Following the recent Chancellor’s unprecedented announcement about the Government covering up to 80% of employee costs if your business has no work for them, this will be a much needed lifeline for many of our clients during the current crisis. However, this does come with certain conditions which will require changing your existing employment contracts.
What is the Coronavirus Job Retention Scheme?
This is an entirely new scheme, which will be administered and operated by HMRC. Like any new system, there will likely be teething problems and on the basis that HMRC is not really set up to make payments to employers, it will require an entirely new payment portal to be set up.
The earlier you are able to apply to the scheme, the earlier you are likely to receive the payment. Given this, we are therefore urging everyone to regularly check HMRC guidance and to sign up for the portal as early as possible.
Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis. At present the scheme is open to all UK businesses and applies to all employees listed on your PAYE as of 26th February 2020. Payments under the scheme will be backdated from 1st March 2020.
How Do Businesses Access These Funds?
The process is as follows:-
- IDENTIFY AFFECTED EMPLOYEES – establish those employees who have no work to undertake as a direct consequence of coronavirus and were on your payroll on 26th February 2020;
- CHANGE THE STATUS OF EMPLOYEES – you will need to change the designation of those affected employees to ‘furloughed workers’ – this can only happen with the agreement of your employees and will result in a change to existing terms and conditions of employment. We have covered off how you do that below.
- NOTIFY HMRC – you will require to submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required which is why you need to ensure that you are keeping a close watch on when this portal is up and running).
Once you have done that, then HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month per employee and can be backdated to 1st March 2020.
How Do Businesses Change Existing Terms and Conditions of Employment?
Firstly check your existing terms and conditions of employment. What you are looking for is a clause confirming that you are able to vary the existing terms and conditions simply by notifying the employees. HR Services Scotland Ltd have this standard clause within their template contract which reads as follows:
“CHANGES IN TERMS OF EMPLOYMENT
The Company reserves the right to alter the terms and conditions of employment. Any changes to your terms and conditions of employment will be confirmed in writing by management.”
If there is no such term within your existing contracts of employment, then you will need the agreement of employees before the change can be implemented.
If your workforce are unionised or there is a collective agreement in place, then this is slightly more complicated, so please feel free to contact a member of our HR team for further discussion.
If there is no recognised trade union, then you will need to communicate with your staff. You need to make it clear:-
- what change you are proposing,
- why you are proposing to make that change,
- when that change will take effect,
- who is likely to be affected by that change and
- for how long that change will be in place.
We would ideally advise that you should give your employees an opportunity to provide you with any comments or questions rather than just imposing the change, however in the current climate it may be possible simply to impose the change on your employees. If you are in any doubt on this, then please contact a member of our HR team.
To acknowledge the change, you will need to get your employees to sign a letter confirming that they are in agreement with the change. We can assist with letter templates that you are able to issue to employees.
In the current climate, employees faced with losing their job, or at least getting a fair proportion of their wages are likely to take a pragmatic approach.
Are there any other steps employers can take?
If you are in the process of changing terms and conditions of employment, it might be prudent to consider whether or not there are any other changes that can be added at this point. The contractual ability to lay off staff, or to impose short-time working is something you may want to consider if that is not already covered as a clause in your current contracts.
Whilst we can benefit from the terms of the Job Retention Scheme, looking to the future, there may be a requirement to consider laying off staff, rather than making them redundant. You can discuss the benefits of lay-offs and short-time working with any member of our HR team.
In the event that any employees are on long term sick leave, maternity leave, adoption leave or any other type of statutory leave, this will continue to apply as normal.
What if employers have already laid off staff or put them onto short-time working?
If the employee’s status has been changed to ‘furloughed’ then they would be eligible to receive 80% of their contractual pay. If a lay-off has already occurred or a pay cut has already been issued, we would suggest reversing the lay-off decision and/or pay cut prior to changing status to ‘furloughed’.
Are your employees allowed to volunteer or undertake other work whilst they have been furloughed?
Maybe. If the existing contract allows employees to undertake other work whilst employed by you, then provided those employees follow Government guidance on social distancing and self-isolation, as well as adhering to any updated or subsequent guidance on a full lock-down, then it would be possible for them to undertake other voluntary or paid work.
At present, there will be a considerable requirement for volunteers across the entire country and it would be good for all employers to let their staff make their positive contribution for this crisis.
If there is work for these furloughed employees, will they still be eligible for the 80% payment?
At present, no details are available. For those employees who are able to work and assuming there is work available for them to do, then they will simply be paid as normal. If there are occasional or temporary projects or work assignments, then it seems unlikely that HMRC will still pay any contribution to their salary payments during that period of work, but we will clarify that point once more information becomes available.
As an employer, do I need to top up the salary to 100% of what they are currently getting?
Whilst the government are encouraging employers to pay the balance to employees, this is entirely voluntary, however technically if the employee is available to work, then they are entitled to be paid, so that 20% reduction in salary may be regarded as an unauthorised deduction from wages, depending upon what is in the contract of employment.
Can the employees choose to stay at home and be furloughed employees?
No, it has to be determined by the employer.
How long will this scheme be in place?
The Chancellor has announced that it will be in place for an initial period of three months, however has indicated that he is open for this to continue, depending upon the need.
What if those furloughed employees become unwell?
If one of your furloughed employees becomes unwell, then we assume that the normal rules in relation to incapacity for work will apply. It is much easier now to get an isolation note from NHS 111, which confirms that you are required to self-isolate. If an employee provides you with that isolation note, then they should move onto SSP, which is payable from day 1. Having said that, if an employee is receiving 80% of their salary and does not require to attend work, then it is unlikely that they will advise you of the requirement to self-isolate.
Can employers class their self-employed sub-contractors as furloughed employees?
No. It is expected that HMRC will be looking for evidence of employment and of income tax and National Insurance contributions going through your PAYE payments. At present we are not aware of the exact terms of the Scheme, but it is unlikely that you will be able to offer those sub-contractors the opportunity to become employees. We will digest the terms of the scheme and if that is possible, we will let you know.
What protection is in place for any self-employed sub-contractor?
For any individual, income tax self-assessment, payments normally due on the 31 July 2020 will be deferred until the 31 January 2021. No penalties or interest for late payment will be charged in this deferral period.
HMRC have also scaled up their time to pay offers to all individuals (and firms) who are in temporary financial distress as a result of Covid-19 and have outstanding tax liabilities.
What about my business if I am self-employed?
As well as the income tax-self assessment payments being deferred, there are a couple of other measures that have been put in place, such as deferring VAT and Income Tax payments. If you pay VAT, then you will be allowed to defer any payments for a period of 3 months. You should speak to HMRC as soon as possible to confirm the deferment of any VAT and also any income tax payable for your employees.
In addition to that, a new temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, will launch early next week to support primarily small and medium-sized businesses to access bank lending and overdrafts.
The government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £5 million in value.
Businesses can access the first 12 months of that finance interest free, as government will cover the first 12 months of interest payments.
You are eligible for the scheme if:
- your business is UK based, with turnover of no more than £45 million per year
- your business meets the other British Business Bank eligibility criteria
The full rules of the Scheme and the list of accredited lenders is available on the British Business Bank website. All the major banks will offer the Scheme once it has launched. There are 40 accredited providers in all.
You should talk to your bank or finance provider (not the British Business Bank) as soon as possible and discuss your business plan with them. This will help your finance provider to act quickly once the Scheme has launched. If you have an existing loan with monthly repayments you may want to ask for a repayment holiday to help with cash flow.
The scheme will be available from Monday 23 March 2020 and will be backdated to 1st March 2020 for those eligible.