One Alarm Bell: Flexible Furlough – New Treasury Direction, 26 June 2020

On Friday 26 June 2020, the Government published a third Treasury Direction on the Coronavirus Job Retention Scheme (the Scheme). The new Direction is split into two parts, with the first part focusing on the original scheme and the second part focusing on the amended Scheme, which allows for flexible furloughing from 1 July 2020 until the scheme closes on 31 October 2020. The full Direction can be found here but in summary, these are the major changes and clarifications.

Purpose of the Scheme (One Alarm Bell)

• The new Direction states that integral to the purpose of the Scheme is that “the amounts paid to an employer pursuant to a CJRS claim are used by the employer to continue the employment of employees in respect of whom the CJRS claim is made”.
• This has created confusion as it seems to suggest that the grant cannot be used to reclaim any part of a notice payment made to any employee working their notice period whilst on furlough. To date, the Government guidance has expressly stated that it is possible to make someone redundant who is on furlough leave and it did not say that if you do, you would not be able to claim any furlough grant for that employee’s notice period. In the circumstances, we expect further and urgent clarification on the meaning of this phrase and the implications for those making redundancies and paying notice to staff on furlough.

Timing of claims

• As previously indicated, the new Direction confirms that claims for the furlough grant for periods before 30 June 2020 must be made by 31 July 2020.
• The new Direction also confirms that an employer will only be able to participate in the amended Scheme for employees who have been furloughed for the minimum 21 calendar day period beginning on or before 10 June 2020.

Flexible furlough

• Part two of the new Direction implements the flexible furlough arrangements, which are available to employers from 1 July 2020. However, it will remain possible to furlough employees on a full-time basis from this date.
• As discussed in our previous blog here, financial support to employers will be tapered from 1 August 2020. From 1 August 2020, employers will have to pay employer national insurance contributions and employer pension contributions, with the government grant still covering 80% of wages (up to the cap of £2,500). From 1 September 2020, employers will also have to pay 10% of wages, with the government grant covering the other 70% (up to a cap of £2,187.50) and from 1 October 2020, employers will have to pay 20% of wages, with the government grant covering the other 60% (up to a cap of £1,875) in each case for the periods of time qualifying employees are on furlough.

Maximum number of employees

• The new Direction confirms that the number of employees who can be claimed for under the amended Scheme cannot exceed the maximum number of employees claimed for in any one claim in the period prior to 1 July 2020. This is referred to as the “high-watermark number”.

Family leave and army reservists

• The new Direction confirms that those returning from statutory family leave and armed forces reservists are excluded from the 10 June 2020 cut-off date (see ‘Timing of claims’ above), provided certain conditions have been met. These individuals will also be excluded from the “high-watermark number”.

Agreement in writing

• The new Direction states that an employer must have instructed an employee not to do any work in relation to their employment or not to work the full amount of their usual hours in relation to their employment. These terms must be set out in an agreement between the employer and the employee.
• The new Direction also confirms that the agreement must be made or confirmed in writing and retained by the employer until at least 30 June 2025.
• The agreement or confirmation may be in an electronic form such as an email but must have been made “before the beginning of the period to which the claim under the Scheme relates”; it is not clear if this is intended to mean, the date before the employee moves on to flexible furlough or if it means the start of the ‘claim period’ which will be the start of the month that they move on to flexible furlough; as ever, we await further clarification. The agreement can, however, be subsequently varied to reflect any agreed changes during the period to which the claim relates.
• Employers can continue to use the same agreement for employees who are staying furloughed on a full time basis on the same terms as before. New agreements will not need to be entered into for these individuals.

Flexible furlough calculations

• The new Direction outlines what will constitute a ‘claim period’. This will be a period that begins and ends in the same ‘CJRS calendar month’ and relates to a period of 7 or more consecutive days (so the new minimum period is a week) or what is referred to as an ‘orphan period’, which is 6 consecutive calendar days provided the first day or the last day falls on the first or the last day of the calendar month. This means that claim periods can no longer straddle different months.
• The new Direction also sets out how to calculate the amounts payable by employers and the amounts recoverable under the Scheme for those employees who are flexibly furloughed and includes how to calculate ‘reference salary’, ‘usual hours’ and ‘furloughed hours’ on both a fixed and variable hours basis.
• Unfortunately, the calculations are not entirely straightforward. For further details on how to calculate your claim please see our previous blog here.

We will continue to monitor the situation and provide further updates as they become available. If you have any questions, please contact Linky Trott or any member of the Furlough Advice & Support Team.

To review our previous Covid-19 updates, please click here.

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