UK Coronavirus Job Retention Scheme: Significant Developments
There have been further significant developments in relation to the UK Coronavirus Job Retention Scheme:
First, the Scheme is now live and can be accessed here.
Secondly, the Scheme itself has been extended until the end of June 2020.
Thirdly, the eligibility cut-off date has been extended from 28 February 2020 to 19 March 2020 (the day before the Scheme was announced). It brings more employees potentially into scope of the Scheme, provided they were on an employer’s payroll on or before 19 March, and in respect of whom the employer had also made a real time information (RTI) submission to HMRC on or before that date.
Fourthly, HMRC has provided some clarity on taking holiday while on furlough. The updated Guidance for Employees states that employees can take annual leave while on furlough, with the employer having to ‘top up’ to 100% of normal pay. Employers can however, agree to vary an employees’ holiday pay entitlement as part of the furlough agreement. HMRC confirmed that the position on holiday pay and furlough is “under review”.
A notable discrepancy has arisen between the HMRC Coronavirus Job Retention Scheme Guidance, on which employers furloughing staff have relied, and the Treasury Direction that has now been issued to HMRC setting out the legal framework for the Scheme. That discrepancy relates to the nature of the written record of the furlough arrangement that the employer is required to have and retain. We discuss this in further detail in this alert.
HMRC has issued its sixth update to the Coronavirus Job Retention Scheme Guidance (Guidance). Separately, the UK Treasury has issued a Treasury Direction (Direction) to HMRC setting out the legal framework for the Scheme. The documents in their current form (and which are subject to further revision) can be accessed here and here respectively.
There are few points that have been clarified in the Guidance, but there is one glaring inconsistency between the Guidance and the Direction that will be of understandable concern to employers – the requirement that there is a written record of the furlough arrangement.
Written Record: What the Guidance and Direction Say
The Guidance that employers have been working to says:
“There needs to be a written record, but the employee does not have to provide a written response. A record of this communication must be kept for five years.” The Direction says:
An employee has been instructed by the employer to cease all work in relation to their employment only if the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment.
Spot the difference.
The Guidance requires that there is confirmation in writing from employer to employee that the employee has been furloughed i.e. a one-way communication.
Whereas, the Direction potentially implies that there must be a two-way express written agreement that the employee will cease all work.
Potential Impact on Employers: Is Express Employee Consent Required?
Many employers, particularly those furloughing large numbers of employees (and against the backdrop of acute business difficulties) have informed employees in writing of the arrangements, told them the start date, and invited any queries or concerns before that date.
In doing so, they have relied on the conventional principle that an agreement does not have to be in writing in order to be legally effective. Agreement can be verbal, or implied by conduct.
Given the unprecedented circumstances, it has been almost universally accepted that consent could be implied where an employee was informed in writing that they were to be furloughed, were given the opportunity to raise any queries or concerns before that date, but did not do so and continued in employment.
Consistent with the Guidance, that was a sensible, pragmatic approach given the unprecedented circumstances, in the face of acute business difficulties and, in some cases, the number of employees involved and the likely impossibility of ensuring that each and every employee would respond, regardless of whether they in fact objected.
If the Direction means that a significant proportion of employers can now not claim under the Scheme, that would be a significant and retrospective change in position at the 11th hour, with the portal having opened today.
What Should Employers Do?
First of all, don’t panic.
If you look at what the Direction actually says, it’s clear that the harm it is trying to avoid is unscrupulous employers claiming under the Scheme when employees are in fact still working.
The requirement is for the employee to agree in writing that they will cease all work. It is not for the employee to agree in writing to be furloughed, possibly on reduced pay and so on. In addition, this requirement is not included in the list of specific information required to make a claim.
So, employers who do not already have express consent have the following key options at this stage:
Leave things as they are and trust that HMRC will not penalise any employer who has properly followed the Guidance to employers that it, itself, issued.
The Guidance was amended shortly after the Direction was published to provide that “but the employee does not have to provide a written response”.
We think it safe to assume that the amendment was made in response to immediate concern that the Direction seemed to require express written consent, which many employers did not have, and could not realistically expect to obtain.
Given this, employers who have a written record of the instruction to furloughed employees not to work, may well sensibly decide to rely on what they have done already.
That said, it is the Direction that has legal force and a government subsequently trying to limit, or even reclaim, the amount it is paying out under the JRS could enforce the requirement. However, given that the Guidance was amended after the Direction was issued, any attempt by HMRC to reclaim on this basis would be subject to sound challenge.
Ask all employees to sign a formal express agreement to not undertake any work and be furloughed. This would achieve precise compliance with the Direction, but would be more than required by the Guidance.
The reality for employers, particularly those with large workforces, is that they will not get 100% return rate. In addition, many employers have withdrawn IT access to furloughed employees.
Therefore, although this is the “safest” option, it will be impractical for many employers.
Adopt a middle ground. Send employees an email (which is expressly permitted by the Direction) reiterating that they are not permitted to carry out any work while furloughed, and asking them to respond confirming that they have not done any work for the employer during the furlough period and will not do so.
To the extent an employer has not done this already, this does what the Government seems to want, which is being able to show that: employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment but does not get into issues that might be more contentious such as in relation to pay or why they have been selected for furlough.
For those employees who do respond, the employer can say that they are in compliance with the Direction. If employees do not respond, then the employer is still in compliance with the Guidance.
Employers who expect to keep employees on furlough for some time could send this instruction email every couple of weeks, so that it can demonstrate ongoing compliance throughout the duration of the furlough period.