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Job Retention Scheme - FAQs for Charities

on Tuesday, 05 May 2020.

 What options are available to charities if there is a significant reduction in work for their staff due to the coronavirus - can we use the Job Retention Scheme?

In these FAQs, we address some of the difficult employment issues that may arise for charities and their staff if the measures put in place to reduce the transmission of the coronavirus result in the cessation of the charities activities, temporarily or on a long term basis.


What is the Coronavirus Job Retention Scheme?

In a speech on Friday 20 March, the Chancellor announced a package of measures to support employers. One of these measures was the Job Retention Scheme. A scheme designed to reduce the risk of lay-off and redundancies and to provide some financial reassurance to employers and their employees whilst the rules on social distancing continue to have a dramatic impact on how businesses and charities operate.

Below are links to the government webpages:

Although the guidance has been updated many times since the introduction of the Scheme and a Treasury Direction has been issued to provide more clarity to those seeking to rely on it, there are still a number of areas that are unclear but we have sought to answer the main questions posed by our charities clients and will provide more information as and when it becomes available.

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How long will the Scheme be in place?

The Scheme will be backdated to 1 March 2020 and will be in place until at least 30 June 2020 (extended from 31 May 2020). It is possible that the Scheme may be extended if necessary.

 

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Who is eligible for the Scheme?

The Scheme envisages that all UK employers will be able to access support to continue paying part of their employees' salary (up to 80% capped at £2,500 per month) for those employees that would otherwise have been laid off or at risk of redundancy "as a result of the crisis". The Scheme does not appear to be open to employees whose employment would have ended for reasons other than the measures imposed in response to the coronavirus pandemic. However there does not appear to be a requirement for staff to have been specifically identified as at risk of redundancy to qualify.

The guidance states that "If you cannot maintain your current workforce because your operations have been severely affected by coronavirus (COVID 19), you can furlough employees."

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What is 'furlough'?

'Furlough' is a term used in the US and is similar to the concept of 'lay off' that has always existed under the law in England (see FAQs on lay-offs and short time working). Essentially furlough is a period where an employee is not provided with any work but their employment continues.

 

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How does the Scheme work?

The Scheme aims to provides financial assistance by way of a grant to charities and other organisations who have furloughed their employees in response to the coronavirus crisis. The links above set out (in broad terms) how the Scheme operates:

The charity will need to designate affected employees as 'furloughed workers'.

  • The Scheme is open to employees on the PAYE payroll on or before 19 March 2020. Employees must have been registered on HMRC's real time information (RTI) system for PAYE as of 19 March to qualify.
  • The Scheme applies to employees on "any type of contract" including:

- full-time employees

- part-time employees

- employees on agency contract

- employees on flexible or zero hours contracts

  • From a practical point of view, charity trustees will need to distinguish between key operational staff and those who can be furloughed (and therefore do no work). We would recommend that the criteria used to assess who can be furloughed is recorded in writing to show that the charity has taken an objective and reasonable approach to selection, much as it would be required to do in a redundancy situation.
  • The guidance confirms employees hired after 19 March 2020 cannot be furloughed.
  • Employers can reinstate employees who were made redundant after 28 February 2020 due to the coronavirus and then furlough them.

There are various requirements for a successful claim under the Scheme. These are:

  • the employee must have been instructed to cease all work in relation to their employment
  • the period for which they have ceased (or will have ceased) all work is 21 calendar days or more
  • the instruction arises as a result of coronavirus

The charity must then notify the employees of the proposed change in their status to 'furloughed worker' and seek their consent to any related contractual changes.

  • Whilst this looks straight forward, the guidance specifically states that changing the status of employees remains subject to existing employment law.
  • The Treasury Direction issued on 15 April 2020 states that in order for an employee to be furloughed the employer and employee must have agreed in writing that the employee will cease all work in relation to their employment. This differs from the HMRC guidance, the latest version of which states that to be eligible employers must confirm in writing to their employee that they have been furloughed and that if this is done in a way that is consistent with employment law it is valid. The guidance appears to offer employers a little more latitude in terms of implied consent as opposed to gaining the employees' express consent in writing.
  • If the charity is content to continue to pay furloughed staff their full salaries and benefits, albeit the government will only reimburse 80% wages (subject to the £2,500 cap), then obtaining consent to furlough should be fairly straightforward as the employee will no requirement to vary the employees' pay.
  • If the charity does not have the resources to 'top up' salaries and intends to pay staff in line with the level of reimbursement available under the Scheme, ie 80% wages (subject to the £2,500 cap), then it will be necessary to negotiate with staff, with a view to reaching agreement. This is because the reduced level of pay will amount to a variation of the employees' terms and conditions of employment.
  • The updated government guidance states that "if sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment". However, the use of the word "may" suggests collective consultation will not always be necessary and that advice should be taken on a case-by-case basis. If the charity does recognise a trade union in relation to any affected employees it would be prudent from an employment relations perspective to consult them and seek their support.
  • To be eligible for reimbursement under the Scheme, the charity must confirm in writing to their employees that they have been furloughed and the date that their period of furlough started. Although the guidance states that the charity does not have to obtain a written response from its employees, it would be sensible to do so where possible. A record of these communications must be kept for five years to provide to HMRC should the charity be audited. This letter is also essential in recording any contractual variations agreed with the employee including how long the variations will remain in place, what is permitted during furlough and what will happen at the end of the furlough period. We would be happy to assist you with preparing suitable communications with your employees to support the furlough process.

