The UK Coronavirus Job Retention Scheme: practical questions for employers

On 20 March 2020, the Chancellor of the Exchequer announced the introduction of the Coronavirus Job Retention Scheme (the Scheme). 

The aim of the Scheme is to reduce the need for employers to declare compulsory redundancies by guaranteeing a portion of the pay (80 per cent of salary up to a maximum of £2,500 per employee per month) for employees who are asked to stop working whether on location or remotely because there is currently no work for them to do.

As explained in our recent briefing, the Scheme will be administered by HMRC – presumably because it will have detailed employment records for all UK employees – and will operate by payment to the employer of a grant equal to the relevant employee payments. Further details have not yet been published.

In the meantime, we have considered a number of consequential issues and questions – and set out below our thoughts on what the position might be. 

Given that the underlying law is complex and the Scheme has been developed extremely quickly, a lot of the detail has still to be worked out. This means that clear answers are awaited in a number of areas. 

We will update these FAQs as more information emerges.   

I haven’t yet told my employees to stop working, or have done so only in the last few days. Can I rely on the Government to pay them for the whole month of March?

When he announced the Scheme on 20 March, the Chancellor suggested that the arrangements applied to employees who had been 'furloughed', ie told to stop working because of an absence of work. (This is also referred to as being 'laid off'. Note that 'lay off' is different from 'redundancy' because the employment is not terminated in the former case but is in the latter). 

This suggests that the Scheme may not cover salary payments for periods of active work undertaken by employees, even though the Chancellor confirmed the Scheme would be backdated to 1 March (so that any back-dating would only apply to employees who have already been laid off, in respect of March salary attributable to the relevant lay-off period).

It is possible that the Government might decide to make back payments for the whole of March even for employees who are laid off later in the month. Otherwise employers who have 'done the right thing' by trying to maintain active employment for their staff (and more importantly the employees themselves) could risk being penalised.

Employers who consider they cannot afford the wage bill for March for employees who have since been laid off may decide not to pay salaries pending Government clarification (but if the Government does not elect to apply the Scheme in respect of the period prior to the lay-off, there could be contractual liability for non-payment).  

We do not expect the Scheme to be available to pay employees who remain actively working going forward (the Chancellor was explicit in his announcement that the arrangements would only apply to furloughed employees). 

Information posted on the Government website on 21 March 2020 confirmed this, stating that 'to qualify for this scheme, [employees] should not undertake work for [employers] while they are furloughed'.  

But what if I can find some work for employees to do and put them on short-time working? Can I rely on the Scheme to pay them in these circumstances?

The answer is no. As stated above, information posted on the Government website on 21 March 2020 suggests that the Scheme will only apply in respect of employees who are not performing any work. 

This may cause concerns that the Scheme will be too inflexible. It may push employers into laying off larger numbers of workers than might otherwise have been the case. 

For example, many employers might choose to shut down operations altogether rather than keeping everyone in active work, but on a short-time basis. 

It is certainly possible that the Scheme could be adjusted to allow payments to be made to employees on short-time working arrangements. 

Logically, the Scheme might pay out on a proportionate basis where employees are working shortened hours as a result of the current situation, but this would increase the complexity of the Scheme and the calculation of the payments under it. 

For the time being, employers should assume there will be no pay-out in these circumstances.  

If employees remain actively working without shortened hours, can the Scheme be relied on to pay them?

No. The Scheme does not subsidise payments to employees who remain actively working.  

Can an employee insist that I lay them off when I would rather they keep working, or complain that I have laid off some of their colleagues but not them?

It will be for employers to decide whether they wish to make use of the Scheme, and if it is possible to continue to provide paid work to employees, there will be no obligation to lay them off. 

However, there are some difficult considerations around requiring employees to continue working in the current circumstances, including the employer’s duty of care towards employees. 

This must be balanced with the necessity for employees to continue providing their services (and the employer must consider the steps it can take to provide a safe working environment, taking into account appropriate guidance from Public Health England, for example). 

If only some employees are being laid off, careful communication around the reason for this and how the decision has been reached will be important to manage any potential employee relations issues. 

Clearly, individuals should not be selected for lay-off on the basis of unlawful discrimination (ie because they have a protected characteristic), and thought should be given to making the selection on an objectively justifiable basis (especially if employees retained in active work are continuing to receive full salary).

Employers may face difficult decisions where they need to retain some staff in active work but cannot afford to pay them their current levels of salary (assuming, as discussed above, that the Scheme is not extended to cover payments to employees on short-time working arrangements). 

It would be important in these circumstances not to pay those staff less than the amounts that would be paid to them under the Scheme, as they will otherwise lose out (and may refuse to work).  

From an employee relations perspective, employers may conclude that it is preferable not to reduce pay levels at all for those continuing to work, or at least to keep than higher than the pay levels for laid off employees. 

Otherwise, the risk is that employees may argue that they should be laid off too, because they are being paid the same as colleagues doing no work at all. 

How does the Scheme interact with employment law rules on lay off and contractual rights to pay?

Most employment contracts do not contain a contractual right to lay employees off. Imposing lay-offs is therefore a technical breach of contract. 

Advice posted on the Government website on 21 March 2020 makes clear that 'changing the status of employees remains subject to existing employment law'.

