Furlough Leave: Further Information – HMRC Direction 15 April 2020

Once again, the Government has released further guidance on the Coronavirus Job Retention Scheme (the JRS), this time in the form of a Direction to HMRC under powers conferred by the Coronavirus Act 2020. Although further amendments are possible, this Direction is likely to be the definitive guidance on how the JRS works. The full Direction can be found here but these are the major changes and clarifications.

Change to the 28 February date

• The qualifying date, which is the date when the employee has to have been on the employer’s payroll, has changed from 28 February 2020 to 19 March 2020. This is likely to come as welcome news to many as it will bring into scope a large number of people who previously fell outside of the JRS because they had recently changed jobs.

Reason for Furlough

• The JRS is not limited to where the employer would otherwise have made redundancies but applies to anyone furloughed “…by reason of circumstances as a result of the coronavirus or coronavirus disease”.

Director’s Duties

• A director who has been furloughed will only be able to undertake work to fulfil a duty or other obligation arising by or under an Act of Parliament relating to the filing of company accounts or provision of other information relating to the administration of the director’s company. This is a narrow interpretation of directors’ duties.

Agreement in Writing

• To claim furlough, an employee must have been instructed by their employer to cease all work in relation to their employment and this must have been agreed in writing. The Direction confirms that this may be in an electronic form, such as an email. This may mean that employees who have already been furloughed without agreement, may not currently be eligible for the JRS and employers in this position should seek to put the relevant agreement in place now; previous guidance has suggested that furlough can be backdated to the date the employee stopped working (with the long stop back date of 1 March 2020) and it is not when the agreement was reached so it is to be hoped that if agreement is reached now the whole period spent on furlough will be covered by the JRS grant.

Conditional Payments

• An employer cannot claim for any salary or wages which are “conditional on any matter”. This may include salary payments which the parties have agreed are conditional on the Scheme paying out, however this is not entirely clear and arguably defeats the objective of the JRS. Regular salary or wages will also exclude any performance related bonus or discretionary payments, any conditional payments and any non-financial benefits.
• An employer can claim for earnings “reasonably expected to be paid” to the employee. This seems to cover deferred earnings, such as those deferred until the Scheme pays out (as distinct from being conditional, as set out above).

Sick Leave

• If an employee is on sick leave such that SSP is or could have been paid, at the time that the employer decides to seek agreement to furlough, that employee cannot be furloughed until that period of receipt of SSP has ended. At that point they can be furloughed. If they become sick during furlough the Direction from HMRC states that “any subsequent entitlement to SSP by virtue of the employee becoming unfit for work again.. must be disregarded”; this suggests that the employee would remain on furlough. If the employer decides to put them on SSP instead of furlough, that will ‘end’ that furlough period and care must be taken not to truncate a three week minimum period of furlough in this way which would deny an entitlement to the grant for that initial furlough period.

Pension Contributions

• Employers can claim employer pension contributions that are paid on the subsidised furlough pay, up to the level of the minimum automatic enrolment employer contribution ‘amount allowable’. The ‘amount allowable’ will be the lower of (i) the contribution paid by the employer to the pension scheme during furlough and (ii) 3% of earnings which are more than the lower limit for qualified earnings under the Pensions Act 2008 but not more than the amount the employer can claim under the JRS for ‘wages’ (ie: earnings between £512 a month which is the current qualifying earnings limit and £2,500 a month). This means that some employers may find that their minimum pension contributions cannot be reclaimed in full under the JRS. For example, on the qualified earnings basis (£2,500 less £512 a month) that would mean 3% of £1,988 (£59) which could be reclaimed, not 3% of £2,500 (£75) which is probably what most employers would be paying.

We will continue to monitor the situation and provide further updates as they become available. The guidance is changing almost daily and as such it is important to monitor updates as further clarification is published.   If you have any questions, please contact Linky Trott or any member of the Employment team.

To view our previous blogs on furlough leave, please click here.

If you aren’t receiving our legal updates directly to your mailbox, please sign up now