Under the JRS, the UK Government will fund part of the employment costs of workers who are ‘furloughed’ due to the COVID-19 outbreak.
The JRS was introduced to support employers whose operations are severely affected by the COVID-19 outbreak, and who cannot maintain their current workforce. HMRC will pay participating employers 80 percent of a ‘furloughed worker’s’ pay (subject to a maximum payment of £2,500 per month) plus the associated employers’ NIC and minimum employer pension contributions (but not any associated Apprenticeship Levy). The JRS will operate from 1 March to 31 May 2020 and may be extended. HMRC issued further guidance on the scheme on 4 April, and expect to start processing claims by the end of the month.
Who can participate in the JRS?
Any employer that operated a PAYE scheme on 28 February 2020, is enrolled for PAYE Online, and has a UK bank account can access the JRS.
Employees and other individuals paid subject to PAYE, such as officeholders and ‘workers’ who are not employees, who were on the payroll on 28 February 2020 can be furloughed provided they:
Individuals who were made redundant or who had ‘stopped working’ for their employer after 28 February can be ‘re-employed’ and then furloughed to preserve their job. The wording of this part is unfortunate. The reference to backdating claims to those who had ‘stopped working’ suggests employers can claim the grant for employees who had agreed to unpaid leave or leave on reduced pay, but were not actually dismissed as redundant. However, the reference to ‘re-employ’, suggests that there must have been a dismissal. Clarification is needed over this important aspect of the grant.
HMRC’s updated guidance specifically confirms that individuals can be furloughed if they are ‘shielding’ in line with public health guidelines, cannot work from home and would otherwise be made redundant. Individuals with COVID-19 related caring responsibilities (e.g. childcare due to school closures) may also be furloughed. This is an important extension to the scheme, aimed at some of the practical difficulties many are facing.
Furloughed employees cannot undertake any work for the employer, and so the JRS cannot be used to meet part of the employment costs of individuals who continue to work reduced hours. However, furloughed workers can undertake a new or existing employment with an unconnected employer, as long as their contract of employment permits it.
Workers must be furloughed for a minimum of three consecutive weeks, but can be furloughed more than once while the JRS runs.
How are employees ‘furloughed’?
An employer can furlough some or all of its eligible workers with their agreement. This is done by designating them as ‘furloughed’ in writing and notifying HMRC through a new online portal (expected to be available by the end of April). The 4 April guidance makes it clear that there must be a written record of the agreement, which must be retained for five years.
Normal employment law principles apply, including contractual requirements, anti-discrimination and consultation legislation. Mandatory collective consultation of 30 or 45 days may be triggered depending on the number of affected employees. The COVID-19 outbreak might constitute ‘special circumstances’ meaning those time periods may not apply (and agreement may be reached more quickly), but this is currently unclear. Furloughed workers retain their existing employment rights and continuity of employment.
The employer must pay the furloughed worker the lower of 80 percent of their reference pay and £2,500 per month, subject to the usual payroll deductions. The employer may, but is not obliged, to top up this payment.
What are the practical points?
For full and part time salaried employees, the grant will be based on their actual salary, before tax, as of 28 February.
For employees with variable pay, their reference pay is the higher of the:
Reference pay includes regular mandatory payments such as wages, overtime, fees and compulsory commission. Discretionary payments – such as bonuses and tips – and the cost of benefits in kind are excluded.
During and after the furlough period, if employees cannot return to their duties, redundancy may be considered.
The updated guidance published on 4 April clarifies a number of points relating to the JRS.
As expected, HMRC have confirmed they reserve the right to audit retrospectively so employers will need to take care when submitting claims.
The first claims should start to be processed at the end of April. In the meantime, employers may be able to access funding through other Government cash flow bridge options.
For further information please contact :
© 2020 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organisation please visit https://home.kpmg/governance.