Explaining the Coronavirus Job Retention Scheme

The UK Government has announced unprecedented financial measures to support UK employers struggling to pay employees during the coronavirus pandemic. Our Legal Partner, Losemoores explains the Coronavirus Job Retention Scheme…

The details are very sparse at the moment and the actual mechanics of how this scheme will work in practice are still unknown. However it is important that you keep yourself abreast of the situation before making any permanent decisions regarding staff including redundancies. We have outlined our current understanding of the scheme below. This note should be read in conjunction with the recent note that we sent to you regarding Lay Offs and Short Time working.

In a nutshell the scheme involves the following:

  • The Government is proposing to support businesses by paying 80% of employee salaries up to a maximum of £2,500 per employee per month. At the moment the scheme is likely to last three months at least and could be extended depending on how this current problem pans out.
  • The scheme applies where businesses are applying “Furlough” to their employees. This is not a legal term and one that the government has come up with. Effectively it seems to us that it carries the same meaning as lay off i.e. an employee remains employed but is not required at attend work on a temporary basis as there is nothing for him/her to do.
  • In these circumstances employees will take a 20% temporary pay cut with 80% of their salary being fully paid (subject to the £2,500 maximum) which can then be reclaimed from HMRC. 
  • Employers can elect to make a voluntary top up of employees salary (i.e. pay the 20%) but this is not mandatory.

You will have to do the following:-

  • Write to the employee explaining that they have been ‘furloughed’.
  • The employee then goes onto the temporary 80% of salary (please note that where the employment contract has a lay off/short time working clause this will be straightforward.  If not it will be necessary to obtain the employees consent in writing to the temporary change in their terms and conditions).
  • You will continue to pay the 80% of salary.
  • You then apply to HMRC for reimbursement of the 80%.
  • This will be administered through a HMRC portal which has NOT BEEN CREATED YET
  • This portal will be in the form of an online application process so it does not appear that it will be automatic reimbursement
  • The scheme will be backdated to 1 March 2020
  • The scheme will apply to employees at 28 Feb 2020 and NOT new employees since that date to avoid fraud

This is what we know at the moment which unfortunately is not a great deal. It is possible that refunds from HMRC will not commence until the end of April 2020 which raises issues about cashflow. If this is a potential problem you will need to open dialogue with your lenders now and investigate your eligibility for a Business Interruption loan.

From an employment point of view your employees will be desperate for you to take advantage of this scheme rather than carry out ordinary lay-offs (for which they will only be entitled to guarantee pay of £145 in total) or redundancies. You should have an ongoing and transparent communication strategy with your employees about the measures that you are proposing to take.

We can assist you in any employment matters including issues relating to coronavirus. Please contact Karl Thomas, Partner and Head of Employment and Dispute Resolution at Loosemores Solicitors via [email protected] or call 029 2080 3112.

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