On Friday, 20 March 2020, the Chancellor, Rishi Sunak, announced that the government was taking the unprecedented step of helping to pay people’s wages through a new coronavirus job retention scheme (the “CJR Scheme”). The CJR scheme will enable all UK employers to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.

Limited details of the CJR Scheme are set out in the new government guidance published the same day for small businesses and for employees (COVID-19: support for businesses and Covid-19: guidance for employees) (the “Guidance”). We set out below what we know so far and what further clarification is required from the government.

The Coronavirus Job Retention Scheme: an outline of what we know so far

The Chancellor’s announcement was categorical that “any employer in the country small or large, charitable or non-profit, will be eligible” for the CJR Scheme. Unlike the recently introduced scheme to reimburse two weeks’ statutory sick pay (“SSP”), which was limited to employers with fewer than 250 employees as at 28 February 2020, the new CJR Scheme does not appear to be limited to any particular size of employer.

The Guidance states that the CJR Scheme applies to “those employees that would otherwise have been laid off during this crisis”. It is understood that “laid off” for these purposes means either made redundant or otherwise not provided with work or pay. Employees are not allowed to work for their employer while furloughed.

Employers will first need to designate affected employees as “furloughed workers” and then submit their information to HMRC through a new online portal (which has not yet been set up). Most employers will need to obtain the agreement of employees before designating them as furloughed workers. HMRC will reimburse 80% of furloughed workers “wage costs, up to a cap of £2,500 per month”. This reimbursement was described by the Chancellor, and is referenced by the Guidance, as a “grant”, suggesting that employers will not need to repay the sums received under the CJR Scheme. HMRC will make payments directly to employers.

HMRC’s existing systems do not facilitate payments to employers, so HMRC is working urgently to set up a new system for reimbursement. If employers are struggling with cash flow in the meantime, the Guidance directs them to the eligibility requirements for the new Coronavirus Business Interruption Loan.

The Guidance suggests that it is optional for the employer to fund the difference between HMRC’s payment and the employee’s wages/ salary (i.e. provide the 20% top-up). Arguably, without a contractual right to withhold pay, it may be unlawful for the employer not to top-up the employee’s wages/ salary, if the employer can afford to do so.

To which employees will the CJR Scheme apply?

Despite labelling those individuals designated as being on furlough leave as “furloughed workers”, the Guidance suggests that employers will only be able to access financial support in respect of employees and not in respect of other workers in their business.

There is no suggestion that employees will be means-tested before they can qualify for wage protection under the CJR Scheme. The Guidance does not indicate that employees require a minimum length of service with their employer before they may qualify under the CJR Scheme. It would be expected that the CJR Scheme would only apply to employees employed prior to its announcement on 20 March 2020, although this is not stated expressly.

Employers must designate an employee as a furloughed worker: employees will not be able unilaterally to put themselves on furlough leave. Likewise, in most cases, an employer will not have a contractual right to change an employee’s status and will, therefore, need to obtain the employee’s agreement before designating him or her as a furloughed worker. If the alternative to being furloughed is genuinely to be laid off, we expect that all but the most militant of employees will agree to being designated a furloughed worker.

The CJR Scheme will apply retrospectively from 1 March 2020. The CJR Scheme was not announced until 20 March 2020 and many employees were laid off in the intervening period in response to the coronavirus situation. It is not yet known if the government will permit employers to reengage these laid off employees and then immediately designate them as “furloughed workers” and, if it does permit this, whether such employees will be entitled to continuity of service.

“Otherwise have been laid off”

The CJR Scheme will apply to any employee who would otherwise have been laid off (made redundant or provided with no work and no pay). This raises a number of critical questions.

If an employer has been exploring, or has implemented, alternative working arrangements that would avoid the need for employees to be laid off (e.g. short-time working or reduced wages/salary), does this prevent such employers now accessing support through the CJR Scheme? It is unknown how the government will assess which employees would otherwise have been laid off; for example, what evidence HMRC will require an employer to provide in support of its claim for financial support. It is expected that HMRC will require certain evidence before allowing employers access to the CJR Scheme in order to avoid its abuse.

