be included in the calculation of the maximum number of employees. Therefore, the maximum number of employees for whom the employer can claim is the maximum claimed for in any one claim before 30 June, plus any employees being furloughed for the first time due to their return from parental leave.
Agreement to flexibly furlough
Even if an employer has previously furloughed the employees in question, the guidance seems to suggest that they will need to make a further express agreement with those employees in respect of any new flexible furlough arrangement.
The wording of the guidance states that: "If you flexibly furlough employees, you'll 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 suggests that employers could agree the new arrangement verbally, and record it in writing. That being said, we would always suggest that the safest way to approach this issue would be to ensure that employers have a written agreement which is signed by the employee (although, particularly in the current circumstances, we consider that an email signature will suffice).
The guidance also stipulates that employers will need to:
- Make sure that the agreement is consistent with employment, equality and discrimination laws.
- Keep a written record of the agreement for five years.
- Keep records of how many hours their employees work and the number of hours for which they are furloughed.
Importantly, the guidance confirms that employers can continue to 'full furlough' employees if they wish.
No minimum furlough period from 1 July
All employers will be well versed in the fact that, prior to 1 July 2020, each period of furlough had to last a minimum of 3 consecutive weeks.
From 1 July, periods of furlough can last any amount of time. However, when it comes to claiming reimbursement, the period for which an employer may claim must be a minimum of 7 calendar days.
Situation where a new period of furlough commences prior to 30 June 2020
The guidance provides an important clarification, as follows: Where a previously furloughed employee starts a new furlough period before 1 July 2020, this furlough period must be for a minimum period of 3 consecutive weeks. This is the case regardless of whether the 3-consecutive week minimum period ends before or after 1 July 2020.
This was something which was unclear in the "headline" update and, as a result, we were advising employers to exercise caution if an employee was put on a new period of furlough which would not be at least 3 weeks long by 30 June 2020, as we were concerned that this would affect reimbursement under the Scheme. However, we are pleased to see that this has now been clarified.
The guidance provides a worked example, as follows: "A previously furloughed employee can start a new furlough period on 22 June, which would have to continue for at least 3 consecutive weeks ending on or after 12 July. After this, the employee can then be flexibly furloughed for any period. However, after 1 July, 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".
Previous iterations of the guidance had made clear that it was possible to furlough employees who had transferred to a new employer after 28 February 2020. This has now been updated to clarify the position in respect of the new flexible furlough scheme, as follows:
"A new employer is also eligible to claim under the CJRS in respect of the employees of a previous business transferred after 10 June 2020 [emphasis added] as long as:
- The TUPE…rules apply to the change in ownership.
- The employees being claimed for have previously had a claim submitted for them by their prior employer in relation to a furlough period of at least 3 consecutive weeks taking place ay time between 1 March 2020 and 30 June 2020".
In situations where an employer has taken on additional employees by way of a TUPE transfer, the maximum number of employees for whom the new employer can claim will be the total of both:
- The maximum number of employees for whom the new employer claimed in any one claim ending on or before 30 June 2020; and
- The number of employees who are being transferred to the new employer, in respect of whom a claim has been submitted in relation to a furlough period of at least 3 consecutive weeks taking place at any time between 1 March 2020 and 30 June 2020.
Mechanics of making a claim after 1 July 2020
Although, after 1 July 2020, there is no minimum furlough period, claim periods must start and end with the same calendar month and must last at least 7 days, unless an employer is claiming for the first few days or last few days in a month. The principal reason for the claim periods needing to be contained within the same calendar month is that the rules of the Scheme, and the contributions due from the employer and HMRC, will change at the start of every month from now until October 2020.
An employer can only claim for a period of fewer than 7 days if the period for which they are claiming includes either the first or the last day of the calendar month, and they have already claimed for the period ending immediately before it.
Only one claim can be made for any one period, so an employer must include all employees who are furloughed or flexibly furloughed at that time, even if they are paid at different points.
An employer can claim before, during or after it processes its payroll. A claim can be made up to 14 days before the end date of the claim period, and an employer does not have to wait until the end of a claim period to make the next claim.