The charity then needs to submit information to HMRC about the employees that have been furloughed. It is necessary to submit a "claim" in order to claim reimbursement under the Scheme. (See 'How does the charity make a claim under the Scheme' below).

Please note that the Scheme will reimburse employers a month in arrears. Therefore charities will need sufficient cash flow to cover the payroll in the first instance. We anticipate HMRC will have the power to reject claims and/or claw back sums paid.

The Scheme will cover the cost of wages backdated to 1 March (if furlough began on that date) and the portal opened on 20 April for submission of claims. HMRC have stated that claims will be paid within 6 days of submission.

 

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Can the charity use the Scheme if it receives public funding?

The guidance states that where an employer receives public funding for staff costs, and that funding is continuing, it expects the employers to use that money to continue to pay staff and not to furlough them. Therefore if the charity is being publicly funded to deliver a service and that funding is continuing, it would be against the spirit of the Scheme to furlough staff engaged in providing that service. However there may be some discretion where public funding does not account for all of the staffing costs or where employees work on a number of projects, some of which are funded and some are not. If the charity is considering furloughing some of its employees in these circumstances, advice should be obtained and a detailed record of the rationale for furlough retained.

 

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Do employees have a right to be furloughed?

No - there is no right to be furloughed. The decision to designate an employee for a period of furlough rests with the charity (albeit with the employee's consent) and will depend on a number of factors including whether there is suitable work for the employee to perform, whether there are sufficient funds available to maintain their salary without the support of the Scheme and how severely the operations of the charity have been impacted by the coronavirus.

 

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What are the implications if an employee challenges the decision to make them a furloughed worker?

If an employee does not agree and the charity unilaterally imposes a 'furlough', in providing no work and potentially reducing pay, this would give an employee the option of:

  • resigning and claiming constructive unfair dismissal; or
  • alternatively the employee could remain in employment but 'under protest' and pursue an unlawful deductions claim to recover the balance of their pay.

However:

  • if a charity is seeking to furlough employees there are likely to be critical business reasons why this decision is being taken.
  • it is not yet clear what might be fair or unfair in these circumstances, and the position will depend on the specific circumstances. However, if there has been a reasonable process of identifying furloughed workers and there has been an attempt to consult and reach agreement, a charity may have a viable defence to a claim of constructive unfair dismissal.
  • on the limited information available it is difficult to see how an unlawful deductions claim could be avoided if the employee objects to furlough status and also retains all of their usual employment rights unless the employer 'tops up' their remaining pay - this is something that will need to be addressed in the detail of the Scheme.

 

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Is there a minimum period of furlough?

Yes - three consecutive weeks. If the employee spends less than three weeks on furlough, the charity will not be able to recoup any salary costs from the Scheme.

 

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Does the Scheme cover zero-hours employees?

The guidance confirms the Scheme is open to employees on the PAYE payroll at 19 March 2020 and on "any type of contract" including zero-hour employees. However, the situation for zero-hour employees may not be so straightforward. The hours and pay of zero-hour employees can vary significantly, it may be difficult to determine what 80% of their usual pay would be.

 

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How does the charity calculate furlough pay?

For salaried employees or those who work regular hours, the reference salary for calculating the amount that can be claimed from the Scheme is the amount that was paid to the employee in the latest salary period ending on or before 19 March 2020. However, the charity must disregard anything which is not 'regular' salary or wages. Any discretionary bonus, commission or overtime payments should not be included.

The guidance sets out a number of ways to calculate pay for employees who work variable hours, depending on their length of service:

  • for those employed for a full 12 months prior to the claim, employers can claim the higher of either:

- the same month's earnings from the previous year; or

- average monthly earnings from the 2019-20 tax year

  • if the employee has been employed for under a year, employers can claim for an average of their monthly earnings since they started work. No calculation guidance is included so this is likely to be a straightforward calculation as follows:

Total pay during employment / No. of months employed = average earnings.

