New CJRS Treasury DirectionPublished on: 01 June 2020
On Friday 22 May 2020 the Treasury published a further Direction (dated 20 May) modifying the legal framework for the Coronavirus Job Retention Scheme (CJRS).
A first Direction was issued on 15 April 2020. The new Direction replaces it and will apply to claims under the CJRS which are made after its publication, and to claims made on or before that date where they would have been compliant with its terms.
The new Direction extends the CJRS only until 30 June 2020, so a further Direction will be needed for the extension of the current terms until 31 July, and for the new terms applicable from August – for details of which click here.
Many of the changes are on issues where the first Direction conflicted with HMRC’s published Guidance and are in line with that Guidance or have clarified areas of uncertainty. There are also some new provisions, which presumably will be reflected in further iterations of the Guidance in due course.
Requirements for placing an employee on furlough:
In general terms, perhaps the most significant change is the amendment to the requirements for placing an employee on furlough.
The first Direction required a written agreement between employer and employee that the employee would cease all work in relation to their employment – notwithstanding that HMRC’s Guidance initially suggested that only written confirmation of being furloughed was required for the purposes of eligibility under the CJRS, and subsequent versions stated that furloughing should be consistent with employment law but didn’t otherwise need a written agreement. This caused quite a degree of turmoil, and debate over the sense of this element of the Direction and whether it would be amended or, if not, actually enforced.
There has indeed been an amendment. The new Direction provides that, for the purposes of eligibility to make a claim, the required instruction to cease work is satisfied if:
- the employer and employee have agreed that the employee will cease all work in relation to their employment – and this can be made by means of a collective agreement between employer and trade union
- the agreement specifies “the main terms and conditions upon which the employee will cease all work”
- the agreement is incorporated expressly or impliedly in the employee’s contract
- the agreement is in writing or is confirmed in writing by the employer (and writing includes in electronic form)
- the employer keeps the agreement/collective agreement/confirmation until at least 30 June 2025
Employers who did not obtain written agreements from furloughed employees (whether because they were not varying any contractual terms, or because changes were agreed orally) will welcome this change. They may also be able to rely on the new Direction in respect of past claims (if those claims complied with all the provisions of the new Direction).
However, it is unfortunate, in our view, that reference to the employee agreeing to cease work remains. In general terms, where an employer continues to pay an employee in full, it is not obliged to provide the employee with work, and so does not require the employee’s consent that they cease work. Similarly, if there is a lay-off clause, the employer has the right to direct the employee to not work. That said, in our view it is unlikely to be an issue if employers in those circumstances simply record in writing that the employee ceased work from the relevant date, as opposed to seeking the employee's agreement in that regard – including because this will not be inconsistent with the published guidance and HMRC are unlikely to take the point when carrying out audits; and if they do, they will be vulnerable to judicial review applications.
Reference salary for women returning from maternity leave and others family leave or sick leave:
Another key change is to the reference salary for those taking furlough after a period of statutory family-related leave or sick leave.
For fixed rate employees, the reference salary has always been, and continues to be, the normal, full salary as at 19 March. However, for other employees, this had been stated to be the higher of the average pay received in the last tax year or the corresponding month in 2019 – which would cause many women returning from maternity leave, and others in this category, to be much worse off.
However, under the new Direction, the reference salary is to be calculated as if the employee had been on paid annual leave receiving normal pay required under the Working Time Regulations during those periods.
The published Guidance already stated that for employees who have been on unpaid sabbatical or unpaid leave, their reference salary for furlough pay should be the amount they would have been paid if they were on paid leave when calculating 80% of their wages. The new Direction reflects this.
It seems that, consistent with HMRC Guidance, the employer and employee can now agree to end a period of SSP in order to start furlough (notwithstanding that the employee would otherwise continue to be eligible for SSP).
Where a period of unpaid leave started before 1 March, and the employer and employee reached an agreement before 20 March 2020 to end it earlier than originally planned, the employee can be put on furlough after the revised end-date.
No claim under the CJRS can be made for a period of unpaid leave between 1 March and 30 June and furlough cannot begin during that period - although there is no express prohibition on ending that leave earlier than planned in order to furlough.
A director will not be treated as doing work (and therefore outside the CJRS) where they are simply making a CJRS claim for, or paying wages to, an employee of the company.
The carrying out of duties as a trustee or manager of an occupational pension scheme is also permitted (save where the employer’s business is the provision of occupational pension scheme independent trustee services).
Furloughed employees can now study or do training even if it is not directly relevant to the employee’s job and agreed in advance – its purpose can be to generally improve an employee’s effectiveness in the employer’s business or the performance of the employer’s business, provided it does not contribute to business activities, generate income or profit, or significantly contribute to the production of goods or services for sale.
It is now clearer that, when calculating the reference salary (80% of which is to be paid, subject to the cap of £2,500 per month), benefits provided through salary sacrifice are not included, but variable payments for overtime, timing of shifts or additional duties will be included provided there is no discretion about how the amount is to be calculated.
The relevant date for TUPE transfers has been changed to 28 February in line with the current Guidance. A new provision extends the CJRS coverage to TUPE business transfers from an insolvent transferor (where the automatic transfer of employment contracts does not apply) and transferors will be able to claim for employees whose pre-transfer furlough periods do not last 21 days where the employees continue on furlough with the transferee.