In respect of claims for those employees who are flexibly furloughed, an employer should not make a claim until they are sure of the exact number of hours which will be worked during the claim period.
Payments will be made 6 working days after the claim is made.
Flexible furloughing: working out an employee's usual hours and furloughed hours
Employees who are contracted for a fixed number of hours and whose pay does not vary according to the number of hours which they work
- Start with the hours for which the employee was contracted at the end of the last pay period ending on or before 19 March 2020.
- Divide by the number of calendar days in the repeating working pattern, including non-working days.
- Multiply by the number of calendar days in the pay period for which you are claiming.
- Round up to the next whole number if the outcome is not a whole number.
If the employee was on annual leave, sick leave or family leave at any time during the last pay period ending on or before 19 March 2020, the usual hours should be calculated as if the employee had not taken that leave.
Employees who work variable hours
The 'usual hours' in this case will be calculated based on the higher of either:
- The average number of hours worked in the tax year 2019 to 2020.
- The corresponding calendar period in the tax year 2019 to 2020.
The calculation of the usual hours should include:
- Any hours of leave for which the employee was paid their full contracted rate (such as annual leave).
- Any hours worked as compulsory overtime.
If an employer is calculating the usual hours based on the average number of hours worked in the tax year 2019 to 2020, they must:
- Start with the number of hours worked (including paid leave) in the tax year 2019 to 2020 before the employee was furloughed, or the end of the tax year if earlier.
- Divide by the number of calendar days the employee was employed by the employer in the tax year 2019 to 2020, up until the day before they were furloughed, or the end of the tax year, if earlier.
- Multiply by the number of calendar days in the pay period (or partial pay period) for which the employer is claiming.
- Round up to the next whole number if the outcome is not a whole number.
If an employer is calculating the usual hours for a pay period based on the corresponding calendar period in the tax year 2019 to 2020:
- Identify the pay periods in the 2019 to 2020 tax year that correspond to at least one calendar day in the pay period for which the employer is claiming.
- If the pay period for which the employer is claiming starts and ends on the same calendar days as the identified pay period in the 2019 to 2020 tax year, use the number of hours worked in that pay period.
- If the pay period for which the employer is claiming does not start and end on the same calendar days as the identified pay periods in the 2019 to 2020 tax year, the employer will need to add together a proportion of the hours worked in each of the pay periods identified.
The Government has issued a worked example in respect of calculating the amount to be claimed for an employee who is flexibly furloughed. Whilst it is based on the most common scenario involving a fixed monthly salary and fixed working hours, it may be a useful guide. We have reproduced it at Annex 1 at the end of the article.
In an extension to the previous record-keeping guidance, the Government has now clarified that employers must keep a copy of the following records for 6 years:
- The amount claimed and claim period for each employee.
- The claim reference number.
- Calculations in respect of claim.
- Usual hours worked, including any calculations that were required, for employees who are flexibly furloughed [NEW].
- Actual hours worked for employees who are flexibly furloughed [NEW].
Document of worked examples
In addition to the flexible furlough example we have reproduced at Annex 1, the Government has updated its document entitled "Examples of how to calculate your employees' wages, National Insurance contributions and pension contributions" to include further examples relevant to the changes to the Scheme between now and the end of October 2020.
Reminder of tapering to Scheme from 1 August 2020
As mentioned in previous updates, employers will, from 1 August 2020, be required to contribute to the Scheme, as follows:
- From 1 August 2020, employers will be required to pay employer national insurance and pension contributions. The Government will continue to pay wages up to the cap of £2,500 for the hours an employee does not work.
- From 1 September 2020, the Government will pay 70% of wages up to a cap of £2,187.50 for the hours an employee does not work. Employers will have to contribute 10% of wages, to make up 80% in total (subject to the cap of £2,500) and employer national insurance and pension contributions.
- From 1 October 2020, the Government will pay 60% of wages up to a cap of £1,875 for the hours an employee does not work. Employers will have to contribute 20% of wages, to make up 80% in total (subject to the cap of £2,500), as well as employer national insurance and pension contributions.
We will update you further, as and when new guidance on the tapering system is released.
