As part of a range of support packages to aid businesses during the current COVID-19 pandemic, the Government are to introduce a new Coronavirus Job Retention Scheme (CJRS). The CJRS is aimed at reimbursing businesses part of the cost of its employees’ wages during the current crisis period to enable it to retain its workforce.  

How does the new Coronavirus Job Retention Scheme work?

Under the scheme, it is proposed that HMRC will reimburse employers 80% of each employees’ wage costs (up to a limit of £2,500 per calendar month per employee) for those employees who would otherwise have been laid off during this period of crisis.

The scheme will be backdated to 1 March 2020 and is intended to be open for at least three months, although a further extension may be necessary.

How is the 80% reimbursement calculated?

It is currently unclear whether the CJRS is intended to cover anything other than the employee’s basic salary, or whether it could also include additional costs such as pension contributions, income tax, national insurance contributions or contractual benefits such as health insurance. It is also not clear whether the calculation will be 80% of the employee’s gross or net salary. Further confirmation is awaited from HMRC on this point.

Employers will then have the option to pay the 20% shortfall in salary to their employees. This is at the discretion of the employer for the purposes of CJRS but a shortfall in wages may still amount to an unlawful deduction from wages and potential employee claims.

Placing an employee on furlough leave

The guidance advises that employers must identify which of their employees will be placed on furlough leave and notify them of this change, taking into account that existing employment law provisions continue to apply. By placing an employee on furlough leave, the individual will remain an employee of the business, however will not be completing any work during this time.

As existing employment law continues to apply, placing an employee on furlough leave is essentially changing their employment status and (unless the employer funds the shortfall under CJRS) a reduction in pay. For this reason, the employer must obtain its employees’ consent before making any change, or risk an employee pursuing a claim for unlawful deduction of wages, breach of contract, or constructive dismissal.

Also, under existing employment law there is an additional obligation to inform and consult where the employer intends to vary the contracts of 20 or more of its employees and dismiss the employees who do not consent to the change, and the employer will need to take steps to satisfy these additional legal requirements.

Placing Employees on Furlough Leave

What steps must an employer now take?

The HMRC portal which will facilitate the new scheme is not yet available and is currently being set up urgently. In the meantime, employers should take the following steps:

  • Decide which employees to designate as furloughed employees;
  • Contact its employees to:
    • explain that the UK Government are providing a support scheme to assist employers with the cost of its employees’ wages during this challenging time, and due to the impact the crisis has had on the financial health of the business, the employer wishes to utilise this scheme;
    • explain the impact of the scheme on its employees’ salaries (if any);
    • seek their consent to change their status to that of a furloughed employee and change of terms of employment;
    • submit the required information to HMRC via the new portal (when available); and
    • ensure that the employees do not carry out any further work while they are furloughed.

Employers will need to fund the cost of its employees until they are able to benefit from the scheme, and may be able to access the Coronavirus Business Interruption Loan Scheme to assist with this. 

Due to the unprecedented nature of the Coronavirus pandemic, the guidance on how to adapt to its impact evolves daily and becomes out of date very quickly. We recommend that you keep checking to ensure you are following the most up to date guidance. Further, in addition to the public guidance, there are always specific circumstances that individual employers must consider, such as particular employee or employer arrangements or issues. If in doubt, please take advice. You can contact our specialist Employment team on 0161 941 4000 or via email.