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More lockdown advice for employers and the self-employed
More information on the Furlough Scheme, help for the self-employed, emergency volunteering leave, the Self-Employment Income Support Scheme and employers’ questions answered.
Last week we set out what we knew so far about the recently announced Job Retention Scheme, aka Furlough Scheme, and dealt with a range of other immediate employment related queries that we had been receiving from our clients.
This note covers both these new schemes and a range of other key employment related issues for both employers and the self-employed, under the following sections:
- Update on the Job Retention/Furlough Scheme
- Common questions on the Job Retention/Furlough Scheme
- Special provisions relating to annual leave
- Emergency Volunteering Leave
- Guidance from Public Health England on the mental health and wellbeing aspects of COVID-19
- The Self-Employment Income Support Scheme
- And finally, a word about children and pets.
To recap: this Scheme enables employers who have no work for employees to receive financial support from the government to pay these employees while they are on leave or furloughed and not able to work.
Here are the key points about how it will work now that we have the benefit of government guidance:
- all employees are eligible including employees who are: full time; part time; on flexible and zero-hours contracts and employed by employment agencies
- only employees on the payroll as at 28 February 2020 are covered. Reimbursement payments will be backdated to 1 March and the first payments are expected to be made by the end of April
- the Scheme is expected to last three months and may be extended
- 80% of an employees’ salary will be reimbursed up to £2,500 (£30,000 per annum). Employers will in addition be reimbursed employers National Insurance contributions and the minimum automatic enrolment employer pension contributions payable on the furlough payments, which means that the total government subsidy available per employee per month is £2,804
- fees, commissions and bonuses and benefits such as medical expenses insurance, PHI and pension (save for the minimum auto enrolment employer pension contribution) are not covered.
- employers can choose to top up the 80% of pay so that employees receive full pay
- in order to access the Scheme employers will need to designate affected employees as “furloughed workers” and notify these employees of the change
- employers will be able to claim reimbursement via an online portal to be set up by HMRC; this is expected to be ready to accept claims in about three to six weeks’ time
- if an employee’s pay varies, employers will need to calculate the higher of (i) the same month’s earnings in the previous year; or (ii) average monthly earnings from 2019-20 tax year
- the amount of furlough pay does not need to meet the National Minimum Wage or National Living Wage (NMW / NLW)
- furloughed employees cannot undertake work for their employer with some very limited exceptions, such as directors/company secretaries who have to undertake statutory duties
- if employees are required to undertake training during furlough leave, they must be paid at least NMW or NLW (where applicable)
- employees with more than one job can be placed on furlough leave in one role and not the other role for a different employer.
As we advised last week, the Scheme does not override existing employment law; this means that all the normal rules of employment law (statutory and case law) continue to apply. The implications of this are:
- furloughed employees remain employed by the employer
- employees cannot be forced to take furloughed leave without their agreement. The alternative is of course redundancy
- employers need to discuss their decision to select an employee for furlough leave, explaining the rationale for the decision and what this means for their pay and benefits and terms of employment and, if this is not agreed, the alternative is redundancy. In the current circumstances most employees will opt to be furloughed and they will need a letter altering their employment on a temporary basis. However, if the employee does not agree then the normal redundancy process should be followed. Forcing an employee to take furlough leave will be a breach of contract, probably entitling an employee to claim constructive dismissal
- employers may need to run a collective consultation process if a significant number of employees are to be placed on furlough leave. In practice this is very challenging and many employers are struggling to do this via remote working systems.
Our inboxes are full of enquiries from employers grappling with the new Scheme. Common issues arising are:
- How to select employees for furlough leave
This is proving to be a tricky issue in practice.As we pointed out last week, since some employees whom an employer selects to be furloughed may be worse off financially than those retained in paid active employment, employers need to be careful whom they select to avoid discrimination claims etc.They will need a business rationale for each one and a fair process.
However, some employees may want furlough leave, especially employees with children at home and those who are vulnerable and do not want to attend workplaces. Where selection issues arise employers may want to invite volunteers.
There’s also an issue as to whether some employers should, as part of their duty of care to their employees, furlough those who are vulnerable; this would represent a refinement of the Scheme which was initially proposed where there was no work for employees to do, not because of the particular circumstances of the employee.
Since the Government itself has said that those over the age of 70, or with a serious underlying health condition (such as asthma, emphysema, or bronchitis), are “vulnerable” and should take extra precautions to shield themselves. it would seem consistent with this that funding would be available to employers who choose to ask such workers to take furlough leave in preference to others. We will be investigating this further.
