On 15 April, a Treasury Direction was issued to HMRC which is described as setting out the legal framework for the Coronavirus Job Retention Scheme (CJRS), along with further revised guidance. There are some significant changes and points of clarification and this article seeks to explore those and how they will impact how the CJRS operates.
The Direction and this latest guidance are likely to be the final word before the portal through which the scheme will operate goes live on 20 April. However, as there remains a number of unanswered questions, not least around the issue of the interplay between furlough and annual leave entitlement, we envisage there will still be further announcements on the operation of CJRS even once the portal is up and running. Clause 14.1 of the Direction allows for the possibility of this.
The Direction is made pursuant to Section 76 of the Coronavirus Act 2020 which states as follows:
“Her Majesty’s Revenue and Customs are to have such functions as the Treasury may direct in relation to coronavirus or coronavirus disease”.
Whilst the Direction does not describe itself as a statutory instrument, it is made under an Act of Parliament and it is our view that it should be treated as having the full force and effect of an Act, and is subject to the same rules of interpretation as an Act. It should also take precedence over any accompanying guidance which has been issued.
Change in payroll date
The new guidance makes clear that employers can furlough employees who were on their PAYE payroll on or before 19 March 2020 so long as - an important caveat - this was notified to HMRC on an RTI (Real Time Information) submission on or before 19 March 2020.
The change in the payroll date comes after the government was put under pressure over the fact the CJRS previously failed to provide any protection for those employed after 28 February 2020. However, the additional caveat about the RTI notification may still exclude some.
RTI is a means through which information about tax and other deductions under the PAYE system is transmitted to HMRC by an employer. Given that this process may not be undertaken until an employee is actually paid, as opposed to when they were actually placed on payroll, there is a risk that some (whilst on payroll prior to 19 March) may be excluded from the scheme if they were not paid for the first time until after that date.
The position for employees employed as of 28 February 2020 and on payroll who were made redundant or stopped working for the employer after that date and prior to 19 March 2020 remains the same.
It remains the case that eligible employees can be on any type of employment contract, including full-time, part-time, agency, flexible or zero-hour (LELR 666). Foreign nationals are eligible to be furloughed and employers can furlough employees on all categories of visa.
Furlough and redundancy
The CJRS is not limited to employees who would otherwise be made redundant. It applies to any who are furloughed “by reason of circumstances as a result of coronavirus or coronavirus disease”. The definition is now presumably broad enough to cover both an employee who refuses to attend work due to concerns over health and safety and one who cannot attend work due to child care commitments caused by the closure of schools. If an employer elects to furlough them they would be entitled to claim their wage costs recoverable under the CJRS.
The Direction makes clear an employee is furloughed where “instructed” by the employer to cease all work in relation to their employment. Paragraph 6.7 states that employees are “instructed” only if both employer and employee have agreed in writing (including by email) that the employee will cease all work in relation to their employment. This is inconsistent with the guidance, which had not prescriptive on this issue.
Our view remains that provided there has been suitable individual notification and acceptance, or a collective agreement has been entered onto, or reliance is placed on an express lay-off clause in the existing contract of employment, this will be sufficient to entitle an employer to access the scheme. Further clarification on this would, however, be welcome.
Payments under the CJRS
Paragraph 2.2 of CJRS stipulates that the amounts paid to the employer can be by way of reimbursement for expenditure incurred or to be incurred. This indicates that an employer accessing the portal from next week can claim not just for salary costs already paid out, but also for salary costs that will become payable under the current lifetime of the scheme (which is until the end of May). This could provide vital cash flow assistance to employers who will know their furloughed salary costs up to the limits within the CJRS as of next week for the entire period.
Paragraph 7.3 of the Direction states that an employee’s reference salary is limited to their regular wages or salary. However, the definition given to “regular” in paragraphs 7.4 and 7.5 is convoluted and concerningly wide in scope. It appears to exclude any payments that can vary in a wide range of circumstances and are conditional “on any matter”. This would, for example, exclude commission payments, which previous versions of the guidance had stated would be included in the definition of pay unless they were entirely discretionary in nature.
The Direction clarifies that 80% of the employees’ wages must now be based on the last pay period prior to 19 March 2020.
You can read the guidance in full here.
You can read the Direction in full here.
Articles shared by Thompsons relating to coronavirus (COVID-19) are correct at the time of publication. You should check the government's guidelines for the latest information and advice at https://www.gov.uk/coronavirus.