If the employee only commenced work in February 2020, the guidance requires employers to use a pro-rata for their earnings so far, to claim.

HMRC has created a calculator tool to assist employers to calculate what they can claim in respect of each furloughed employee. when calculating Calculation guidance has also been published to accompany this tool.

 

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Are workers and office holders covered?

The scheme applies to workers and office holders on the charity's PAYE payroll. These individuals can be furloughed and the charity can make a claim against the Scheme. If a worker or office holder is not on the PAYE payroll, they will not be eligible for support under the Scheme.

 

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Can the charity furlough an employee who is unable to work due to caring responsibilities?

Yes - if the employee is unable to work because they have caring responsibilities that have resulted from the coronavirus they can be furloughed. This extends beyond caring for those with the virus to situations such as childcare while schools are closed due to social distancing measures.

 

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Can employees be asked to do some work while they are furloughed?

No - the Scheme only applies to employees who are not undertaking any work at all for the charity or any linked or associated organisation.

This presents a potential dilemma for employers who still have work available but not at the usual level. Furloughing employees could lead to understaffing but seeking agreement from them to work reduced hours for less than 80% of their pay may be a challenge if being designated a furloughed worker would be more financially advantageous.

The only exception to the above is in relation to office holders who are permitted to carry out particular duties to fulfil the statutory obligations they owe as company directors and even then they are restricted to doing no more than is reasonably necessary for that specific purpose. They must not carry out any of their usual work to generate revenue or provide services to or on behalf of the charity.

 

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Can we rotate furloughed employees?

Yes - the latest guidance confirms that staff can be rotated between furloughed and working status, subject to the requirement to be furloughed for a minimum of three weeks at a time. Consideration should be given to how this would work in practice in terms of the handover of work and the need to ensure that the employees' amended terms and conditions correctly reflect entitlements during periods of furlough and work. If possible it would be sensible to agree these terms at the outset of furlough to avoid the need to renegotiate with employees on each rotation.

 

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Can furloughed employees carry out volunteer work or undertake training?

Yes - the guidance states furloughed staff can take part in volunteer work or training, so long as no services or revenue are provided for the employer in doing so. Furloughed staff must receive at least the National Living/Minimum Wage for time spent training, even if this is more than the 80% of their wage that will be subsidised.

 

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Must income tax, National Insurance and pension contributions continue to be made during the furlough period?

Yes. Wages of furloughed employees will be subject to income tax and NI in the usual way.

Employees will also pay automatic enrolment contributions on qualifying earnings, unless they have chosen to opt out.

 

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Should benefits, including pensions, be maintained during the furlough period?

The government grant will include the minimum automatic enrolment employer pension contributions on the subsidised furlough wage.

The latest guidance clarifies that you can claim for any regular contractual payments that the charity is obliged to pay its employees. This includes past overtime, fees and compulsory commission payments. However, it does not include discretionary bonus and commission payments and non-cash payments. This does not mean the charity can automatically stop providing non-cash benefits during the furlough period. If there is a proposal to reduce or pause benefits during the furlough period, consultation should take place on this basis with a view to reaching agreement.

 

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Can an employee who is furloughed take annual leave?

Yes - the latest guidance to employees confirms that holiday can be taken during furlough.

 

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At what rate should annual leave be paid to an employee on furlough?

The guidance advises that holiday should be paid at full pay. It is our view that this should be full pay based on their pre-furlough salary as opposed to any reduced salary that may have been agreed as a temporary variation.

 

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Can we require employees to take holiday during furlough?

It might be desirable for annual leave to be taken during the furlough period in order to prevent a situation whereby all staff need to use the majority of their annual leave later in the year. This could prove costly and disruptive.

Employers can require employees to take annual leave under regulation 15(2) of the Working Time Regulations, so long as the notice served is at least twice the length of the period of annual leave the employee is being asked to take.

For the purposes of maintaining good employee relations, if a charity intends to give notice to an employee to take statutory annual leave during the furlough period, consideration should be given to doing so in a fair and proportionate manner to avoid damaging trust and confidence. For example, requiring staff to use all of their remaining leave for the holiday year during furlough when they cannot travel or enjoy time with friends and extended family, is likely to be poorly received. However, asking employees to use the leave that they accrue during furlough, is a more proportionate response and less likely to be challenged.

As above, in our view, any period of statutory annual leave should be paid at full pay, regardless of whether pay during the furlough period has been reduced.

Charities may wish to limit the accrual of holiday to the statutory rate only during the furlough period. This would need to be agreed as a contractual variation.