As explained above, employers need to consult employees and obtain the agreement of employees to furlough leave (generally as an alternative to redundancy). Some vulnerable employees, who lose out financially, might complain that their selection is discrimination based on age or disability. However, we think employers are likely to be able to justify a selection made on this basis on health and safety grounds.
- Can employers force employees who are vulnerable to go to work?
Employers should, wherever possible, arrange for vulnerable employees to work from home.
Ordinarily, an employee who refuses to do the work they have been contracted to do would be in breach of their contract of employment, and any unexplained or unjustified absence would be sufficient for an employer to dismiss them following a fair disciplinary process.
However, there are circumstances in which an employee can legitimately refuse to work, without fear of recrimination. Under s100(d) ERA 1996, in circumstances of danger, where an employee believes the danger to be serious and imminent, and which they could not reasonably have been expected to avert, if an employee chooses to leave and not to return to their workplace, and it was reasonable for them to do so in the circumstances, any employer who dismisses such an employee will be deemed to have dismissed them unfairly. This could apply to those in the government-defined “vulnerable” category.
- Can employees be furloughed for one week and then required to work the next week?
A one week on, one week off pattern does not work. The minimum period of furlough leave is three weeks; a three week on and a three week off pattern would work. Some employers wish to adopt this type of pattern to share the disadvantages of furlough leave across the workforce.
- How does maternity leave interact with the Furlough Scheme?
Employees on maternity leave may be placed on furlough leave, but the normal rules for maternity leave still apply. Employers who have paid enhanced earnings-related contractual pay to women on maternity leave, can count this a monthly cost of which the employer can claim back 80% under the Scheme. Employers need to ensure that the reason someone has been selected for furlough leave is not because of their pregnancy or because they are on maternity leave.
- How does sick leave interact with furlough leave?
An employee who has been self-isolating or on sick leave cannot take furlough leave until the end of their sick leave period.
- Is it risky to make an employee redundant instead of offering furlough leave?
The rapid disappearance of work and the ability to pay employees’ salaries would on the face of it give grounds to dismiss employees fairly for redundancy after following due process. However, employers may face claims from employees arguing that they should not have been made redundant if the fall-off in work was likely to be temporary and should instead have been furloughed.
Whether this argument would succeed is obviously untested, but our view is that there is a significant risk of such claims succeeding, unless a redundancy was required for long-term reasons, or serious cash flow problems presented the employer with no alternative.
- What documents do I need?
- Furlough leave agreement between the employer and employee
- Business rationale evidencing the business decisions
- Documentation which demonstrates the employer has acted reasonably and followed a fair selection process
- What is the tax treatment of the furlough payments employers receive from the Government?
Employers must treat these payments as income in the calculation of their taxable profits for Income Tax and Corporation tax purposes; most employment costs are deductible expenses in the normal way in accordance with all the normal rules.
- Employees on furlough leave cannot take annual leave during this time and employers cannot recover 80% of holiday pay
- Employees on furlough leave will continue to accrue annual leave (see further below)
- The Working Time (Coronavirus) (Amendment) Regulations 2020 now allow workers to carry over up to four weeks’ unused annual leave into the next two leave years where it was not “reasonably practicable” for a worker to take it in the leave year as a result of the COVID-19 pandemic
- UK workers are entitled to an additional 1.6 weeks’ minimum annual leave entitlement; this additional leave can only be carried over into the next leave year, but no further, as the new Regulations do not cover this. A payment in lieu of carried over leave may be made on termination of employment
- The 2020 Regulations restrict an employer’s right to refuse leave on particular days. Under normal circumstances, employers may require a worker not to take leave on certain days. However, the new Regulations state that an employer may only require workers to take carried-over leave on particular days where they have ‘good reason’ to do so.
What is it?
- This is a brand-new scheme for individuals who wish to volunteer to serve the community during this time of crisis. Already, there has been huge take-up, with over 750,000 people volunteering to help
- The details of the Scheme are contained in the Coronavirus Act 2020, Schedule 7
- Employees on furlough leave are able to volunteer, as are employees and workers who are in active work
- Workers will be allowed to take leave to volunteer to help organisations (to be specified by regulations to come), which will include the NHS and social care providers. However, there are a few exceptions, including those working for small employers with fewer than 10 employees, civil servants, those working in the legislature, and police officers.
How and when can they take it?
- A worker must provide an emergency volunteering certificate three working days in advance of the leave they wish to take. This certificate will be issued by authorities, including: the Department of Health, the NHS, or County, District, or London Borough Councils.
How long can leave last?
