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Coronavirus Job Retention Scheme – Key issues for employers

Coronavirus / 22 March 2020

This update reflects the position as at 22 March 2020

On 20 March 2020, the Chancellor announced an “unprecedented” package of measures for employers. By the end of April 2020, the Coronavirus Job Retention Scheme (the “Scheme”) will enable employers to access grants from HMRC to allow them to reclaim 80% of their staff’s gross salaries, up to a maximum of £2,500 a month per employee (backdated to 1 March 2020).  The Scheme will run for three months (but this period may be extended).

The Scheme aims to prevent employers from permanently laying off staff or making redundancies during the coronavirus outbreak.  It applies to all staff members who are on an employer’s PAYE system and to all employers irrespective of size, including those in the charity and non-profit sectors. However, we understand that public sector employees are not covered because most of them have their salaries paid directly or indirectly by the government.

The Scheme will be a welcome relief to employers who are facing significant financial struggles in the current climate.  However, the benefit of the scheme will be less significant for employers with high proportions of employees who earn well in excess of the salary cap.

We set out below what we know about the Scheme already together with a number of important issues which, at this early stage, we do not yet have full guidance on.  Clearly, responses to some of the issues discussed below may change once the government issues further guidance.

Summary of the Scheme

Under the Scheme, employers will need to:

– Designate affected employees as “furloughed workers” and notify employees of this change; and

– Submit information to HMRC about the employees that have been “furloughed” and their earnings through a new online portal (HMRC have said that they will set out further details of the information required here).

However, there are a number of complex issues at play here, not least because the government has made it clear that designating an employee as a “furloughed worker” remains subject to existing employment law and, depending on the wording of individual employment contracts, may be subject to negotiation.  It would seem, therefore, that the Scheme will not give employers the automatic right to lay-off their employees and expect the government to pick up the salary costs.

In addition to this, whilst there are clear (but complicated) lay-off rules in the UK, the concept of “furlough” is a US term and is not specifically covered by UK law. Employers will need to consider the Scheme carefully and should take legal advice on the specific impact for their business.

Key issues

We hope to see the government set out further details of how the Scheme will work in practice in the coming days (although it has not given a timeframe for this).

In the meantime, a lot of significant questions remain unanswered.  Some of the key issues that employers will need to consider are:

1. The Scheme would appear to apply only to employees who are no longer working.  Some employers will have already negotiated short-time working or other variations to employment contracts (such as reduced hours) in order to achieve a level of financial stability during this period.  Employers will need to consider whether they can re-negotiate again with employees and potentially agree new terms making use of the Scheme.

2. Some employers will have already commenced redundancy processes.  Should they delay those processes while the Scheme is running?  The government has made clear that its aim is to prevent mass redundancies.  It would therefore appear risky to continue with redundancy processes in the current climate, and any redundancy exercises are likely to be judged against the complete factual background, including the government’s strong message that employers should pause before taking drastic action, when determining any unfair dismissal (and possibly discrimination) claims.

Assuming that notice has not yet been served on “at risk” employees (and even if it has), employers should discuss the Scheme with them as part of the consultation process and agree to either carry on with the redundancy process (recognising the risks associated with this) or agree to use the Scheme as an alternative.

Should the business decide, at a later point, that redundancies are still necessary, they should take legal advice at that stage on the associated risks.

3. Employers may have introduced (or already have in place) policies offering additional paid leave linked to the current crisis.  If you continue to pay salary under these policies, employees are likely to fall outside of the Scheme.  You may wish to consider whether to proceed with such policies until such time as there is more clarity about how they will interact with the Scheme.

4. We do not know whether employees will be restricted from taking on other/new work whilst receiving a salary under the Scheme.

5. It is likely that the Scheme will not interrupt an employees’ continuity of service.  Likewise, annual leave will continue to accrue whilst staff remain employed.

6. The government has said that employers can choose to make up the remaining 20% salary.  However, we interpret this to mean that they do not have to do so.

7. How will salary be defined?  We presume this will be defined as basic salary only, but we await further details on this.

8. Employers with zero-hours workers will need to carefully consider how their pay is calculated (bearing in mind that the reference period for workers with variable working patterns is changing from 12 weeks to 52 weeks from 6 April 2020).  It is likely that the Scheme will cover zero-hours workers (given its stated wide ranging scope), but there may be practical calculation issues for employers to overcome.

9. Employers can ask senior employees and senior management to take a pay cut where their other staff are receiving 80% salary under the Scheme, although you would need to reach an agreement on this.  Any pay reductions will need to operate fairly so as to avoid the risk of discrimination and/or equal pay claims.

10. It is currently unclear whether the maximum salary can be £2500 and employees will receive 80% of that, or whether employees earning up to £3125 per month will receive 80% of that figure (which is £2500).

There will no doubt be many more questions from employers as the Scheme gets up and running. We will bring you analysis of further developments in due course.

The situation is fast-evolving, and every situation is different.  Our experts are fully up to date with latest developments and ready to provide commercially driven advice should your business require it.

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