 

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What happens if an employee who is furloughed falls ill?

Depending on the financial arrangements in place during the furlough period, staff who fall ill whilst on furlough may well choose not report this to their employer because the furlough rate may be more advantageous than sick pay, particularly for those who are eligible for SSP only.

If an employee does notify the charity that they are unwell and would not be fit to work, the latest guidance states that it is a matter for the charity to determine whether to keep them on furlough, at the furlough rate of pay or to move them onto sick pay whilst they are ill.

 

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Can the charity make a claim against the Scheme for an employee in receipt of SSP?

No - if an employee is receiving SSP during a period of sickness the charity cannot make a claim against the Scheme for the same period. However if a charity keeps a sick furloughed employee on the furlough rate of pay rather than transferring them to SSP, the charity remains eligible to claim for these costs through the Scheme.

The Scheme should not be used to subsidise pay during short period of sickness absence. The guidance intends for employers only to furlough employees on long-term sick leave, if they fall within a wider group or category of staff who are to be furloughed.

 

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Can the scheme be used to subsidise contractual sick pay?

If contractual sick pay includes SSP, then a claim cannot be made against the Scheme to subsidise the balance up to the furlough cap.

Charities that are struggling financially due to the current circumstances may therefore wish to consider seeking agreement from staff to suspend contractual sick pay temporarily in relation to any new sickness absences.

Alternatively, as the latest guidance suggests that employers are permitted to switch employees from sick pay to furlough and vice versa, if the furlough rate is equal to or better than contractual sick pay, the charity may consider it appropriate to continue furlough pay rather than move the employee onto sick pay. If contractual sick pay would be more advantageous than furlough pay, the employee's consent will be required to avoid the risk of an unlawful deductions claim.

 

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Does sickness interrupt a period of continuous furlough?

The latest guidance suggests that a period of sickness during furlough does not interrupt the furlough period for the purposes of the 'three week minimum' and employees can remain on furlough leave.

 

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Can an employee who is shielding be furloughed?

Yes - the latest guidance confirms that employees who are unable to work because they are shielding in line with public health guidance, or need to stay home with someone who is shielding, can be furloughed. This is a change in the government's position and the Treasury Direction does state furlough leave starts at the end of the original SSP period. Previous versions of the guidance stated that shielding employees should be paid SSP. Advice should be sought if you are seeking to furlough an employee in receipt of SSP.

 

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Can an employee who is on family leave, such as maternity leave, bring that leave to an end in order to be furloughed?

There would appear to be nothing preventing staff from curtailing their family leave in order to be furloughed, and this might seem an attractive proposition to staff who may be better off financially on furlough leave.

Usual notice requirements would apply to bring leave such as maternity leave to an end. However, these notice periods can be varied by agreement between employer and employee. If maternity leave has been curtailed, the employee will not have the right to return to maternity leave when the furlough is lifted.

 

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Can the charity use the Scheme to subsidise enhanced maternity pay?

Yes - the guidance confirms that if a charity pays enhanced (earnings-related) maternity, paternity, adoption or shared parental leave pay, this can be claimed from the scheme.

 

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Does the Scheme apply to employees who joined the charity's payroll after 28 February 2020 following a TUPE transfer?

Yes - the latest guidance has clarified the uncertainty around this point. If individuals became employees of the charity after the Scheme was established due to a TUPE transfer, the charity can furlough them and claim from the scheme if it does not have work to provide to them. The charity will need to ensure that the furlough and any accompanying changes to terms and conditions are due to the impact of the coronavirus and not related to the transfer.

 

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How does the charity make a claim under the Scheme?

Claims must be submitted online. To make a claim the charity will need:

  • to be registered for PAYE online with a Gateway user ID and password
  • its UK bank account number and sort code
  • its employer PAYE scheme reference number
  • the number of employees being furloughed
  • each employee’s National Insurance number
  • each employee’s payroll or employee number (optional)
  • the start date and end date of the claim
  • the full amount it is claiming for including employer National Insurance contributions and employer minimum pension contributions
  • a contact number
  • contact name

 

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What should the charity be aware of when submitting its claim?

By making a claim, the charity is agreeing with HMRC that:

  • the grant received will only be used to pay its employees' salaries and employer National Insurance and pension contributions
  • it will return any grants back to HMRC immediately if it is unwilling or unable to use the funds to pay its employees

The Treasury Direction specifies that payments received under the Scheme must be shown in charity's accounts.

 

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For further advice on legal issues arising from the spread of coronavirus, please contact Joanne Oliver in our Employment team on 0117 314 5361, or complete the form below.

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