Example of how to calculate the amount you should claim for an employee who is flexibly furloughed
This example has been included to illustrate the full sequence of calculation steps that an employer must take when claiming through CJRS. It has been based on a common scenario in which the employee has a fixed monthly salary, fixed working hours, and is flexibly furloughed. This scenario may not be directly relevant to you, though it may be helpful to see an illustrative example of a full calculation.
Employee has worked for F Ltd since 2016, working 40 hours a week for a monthly salary of £3,000, paid calendar monthly. The employee was furloughed on 25 April 2020 and from 1 July 2020 is asked to return to work half-days. Pay has not been topped up and there is no bonus, commission or other additional pay.
As they prepare to pay employees for the end of July, F Ltd also calculate their CJRS claim.
As F Ltd processes payroll on a calendar month it decides to claim for 1 to 31 July.
The employee is flexibly furloughed from 1 July, so F Ltd works out the usual hours. The employee has fixed hours and a salary that does not vary by the number of hours worked so the calculation is:
- The number of hours the employee was contracted for at the end of the last pay period ending on or before 19 March 2020. This was 40 hours per week.
- Divide by the number of calendar days in the repeating working pattern. It is a weekly pattern, so divide by 7.
- Multiply by the number of days in the pay period. 31 days in July, so multiply by 31.
- Result is 177.14, rounded up to 178.
Next F Ltd calculates the number of working hours and furloughed hours. The employee will work 23 half days, each of 4 hours, so working hours are 92. Furlough hours are calculated as:
- Number of usual hours, 178.
- Subtract the number of actual hours worked, so subtract 92 = 86 furlough hours.
F Ltd calculates the maximum wage amount. As F Ltd will claim for the pay period which is a whole month, the maximum wage amount is £2,500.
F Ltd then works out the 80% of the usual wage.
The employee is furloughed throughout July so there are 31 furlough days.
The employee is on fixed pay, so the calculation is:
- Start with the employee’s wages from their last pay period before 19 March, £3,000. Claim is for a full pay period so skip to step 4.
- Multiply by 80% = £2,400.
Furlough pay for flexibly furloughed employee is the lesser of either:
- 80% of usual wages - £2,400.
- The maximum wage amount - £2,500.
- Here F Ltd uses £2,400.
- Multiply by employee’s furloughed hours, 86.
- Divide by the employee’s usual hours, 178 = £1,159.55.
As the claim is for July, F Ltd can claim a wage grant for the whole amount of the minimum furlough pay.
F Ltd then works out how much to claim for employer NICs costs. The company uses the payroll to calculate the actual NICs due, but must use the scheme calculation for claims between 1 July and 31 July to work out how much grant it can claim.
First apportion the relevant secondary NICs threshold.
- Start with the relevant secondary NICs threshold for the NICs earnings period. The earnings period is the month, so the threshold is £732.
- Divide by the number of days in the earnings period, 31.
- Multiply by the number of days in the claim, 31.
- Divide by the number of usual hours in the claim, 178.
- Multiply by the number of furlough hours in the claim, 86 = £353.66.
Calculate the employer NICs grant:
- Start with the amount claimed for employee’s wages, £1159.55.
- Deduct relevant apportioned secondary threshold, £353.66.
- Multiply by 13.8% = £111.21.
F Ltd is not eligible to claim the Employment Allowance and the grant amount is less than the total NICs it will pay in respect of this employee, so £111.21 is the grant amount it can claim.
F Ltd then calculates the pension contribution grant using the calculation for claim periods 1 July to 31 July.
First apportion the relevant lower level of qualifying earnings (LLQE):
- Start with the relevant LLQE for the pay period, £520.
- Divide by the number of days in the pay period, 31.
- Multiply by the number of days in the claim, 31.
- Divide by the number of usual hours in the claim, 178.
- Multiply by the number of furlough hours in the claim, 86 = 251.24.
Calculate the pension contribution grant:
- Start with the amount claimed for wages, £1,159.55.
- Deduct the apportioned LEL, £251.24.
- Multiply by 3% = £27.25.
[CONTENT CORRECT AS AT 15 JUNE 2020]
If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Rachael Lloyd, James Baker or Andrew Tobey in Michelmores' Employment team.
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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.