A worker can take a block of two, three or four weeks of emergency volunteering leave within a consecutive 16 week period; a worker could take up to eight continuous weeks of voluntary leave in two consecutive 16 week periods.
Can they be paid?
- During a period of leave, an employee is not entitled to their normal salary and wages, but they are entitled to benefit from all the terms and conditions of employment which would have applied if the employee had not been absent
- However, they may be “compensated” by the organisers of the scheme.
Protection against detriments, including dismissal
- The Coronavirus Act 2020 confers protection on workers from suffering a detriment, including dismissal (including by reason of redundancy), for workers who have taken, or propose to take, emergency volunteering leave.
- Employees are protected from being unfairly dismissed for these purposes regardless of how long they have worked for an employer; any compensatory award is uncapped.
New Government guidance for the public on the mental health and wellbeing aspects of COVID-19 was released yesterday, 29 March 2020. A link to it can be found here. Worries about work is listed as a key factor affecting mental health.
There is still an obligation on employers to ensure a healthy and safe working environment for employees working at home. This is clearly a challenge when employers have limited control over employees’ home environments.
Employers should provide whatever support they reasonably can and inform their workforce as to how they can protect themselves. The Health and Safety Executive has helpful guidance, a link to which can be found here.
Examples include couriering suitable monitors and screens to homes, advising employees how to conduct their own workstation assessment, and encouraging them to keep mobile and take regular breaks.
Communication is very important; video conferencing apps are one of the best ways to get a visual check on how individuals are coping whilst working from home. We recommend that regular check-ins should be held with employees. This is particularly important for those who are on furlough leave and not working. Without the focus of work, many could become lonely and de-motivated, especially those who live alone.
Employers might encourage their workforce (especially those on furlough leave) to join the NHS Volunteer Responders Scheme to regain a sense of purpose and to take part in the nation’s collective effort to overcome the pandemic.
After facing significant criticism for not doing so earlier, the government has now introduced its supportive measures for self-employed and freelance workers.
The self-employment income support scheme (SEISS) mirrors the grant which is available for employers and employees in the Coronavirus Job Retention Scheme. By way of summary, the SEISS scheme allows the self-employed to claim a taxable grant worth up to 80% of trading profits. Similar to the Job Retention Scheme, there is a maximum cap of £2,500 per month.
It is envisaged that the scheme will be in place for three months but may be extended.
Who is eligible for the self-employment income support scheme (SEISS)?
The scheme will be available to the self-employed or members of partnerships who have lost trading or partnership trading profits as a result of coronavirus and whose profits or the last three tax years average less than £50,000. To be eligible, more than half of their income in these years must come from self-employment.
The scheme is not currently open for application to the general public. Instead, HMRC will in due course contact the individuals they believe are eligible and will invite them to apply for the scheme online.
As HMRC will be referring to tax returns for the last three years, those who have not submitted their tax return for 2018-2019 must do so before 23 April 2020 if they wish to be considered for the scheme.
How much will be paid?
Those eligible will receive 80% of average profits from the tax years (where applicable):
- 2016 to 2017
- 2017 to 2018
- 2018 to 2019
To work out the average HMRC will add together the total trading profit for the three tax years (where applicable) then divide by three (where applicable), and use this to calculate a monthly amount.
If an individual started trading between 2016 -19, HMRC will only use those years for which they filed a Self-Assessment tax return.
It will be up to £2,500 per month for three months.
The grant will be paid directly into the individual’s bank account in one instalment.
Directors/employees trading through their own companies
Those who pay themselves a salary and dividends through their own company are not covered by the scheme, but will be covered by the Job Retention Scheme if they are operating PAYE schemes. See above.
Possible future changes to National Insurance contributions for the self employed
While announcing this package of measures for the self-employed Rishi Sunak, the Chancellor, hinted at a planned increase to National Insurance contributions for the self -employed, to bring rates in line with employees. He said that is was becoming increasingly difficult to justify the inconsistent contributions of those who work for themselves compared with employees.
A previous Chancellor, Philip Hammond, tried and failed to bring in this reform. If the current Chancellor follows through on this it could bring about one of the most significant changes to the tax system we have seen for some time.
The old show business adage to “never work with children or pets” is now to be firmly disregarded.
They are keeping us going.
All those wonderful video calls with toddlers climbing into laps and demanding playtime, cats aloofly strolling across keyboards, dogs snuggled up on laps and wonderful shots of alpacas and other cute animals in green fields that marooned city dwellers can only dream about right now.
Stay well, safe and cheerful.
Very best wishes from the HRLaw team at Fox Williams.
Articles and commentary by our legal experts on the impact of COVID-19 are all available here.