If employees continue to be paid in full (ie the employer tops-up the 80 per cent which comes from the Scheme), the employees will not have suffered any loss as a result of the lay-off. 

However, we expect that many employers will be unable to afford to top-up employees’ pay and only 80 per cent of each employee’s salary (or £2,500, if lower) will be paid. 

Employees would then have a contractual claim for the unpaid balance, unless they had agreed to be laid-off on these terms.  

In practice it seems likely that in the current job market most employees would agree to a lay-off on 80 per cent pay, given that the alternative may be redundancy or unpaid lay-off (with the uncertainty of then trying to bring a claim against their employer). 

In particular it seems improbable that employees would claim constructive dismissal where at least a portion of their salary will be guaranteed under the Scheme. 

Clearly these will not always be easy decisions for employees to make, particularly if they are paid at a much higher level than the Government’s cap.

Wherever possible employers who wish to lay-off their staff should therefore seek to agree the terms with their employees. 

Where there is a recognised trade union, it may be possible to negotiate with the trade union. Many large companies that do not recognise trade unions may face practical difficulties in securing the express agreement of significant numbers of employees. 

As a practical matter, employers should do as much as they can to seek to argue that lay-off has been impliedly accepted, for example, by convening online meetings or feedback fora, which allow employees to feed back concerns and then rely on the absence of an objection as implied consent. 

This approach is by no means legally watertight but may give some additional comfort in circumstances where the practical risk of a claim is probably low.

Smaller employers, who may not face the same practical challenges, may decide it is better to seek express consent.

If an employee expresses an objection or refuses to give their consent to the lay-off, the employer will need to decide whether to take the risk of proceeding in any event or whether some other steps must be taken in respect of that employee, eg asking them to continue to work (where that is practicable) or considering whether their employment must be terminated.  

Either approach could carry legal risk, and advice should be taken.

Will the Scheme cover employer National Insurance contributions on “salary” paid by the Scheme?

We do not know the answer to this yet. If it does not, the employer would be required to continue to pay an amount equal to 13.8 per cent of the amounts paid out under the Scheme (plus 0.5 per cent apprenticeship levy where applicable). 

What about contractual benefits?

It does not appear that the cost of these would be covered by the Scheme. Many employers may already have paid annual subscriptions for insurances such as private health and life assurance so continuing coverage may already be in place (which will clearly be important during a period of significant public health concern). 

Consideration would also need to be given to whether an employer must continue to pay, for example, pension contributions (whether those pension contributions are contractual obligations or obligations under auto-enrolment legislation where the employees continue to receive qualifying earnings by virtue of benefiting from the Scheme).

What about national minimum wage (NMW) rules?

We do not expect employers to be required to pay NMW during periods when employees are laid off (as they are not working during this time). 

However, if an employer decides that it cannot afford to pay salary for periods already worked and seeks (if possible) to rely on the Scheme to pick up relevant payments, there could be a breach of NMW rules.  

Even if Scheme payments count towards the NMW, which is unclear, a payment equal to 80 per cent of a low-paid worker’s salary may not be sufficient to meet NMW levels.

Bear in mind too that if you impose reduced salaries on employees who are continuing in active employment, the amounts payable would need to satisfy NMW requirements. 

Can I top-up payments made under the Scheme?

Yes, employers are free to make up some or all of the difference between the amount paid under the Scheme and what would have been the laid-off employee’s full salary.

Can employees who have already been made redundant receive payments under the Scheme?

No, the Scheme only applies to employees who have been laid off, rather than made redundant.  

However the Government has suggested that if redundant employees are reinstated then they will be eligible for payments under the Scheme for the period from 1 March 2020 onwards.  

Employers are likely to come under pressure to reinstate in these circumstances and there have been a number of press stories about trade unions exerting such pressure.  

As a condition of reinstatement, employers will presumably want employees to repay any non-statutory redundancy payments that have been made to them.  

Complications may then arise as to whether the tax (if any) paid on those amounts can be recovered by the employee.  

If statutory redundancy payments have been paid to the reinstated employees already, those employees’ continuity of service for the purpose of any future redundancy payments will have been broken unless they agree to repay the amounts they have received. 

An employee who is made redundant while the Scheme is in place will cease to be entitled to payment under the Scheme.  

This is likely to result in considerable pressure on employers not to make redundancies for as long as the Scheme is available (and criticism if they do).

Will the Scheme apply to anyone who works for me who is not an employee?

No, the Scheme applies only in respect of employees.

How will the Scheme work for those employed on atypical working patterns?    

The calculation of the amounts payable under the Scheme may be more complicated for employees who have atypical working patterns – for example, those who do shift work which varies from week to week, or who are employed on zero-hours contracts. 

For those employees, we expect that employers will need to calculate the average weekly pay (based on a reference period of, for example, 12 weeks up to 1 March 2020) and to claim under the Scheme on the basis of that average calculation. 

Can I rely on the Scheme to help me pay employees who are receiving sick pay or maternity pay and have not technically been laid off?  

We expect the answer to be no, as such individuals will not be laid off. 

Those individuals would need to continue to be paid in accordance with sick pay or maternity arrangements. 

Is more information available on how the Scheme will be administered?

Not yet. Information posted on the Government website on 21 March suggests that employers will submit information to HMRC about employees who have been laid off and their earnings through a new online portal.  

According to the website, 'HMRC are working urgently to set up a system for reimbursement'.