Currently, an employer will likely have a number of employees absent from work for a variety of reasons, all attracting different levels of pay. For example, those employees currently only entitled to SSP (£94.25 per week), or parents of school-aged children now forced to take unpaid parental leave following the schools closures, will almost invariably seek to be designated as “furloughed workers” and, therefore, entitled to at least 80% of pay. However, arguably such employees would not qualify for the CJR Scheme because they would not otherwise have been laid off (at least not for some time); they would otherwise have remained on sick leave or parental leave. Other employees currently receiving no pay, such as those on unpaid maternity leave, may seek to return to work earlier than planned (having served the requisite 8 weeks’ notice) and immediately be designated as furloughed and entitled to 80% pay. It is likely that all of these situations would be prohibited, but it is unclear how HMRC will police the CJR Scheme and indeed whether it has the resources to do so.

Should not undertake work for employer while furloughed

One condition of being on furlough leave under the CJR Scheme is that the employee cannot do work for his or her employer. The CJR Scheme may not, therefore, be suitable for all employers whose businesses are under pressure as a result of the coronavirus crisis. Those employers who still require their employees to do some work, and are only able to pay them for the work that they do, may need to implement short-time working or other pay reduction schemes, even if such schemes result in their employees receiving less than 80% of their pay. This is likely to be unpopular. Such employers may, instead, decide to retain a proportion of their workforce to undertake the remaining work at their normal rate of pay; and designate the other part of their workforce as furloughed workers. In such circumstances, employers are likely to retain their most productive employees, while furloughing the rest. More conscientious and efficient employees are likely to find themselves being required to work, while their potentially less dedicated and able colleagues are being paid at least 80% of their wages/ salary to remain at home. This, again, is likely to be unpopular, especially given the additional risks to health that attending a workplace poses at present.

One potential solution to these problems is to rotate employees in and out of furlough leave. For example, an employer who only requires 50% of his workforce, could designate 50% of his workforce as furlough workers for week 1, and then designate the other 50% of his workforce as furlough workers for week 2, and then continue to alternate; or designate each employee as a furloughed worker for a certain number of days each week and require them to work on the remaining days. The Guidance is unclear as to whether these arrangements would be permitted.

Another potential solution is if the CJR Scheme could be accessed to “top up” the wages/ salary to 80% of any employee subjected to a pay reduction. As currently drafted, the Guidance does not appear to permit this, given that such employees would not “otherwise have been laid off”. However, the government may reconsider this and extend the scheme accordingly.

How is the wage protection calculated?

The Guidance states that HMRC will reimburse 80% of furloughed workers’ wage costs, up to a cap of £2,500 per month. Far greater detail is required from the government to determine to what sum an employee is actually entitled under the CJR Scheme.

Does the £2,500 cap apply to the wage costs after the 20% reduction, or does it apply to total wage costs? What will be included within the term “wage costs”? Where an employee has already been subjected to a pay reduction, would their original wage/ salary apply for the purposes of the CJR Scheme? How is an employee’s “wage costs” to be calculated under the CJR Scheme when the employee’s pay may not be fixed?

One possibility is that the government uses the relatively complex formula for calculating “weekly pay” set out in the Employment Rights Act 1996. From 6 April 2020, the reference period for calculating average weekly pay for an employee with variable pay extends from 12 to 52 weeks. If this longer reference period applies to calculating wage costs under the CJR Scheme, it will in many cases shelter employees who have already suffered reduced pay as a result of the coronavirus crisis.

Looking ahead…

The Guidance does not clarify if furloughed workers will continue to accrue continuous service and other benefits, such as annual leave.

The current situation is unprecedented and many employers have no way of telling how soon their businesses may recover once the crisis passes, if at all. If employees are to continue to accrue service while furloughed, it may encourage employers who are not optimistic about the future recovery of their business, to terminate the employment of any employees with less than two years’ service, rather than designate them as furloughed workers (to avoid them accruing valuable employment rights, including the right to a redundancy payment). This is surely not the government’s intention and this may, therefore, prompt the government to suspend service accrual while employees are furloughed.

For the same reason, the government may be dissuaded from enabling furloughed workers to accrue annual leave while furloughed, to reassure anxious employers that they will not be faced with substantial termination costs, if they no longer require their furloughed workforce after the coronavirus crisis subsides.

Further guidance and legislation awaited

Clearly, far greater detail about the CJR Scheme is required to enable struggling employers to determine whether they will be able to access the support that they currently need. Such detail is required urgently, as many employers around the country are today deciding how best to ensure the survival of their businesses now, while also seeking to preserve a workforce that will assist them in recovering, once the coronavirus crisis is passed.