Client Alert

PH COVID-19 Client Alert Series: U.K. Government Publishes New Guidance on Coronavirus Job Retention Scheme

March 27, 2020

By Suzanne Horne, Kirsty Devine & Katie Cleworth

Information, guidance, and the potential response to COVID-19 is changing rapidly. The below reflects the position and related guidance as of March 27, 2020.

This communication constitutes the next instalment of our Client Alert series considering the legal and business impacts of the 2019 Novel Coronavirus (“COVID-19”), commonly referred to as the “Coronavirus.” This communication focuses on those issues facing U.K. employers with respect to their workforce. For issues involving other operations in the U.S., please contact Elena Baca.

The U.K. Government has now published new guidance on the eligibility criteria and other details relating to the Coronavirus Job Retention Scheme (the “Scheme”) announced on 20 March, 2020. As many will be aware, the Scheme provides that HMRC will reimburse U.K. employers for 80% of furloughed employees’ pay up to £2,500, covering any type of contract, including full-time employees, part-time employees, employees on agency contracts, and employees on flexible or zero-hour contracts. Further details are set out here.

The new guidance provides U.K. employers will some clarity on a number of key areas of uncertainty:

  • The Government is aiming to implement the Scheme by the end of April 2020.

  • To be eligible for reimbursement, the employer must have had a pay-as-you-earn (“PAYE”) payroll scheme in place on 28 February 2020 and the furloughed employee(s) must have been on payroll on that date. To help avoid any potential abuse, employees hired on or after 28 February 2020 are excluded from the remit of the Scheme. All individuals who are engaged through the employer’s PAYE system are covered by the Scheme, including, for example, those on zero-hour contracts.

  • In addition to reimbursement of the lesser of 80% of gross wage costs or £2,500 per month, the employer is able to recover the employer’s National Insurance Contributions at a rate of 13.8% on the sum paid and the employer’s mandatory auto-enrolment contributions of 3% on the same. Fees, commission and bonuses will not be reimbursed.The Government has now stated that as employees are only entitled to National Minimum Wage (“NMW”) for hours worked, it is irrelevant if the 80% of gross pay is below the applicable NMW rate. However, employees are entitled to NMW for any training carried out during the furlough period. The reimbursement will be made every three weeks, not on a weekly basis.

  • For employees with regular hours, the reimbursement of 80% of salary is based on their gross salary as of 28 February 2020. For those employees with irregular hours, the 80% of salary is based on the higher of: (i) gross earnings in the same pay period in 2019; or (ii) the average gross earnings in the 2019/2020 tax year (or their period of employment, if shorter).

  • Employees cannot unilaterally designate themselves as furloughed—the relevant employer and worker must agree to this status change. The employer’s decision as to who to designate should not be based on any protected characteristic. Instead, the employer should select employees for furlough leave based on fair and objective criteria.

  • Employees in receipt of sick pay or those self-isolating cannot be furloughed, but they can be furloughed once they are capable of returning to work. The Scheme also provides that an employer can also re-employ workers who have been made redundant since 28 February 2020 and then designate them as furloughed.

  • Employees on family leave can continue to receive their statutory pay entitlements (such as Statutory Maternity Pay) as usual.

  • Employees must be furloughed for a period of at least three weeks. Employers can rotate furloughed employers on a three-week basis (or longer) if they are minded to do so.

  • Once furloughed, the employee cannot carry out any work for their employer during the furlough period but they are permitted to volunteer or train during this time, provided that this does not generate any income for the employer.

  • The Scheme is only available for agency employees who are not working.

Although the further guidance goes some way in clarifying aspects of the Scheme, there remains some uncertainty and challenges posed by the Scheme. For example:

  • Employers may be obliged to collectively consult with elected employees or trade union representatives, in the event the employer is proposing to furlough 20 or more employees.

  • It is unclear how the Scheme works if a furloughed employee becomes sick during the furlough period or requests to take accrued holiday.

  • How precisely the scheme will operate for those employees who have been dismissed since 28 February 2020. For example, it is assumed that if one week has passed since their dismissal that their period of continuous employment restarts from the date of re-hire but it is unclear whether the employer will be required to provide them with another notice period or payment in lieu or can limit this to statutory notice.

This new guidance is hot off the heels of the U.K. Government’s announcement yesterday of the new “Self-Employed Income Support Scheme,” which provides a bailout for self-employed workers in the U.K. The self-employed bailout creates financial parity with the Scheme, by providing 95% of the U.K.’s self-employed workers with a taxable monthly grant amounting to the lesser of 80% of their monthly profits (calculated by reference to average income over the past three years) or £2,500, for a period of at least three months. Those eligible will receive the monies in June 2020, if they meet the eligibility requirements.

As is evident from these two unprecedented interventions, U.K. employers seeking to manage their workforce, on-payroll and off-payroll costs, are doing so against a backdrop of a rapidly changing and dynamic employment law landscape. At the same time, we are also seeing governments around the world deploying similar measures as they endeavour to mitigate the impact of COVID-19 on the workplace and their economies. Therefore, it is imperative for employers to ensure that they are up-to-date before implementing any new employment actions to avail themselves of the available financial support and avoid unnecessary costs.

If you have questions about your U.K. workforce, or your workforce in other non-U.S. jurisdictions, please contact the International Employment Team and we shall provide you with the latest updates from the various jurisdictions.

Click here to read more from our Coronavirus series.

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