On Wednesday 20th May 2020 the Government issued a further Treasury Direction (the revised Direction) regarding the Coronavirus Job Retention Scheme (the furlough scheme). Whilst the layout and content remain broadly the same (as the first iteration of 15th April 2020), important detail has been added (presumably in the spirit of clarification) seeking to answer various questions on the furlough scheme left begging in the wake of irreconcilable differences between the original Direction and the numerous re-issues of the HMRC guidance (the most recent on 14th May 2020). Some clarity has been provided but by no means all.
Crucially, the revised Direction does not deal with the extension of the scheme to 31st October (announced by the government on 12th May); nor does it touch on the changes that are expected to take effect from 1st August, giving employers the flexibility to return staff to work on a part-time basis.
- The furlough scheme will be extended to 31st October 2020.
- From 1st August 2020, employers will be able to bring employees on furlough back to work on a part-time basis where they make a contribution towards the salaries of their furloughed staff. Employees will continue to receive the 80% of their current wages, up to £2,500 a month.
- The government will release further details of the extension of the scheme to 31st October and how this will be implemented by the end of May 2020.
- The government has released guidance on holiday entitlement and pay during Coronavirus. The legal right to “force” employees to take holiday while on furlough leave remains a controversial issue, even amongst employment lawyers, with differing views proliferating (more on that another time).
- The revised Direction clarifies some issues where the original Direction was in conflict with the HMRC guidance or simply lacking altogether. While it confirms the extension of the furlough scheme to 30 June it makes no mention of the “shape” of the scheme from July onwards. The amended areas are:
- The type of agreement necessary to furlough employees - The revised Direction removes the requirement that an agreement must be in writing. Such agreements can either: be in writing or confirmed in writing by the employer (which includes by electronic means such as email).
The revised Direction requires the agreement to specify the main terms and conditions upon which the employee will cease work.
The revised Direction reflects the position in the guidance that an agreement to furlough can be express or implied and can be made by way of a collective agreement.
The revised Direction states that records of the agreement (or confirmation of the agreement) should be kept until at least 30th June 2025.
- Payments which are covered as “regular wages and salary” - More detail is provided on when amounts reflecting contractual commission, overtime and other similar variable payments can be recovered under the scheme.
The revised Direction now aligns “regular wages and salary” with the HMRC guidance. Helpfully, the unhelpful reference to “conditional payments” being excluded from regular pay has been removed (it was never clear what sorts of payments this might apply to).
The revised Direction clarifies that variable payments based on performance (of the business or individual) covers payments such as overtime, fees, commission or a piece rate, payments for additional responsibilities and payments made in recognition of the circumstances in which the employee undertakes his or her duties or the time when they are undertaken. These payments cannot be claimed for unless they arise from a legally enforceable agreement, understanding, scheme or transaction which prescribes the method of calculating the amount payable (whether or not that involves the exercise of discretion by the employer).
- The relationship between sick leave and furlough - The HMRC guidance says that employees who are currently off sick can be furloughed for business reasons. This applies to both short-term and long-term sick leave. The employee would then no longer receive sick pay and would be paid the same as other furloughed employees. However, the guidance also says that furlough is not intended for short-term absences from work due to sickness, and short-term illness or self-isolation should not be a consideration in deciding whether to furlough an employee.
The original Direction was inconsistent, seemingly saying that an instruction to furlough an employee receiving or entitled to SSP (whether or not a claim was made) would not take effect until the SSP entitlement had ended.
The revised Direction says that an instruction which puts an employee who is receiving (or due to be paid) SSP on furlough does not take effect until this SSP period is ended, provided that ‘the time of the end of that period of incapacity for work is determined by an agreement between the employer and employee’. This suggests that an employee who is eligible for SSP can be put on furlough provided the employer and employee agree to end SSP and move to furlough.
If an employee becomes sick while on furlough, it is up to the employer to decide whether to move them onto SSP or to keep them on furlough. If the employee remains on furlough, the employer can continue to claim their salary through the furlough scheme. The guidance does not say anything further about the amount the employer can claim through the furlough scheme if it chooses to keep an employee on furlough rather than moving them onto SSP.
The original Direction seemed to suggest that even if the employee is not moved onto SSP, the furlough claim must be reduced by a notional amount to reflect the SSP that would have been paid. The revised Direction has removed this wording, making the revised Direction consistent with the guidance. An employer can claim the full furlough grant in respect of an employee who is kept on furlough despite falling ill.
- The relationship between unpaid leave and furlough - The revised Direction has clarified the situation regarding unpaid leave. Employees cannot be on unpaid leave and furloughed simultaneously. Where the unpaid leave started before 1st March, furlough cannot begin before one of the following has happened:
- the unpaid leave has ended on a date agreed or contemplated at the start of the leave;
- where the duration of the unpaid leave was uncertain when it began, because it was intended to end when something happened, that event has occurred; or
- the unpaid leave has expired on a date (or on the occurrence of an event) set out in an agreement or arrangement reached after the start of the leave and before 20 March.
- Permissible training during furlough - The revised Direction includes further detail on what study and training activities can be undertaken by employees on furlough:
- Training will not count as work where the purpose of the training is to improve an employee’s effectiveness or the performance of the employer’s business.
- But such training will count as work if it provides services to the employer or the employer’s business activities or if it contributes to the employer’s business activities or generates revenue.
- Further, the training must not contribute (to a significant degree) to the production of any goods the employer intends to supply (as part of the provision of goods or services) or to the supply of any services for which consideration is received.
- The activities of pension scheme trustees - The revised Direction makes specific provision to allow independent pension scheme trustees to fulfil their duties while on furlough without this counting as work. This exception will not apply where the employee is fulfilling their duties as an independent trustee and their employer’s business activities include providing the services of trustees/managers or undertaking duties as an independent trustee.
Alas, the revised Direction remains the almost impenetrable document that was its predecessor, of 15th April. One particular area that cried out for clarification remains: the lack of provision relating to pay for furloughed employees on family leave (maternity/paternity/adoption and shared parental leave etc) who were not fixed rate employees (as defined in both the original and revised Directions). This lacuna may pose problems for meeting the furlough scheme reimbursement requirement that employees are paid at least the minimum amount of 80% of gross pay capped at £2500. In short, there has been further detail added to the original Direction but it remains a highly complex read where clarity and simplicity were needed.