Legal Update by Tim Wilkinson.
With its publication on Friday 22 May 2020, immediately before the bank holiday weekend, you can be forgiven for having missed HMRC’s revised Coronavirus Job Retention Scheme (“CJRS”) Direction, dated 20 May 2020 (“the Direction”). All claims for payment under the CJRS, made after 22 May 2020, must comply with the Direction. The Direction modifies the previous version dated 15 April 2020 and clarifies many, but not all, of the questions that arose therein. The substantive modifications are set out below.
Duration: the CJRS, in its current guise, has effect only in relation to earnings paid or payable in respect of the period 1 March 2020 to 30 June 2020 (see paragraph 12 of the Direction, revising the period beyond the previous date of 31 May 2020). The Direction does not deal with the period 1 July 2020 to the end of October 2020. That is despite Mr Sunak’s announcement on 12 May 2020 that the CJRS would remain unchanged until the end of July 2020 and run until the end of October 2020. We can anticipate future amendments to deal with matters such as part-time returns to work and employer contributions to salaries of furloughed staff.
Form of agreement: paragraph 6.7 removes the requirement for the employer and employee to agree in writing that the employee would cease all work in relation to their employment (paragraph 6.7 in the previous incarnation). This requirement was particularly controversial because it appeared to conflict with HMRC’s Guidance at the time. Paragraph 6.7 now requires that the agreement (which can be by way of collective agreement) specifies the main terms and conditions upon which work will be ceased, that the agreement is incorporated into the contract of employment and that it is either made in writing or confirmed in writing by the employer. This allows for verbal agreement and retrospective written confirmation. The Direction does not specify what is meant by the words ‘specifies the main terms and conditions’, but it seems likely to include key variations to, for example, benefits, and what has been agreed in relation to the employee’s ability to train, volunteer or to work for other employers. Importantly, the employer must retain the agreement or confirmation until at least 30 June 2025.
Statutory Sick Pay: in the previous version of the Direction, paragraph 6.3 stated that where SSP “is payable or liable to be payable in respect of an employee (whether or not a claim to Statutory Sick Pay is made)”, the period for furlough purposes did not commence until “the original SSP has ended”. The meaning of that phrase was unclear and subject to much debate; it appeared to stipulate that the CJRS would not apply until the period of SSP entitlement was exhausted, whether or not SSP was actually paid. The Direction now omits the words in brackets and replaces the latter phrase with “until immediately after the end of the period of incapacity for work for which the Statutory Sick Pay is in payment or due to be paid (provided that the time of the end of that period of incapacity for work is determined by an agreement between the employer and the employee)”. There is still a lack of clarity, but it appears as though the employer and employee can agree the point at which SSP ceases and furlough commences.
Training: the previous direction simply set out that training “directly relevant to an employee’s employment agreed between the employer and the employee” must be disregarded under the CJRS (paragraph 6.8). What an employee may do whilst on furlough has now been expanded upon in the new paragraph 6.8. Study or training that must be disregarded can include that which is intended to improve an employee’s effectiveness or the performance of the employer’s business, so long as it does not directly provide a service to the employer/the employer’s business activities or contribute to those business activities or anything generating income/profit. The study/training must not directly contribute to any significant degree in the production of goods (intended to be supplied to another person for payment), or in the paid supply of services. The restrictions outlined in paragraph 6.8 also apply to “a person connected with the employer’ (paragraph 6.9).
Reimbursement costs: in its previous guise, the Direction specified that the employee’s ‘reference salary’ must not take account of anything which is not regular salary. The amended paragraph 7.3 now specifically states that the reference salary must not include benefits in kind, “anything provided or made available in lieu of a cash payment otherwise payable to employee (including salary sacrifice schemes)” and anything that is not “regular salary or wages”. It is therefore now clear that benefits provided through salary sacrifice schemes are not included. ‘Regular’ means that it cannot vary unless a) that variation in amount is due to a non-discretionary payment; and b) it arises from a legally enforceable agreement, understanding, scheme, transaction or series of transactions (paragraph 7.4). The new paragraph 7.19 sets out the specific circumstances in which a variation in amount arises from a non-discretionary payment. The payment must be a) in respect of overtime, fees, commissions or a piece rate; b) made in recognition of the employee undertaking additional or exceptional responsibilities; c) is made in recognition of the circumstances in which the employee undertakes the employer’s duties or time when they are undertaken; or d) is made in recognition of other similar matters; and the legally enforceable agreement (etc) must prescribe the method of calculating the amount of wages or salary.
Reference salary: for those employees who are furloughed following a period of unpaid leave, for statutory payment leave (where SSP or statutory payments for family leave are paid or due to be paid), or reduced rate paid leave (periods of leave immediately following the end of a period of statutory payment leave), the appropriate reference salary is that which they would have been entitled to had they been on annual leave (paragraphs 7.13 to 7.16).
Director’s duties: the amended paragraph 6.6 expands the circumstances in which the work undertaken by a director of a company can be disregarded. These now include making a CJRS claim or making a payment of salary or wages of an employee of the director’s company.
Pension schemes: an employee’s work which is undertaken solely for the purpose of fulfilling their duties as a trustee or manager of an occupational pension scheme must be discounted, save where the employer’s business activities include the provision of such services or a requirement that the employee undertake such duties (see paragraphs 6.10 to 6.12).
Unpaid leave: if an agreement was reached prior to 20 March 2020 to vary when a period of unpaid leave (commenced before 1 March 2020) would come to an end, the Direction must be read as if the new date of termination had been agreed at the outset of the period of leave (paragraph 6.5). This means that if an employer and employee agreed, prior to 20 March 2020, that the period of unpaid leave would cease sooner than originally anticipated, the employee can be placed on furlough at the end of the revised period.
Transfers: paragraph 9.4 of the Direction amends the date, for the purposes of transferred employees, from 19 March 2020 to 28 February 2020. Paragraphs 9.6 and 9.7 expand the transfer provisions to include insolvent transferors. Pursuant to paragraphs 9.10 and 9.11, transferors can also make a claim under the CJRS for transferring employees, even where the transfer takes place prior to the employee completing a three-week period of furlough, so long as the new employer makes a claim under the CJRS for a period commencing immediately after the transfer (and all other criteria of the CJRS are satisfied).
As can be seen above, the Direction has dealt with a number of concerns that arose following the publication of its previous incarnation. Some issues could, arguably, benefit from further clarity. In any event we can expect significant changes with effect from 1 August 2020 at the latest. Updates from PLP will follow in due course.