In this latest note, we are dealing with Furlough and then Self Employment.
In recent days the Government has announced a range of financial support options to help employers navigate the current COVID 19 outbreak. These unprecedented measures can provide an essential lifeline for businesses and their employees who would otherwise be made redundant because of the current crisis, but understanding all the implications, and what your business can apply for, can be complex. We have responded to many requests for help in understanding what it means to furlough your employee under the newly announced Coronavirus Job Retention Scheme and what you can and cannot ask them to do.
First, the decision to furlough an employee is for the employer to make, not the employee and, whilst a worker may suggest they should be placed on or considered for furlough leave, it is for the employer to identify and determine the relevant people on the basis of roles. The scheme is designed to mitigate the need for widespread redundancies and to support those people who would otherwise be made redundant immediately or put on a period of unpaid lay-off leave, because there is no work for them to do. The furlough scheme is open to all UK employers that had a PAYE scheme in place at the end of February 2020. Any organisation with employees can apply. With agency employees, the scheme is only available for agency employees who are not working.
Any furloughed employee remains employed, but they cannot undertake ANY work for their employer during furlough leave. This is a crucial point, so employers need to be very mindful of what work, if any, is available and still needs doing, and who should normally be performing these duties before making decisions about any furlough population. Employees are, however, able to undertake training and do volunteer work providing they do not provide services or make money for their employer.
When considering any changes to an employee’s terms of employment (including hours of work), if the contract of employment does not allow for that, normal employment law will apply, as unilateral changes to contracts of employment without agreement would be a breach of contract and give rise to potential claims. Therefore, assuming an employer determines that there are employees who fall into the category of being furloughed, they must first seek agreement from the employee to be designated a furlough worker. It is likely in the circumstances that the employee will agree, where the alternative could be redundancy or a period of unpaid leave, but it is worth remembering that all existing employment law remains in effect and so any designation may be subject to negotiation.. However, on the basis that the employee agrees to be furloughed, the employer should issue them with a furlough agreement confirming their change in status.
Employers can reclaim up to 80% of wage costs up to a cap of £2,500 per month, plus (not including) the associated employer NICs and minimum auto-enrolment pension contributions on that wage. Fees, commissions and bonuses are not included.
The employer can decide to top up this payment, but this is not a requirement. Payments can be backdated to the 1st March 2020, with the scheme being reviewed at the end of May 2020. For the avoidance of doubt, the £2,500 paid to an employee is a gross amount; employee tax, NI and pension contributions will be deducted from the £2,500.
Employees on maternity or similar leave can continue to draw SMP. The guidance does not prohibit women on maternity leave agreeing to return to work early and then being furloughed or electing to change to shared parental leave and later being furloughed.
Furlough leave must be taken in minimum blocks of three weeks to be eligible for funding.
There is nothing in the guidance which prohibits rotating further leave amongst employees, provided each employee is off for a period of at least three weeks.
Central to the Coronavirus Job Retention Scheme is the fact that the employee cannot work during the furlough leave period so employers cannot use top up payments as trade-off to ask the employee to perform some duties. Further, it is worth noting that an employee who is currently on a period of sick leave or is self-isolating due to the COVID 19 outbreak, should be in receipt of company sick pay or SSP rather than pay under the furlough scheme.
Undoubtedly, the Coronavirus Job Retention Scheme offers genuine support to employers and employees during this extremely challenging time. Whilst there are obvious benefits to employees who would otherwise be made redundant, it will also help businesses get back to ‘business as usual’ as quickly as possible following the outbreak. It goes without saying that an employer who has had to make significant decisions about its workforce because of an immediate financial impact to their workflow will be substantially hampered in getting operational again quickly with insufficiently trained and skilled resources to draw upon. Whilst the benefits of the scheme seem obvious, it is still important, however, to approach consultation on this matter sensitively with employees. At this time no one knows how long any business disruption might last and what implications there could be in the future. A good employer will keep in touch with furloughed employees during the period of leave to provide important business updates and communication. Remember that being out of the regular business information loop can be extremely isolating for people, so whilst employers cannot ask furloughed employees to work, they should still be communicating in a thoughtful and timely way with those who are not currently working.
The Chancellor announced that the self-employed will receive a tax grant based on average monthly profits over the last 3 years, worth up to 80% percent of earnings (up to a limit of £2,500 per month). This will cover a minimum of 3 months and comes into effect in June. Please note that the self-employed who make more than £50,000 per year in tading profits are excluded from the scheme. The 80% of earnings includes NI and pension contributions in any event.
The income will be calculated by taking the average income over the last 3 years. Self-employed people can claim these grants and continue to do business, so it is not the same as furlough leave where employees have to remain out of work.
Please note that the scheme is only open to those who make the majority of income from self-employment. If someone is employed but has a side job, where they are self-employed, they will not be eligible.
Note also that the scheme is only available to those who have submitted a tax return for 2019. Those who did not submit their tax return by the due date of 31st January 2020, and have still not submitted one, can still submit their return now within a further four weeks.
No individual needs to take any further steps at this time. The HMRC will contact eligible self-employed individuals directly and will pay the grant straight into their bank account after inviting them to fill out an online form.
The important thing in all this is not to just consider the legal aspects, but also to consider the mindset of the individuals. There has never been anything more important than to realise that it is impossible to over-communicate or over-consult, and that consent has to be sought to make contractual changes. It is good to record everything in writing, and best continually to review and stay in touch with staff.
We are partnering closely with our clients on all aspects of the current changes and have developed a number of templates and support resources to help navigate the situation including drafting furlough leave agreements and best communications strategy. To access these support materials or discuss your company’s specific requirements please do get in touch.
A number of business support measures have been made available by the Government to UK businesses, information on which is not always straightforward to come by. This includes the following:
The Coronavirus Business Interruption Loan Scheme allows companies with turnover of up to £45 million to access loans or other finance of up to £5 million, for up to six years. The Government will also make a Business Interruption Payment to cover the first 12 months of interest payments and any lender’s fees. These loans are likely to be available for SMEs that were profitable before Covid 19 and are now facing temporary difficulties, subject to British Business Bank eligibility criteria.
The Start-Up Loan Scheme provides eligible businesses up to £25,000 per director, up to a total of £100,000 per company. This is targeted at start-up businesses that have been trading for fewer than two years, and offers no early repayment fees, no set-up fees and a fixed interest rate of 6% per annum.
In addition, businesses in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service.
UK Government: https://www.gov.uk/government/publications/covid-19-guidance-on-social-distancing-and-for-vulnerable-people/guidance-on-social-distancing-for-everyone-in-the-uk-and-protecting-older-people-and-vulnerable-adults
UK Government: https://www.gov.uk/government/publications/covid-19-specified-countries-and-areas/covid-19-specified-countries-and-areas-with-implications-for-returning-travellers-or-visitors-arriving-in-the-ukincluding information about ‘high risk’ countries/regions and information for people travelling overseas.
World Health Authority: https://www.who.int/emergencies/diseases/novel-coronavirus-2019
Government: Guidance for Business https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19