01 July 2020
Since the latest Treasury direction on the Coronavirus Job Retention (“furlough”) Scheme was published last week, employers and advisers have been getting to grips with the latest changes.
As of today, of course, the scheme is now a “flexible” furlough scheme. Employers can place employees who had at least a full 3 weeks of “full” furlough before the end of June, into a flexible furlough arrangement whereby employees do some work for the employer (and are paid their usual wages) and for the shortfall i.e. the balance of a normal working week, a claim can be made under the furlough scheme with HMRC paying the relevant percentage of normal salary, subject to the usual cap which is applied on a pro rata basis
Remember that from August employers will be responsible for paying Employers’ NIC payments and pension contributions (which previously were covered by the scheme). In September HMRC will only pay 70% of wages (subject to the cap) with employers having to pay 10%. In October that will be 60% and 20%, with the scheme due to end at the end of October.
The direction sets out very detailed rules for calculating normal hours and normal pay and these should be followed.
One key issue which has been thrown up by the latest Treasury direction, is whether employees who have been given, and are serving, notice of termination due to redundancy, can still be furloughed, and salary claimed under the scheme.
Until the latest guidance it was assumed that the answer was yes (albeit with no certainty that was the case, as the point was not expressly addressed). Most commentators and advisers considered that the scheme could likely be used in this way, on grounds that it was not prohibited to do so. Indeed the HMRC employee guidance expressly said “your employer can still make you redundant while you’re on furlough”.
The latest direction however sets out for the first time the “purpose” of the scheme: that “the amounts paid to an employer…are used by the employer to continue the employment of employees”
This immediately casts some doubt on the ability to claim furlough payments for employees who are under notice of dismissal. Can it be said that the employer is using the payments to continue the employment of employees? In the short term, yes, but they are “on the way out” and their employment has not been saved. Redundancy has not been avoided.
Does that mean that employers cannot use the scheme during a consultation period about proposed redundancies? What about the situation where the employer knows it will have to make redundancies in future due to the impact of coronavirus, but delays the redundancies and claims under the furlough scheme for a period of time? Could all such payments now be disallowed? It has never been understood to be the intention that the scheme can only be used if employers are going to keep the employees long-term, and the wording in the latest government document is therefore surprising, unwelcome and unhelpful.
Numerous representations have been made to the government and HMRC to clarify the issue, but at present the position remains unclear. Employers need to accept there is a risk that claiming under the scheme in such circumstances is not allowed, with the consequence that the employer could be making a wrongful claim under the scheme
Expert advice should of course be taken.
This update contains general information only and does not constitute legal or other professional advice.
Caroline Carr, Partner: E: email@example.com / T: 0141 225 5263
Laura Salmond, Partner: E: firstname.lastname@example.org / T: 0141 225 5313
Jacqueline McCluskey, Partner: E: email@example.com / T: 0131 222 2936
Douglas Strang, Senior Associate: E: firstname.lastname@example.org / T: 0141 225 5271