IDR | 02 Apr 2020

How does the Coronavirus Job Retention Scheme work?

Many employers up and down the country are grappling with the Government’s recently announced Coronavirus Job Retention Scheme (CJRS). The announcement was welcomed by many; however, it also raised a number of questions, not least concerns over which elements of pay are covered, how staff affected by the latest increase in statutory minimum rates will be paid, and the possibility that redundancies might need to be considered further down the line. Details of how the CJRS will work in practice are now starting to come through now and we provide a guide for employers below.

According to Government guidance, for any worker who is put on furlough, employers can claim back the following as of 28 February: 80% of an employee’s actual gross salary excluding fees, commission and bonuses (capped at £2,500 a month); employers NI contributions on that 80%; and the statutory 3% minimum employer pension contribution under auto-enrolment on that 80%.

Employers can choose to top up wages to more than 80% but if they opt to pay less than an employee’s normal wage, technically they have to gain agreement from the worker to do since this would represent a change to terms and conditions. That said, for the majority of staff (particularly newer staff with fewer years’ service who either do not qualify for redundancy pay or will only be entitled to relatively small redundancy payments) the choice between a 20% temporary pay cut and redundancy presents little in the way of real choice.

Employers have to notify staff of their changed status to ‘furloughed worker’ and keep them on the payroll. This can also include workers unable to work due to a lack of childcare. As a furloughed worker, they must not perform any work for or on behalf of their employer. The employer remains responsible for paying staff and HMRC will provide a reimbursement retrospectively. Furloughed workers can only work for another organisation on the basis that they first inform their own employer and, if the employer agrees, they may be liable to repay any sums paid to them under the scheme if the employer becomes liable to repay them to the Government. Furloughed workers can take part in volunteering or training, including for their current employer but this must not involve revenue-generating work or providing services.

What about the NMW/NLW rise?

Those employers affected by the latest increases in the statutory minimum rates will be wondering how this affects furloughed workers’ pay. In respect of the official wage floor, furloughed workers are in a slightly odd position. The legislation specifies that workers are entitled to the NLW/NMW for every minute that they work or undergo work-related training. However, under furlough leave they will not be undertaking any work. Therefore, employers have the option of raising rates for furloughed workers with effect from 1 April 2020, the date of the increase in the minimum wage, or they can defer pay rises for staff affected by the NMW/NLW until they return to work. We will be presenting evidence on employers’ actual practice when we publish the results of our survey, ‘What happens to pay in a pandemic?’, very shortly. 

What about future redundancies?

It is also possible to backdate the furlough period to 1 March for staff who had been made redundant after that date as long as they had been on payroll as at 28 February. In these cases, employers effectively re-employ those made redundant and retrospectively put them on furlough. But what about the possibility of future redundancies, if business does not recover? Some employers, at least initially, wondered whether there might be some kind of trade-off between government support and a longer-term commitment from employers to avoid redundancies and keep staff that had previously been furloughed employed for a set period of time thereafter.

Furloughed employees continue to accrue and retain their statutory rights, including the right to redundancy payments. This means that a furloughed employee can subsequently be made redundant. But the longer that isolation and social distancing measures are required, the greater the chance that the scheme could be extended from its current three months. The difficulty for employers is that while it helps with cashflow, it doesn’t help with maintaining workflows since furloughed employees are, by definition, barred from working for their employer. As such, it is unlikely to protect the worst affected firms from the associated slump. But it could be important in seeing many companies and their workers through the critical phase of the crisis.

The figure of 80% has been chosen to balance between the needs of workers and Government finances, and while many companies will top up pay to above this level, some may not. Also, the Government has been slow to develop an extension of the scheme for the various categories of self-employed workers, including those who have little choice but to take such contracts, though they should now be able to avail of a version of the scheme, albeit later, in June.