On 22 May 2020, the Chancellor of the Exchequer issued an updated Treasury Direction in relation to the Coronavirus Job Retention Scheme (CJRS). The updated Treasury Direction sets out how HMRC should administer the CJRS and is largely in line with existing Government guidance.
The updated Treasury Direction clarifies certain issues and formally extends the CJRS to 30 June 2020 but it does not cover the extension of the CJRS beyond 30 June 2020 or any of the anticipated changes. We therefore expect a further update to the Treasury Direction in due course.
The key changes set out in the updated Treasury Direction as at 22 May 2020 are summarised below:
1. Confirmation that shielding employees may be furloughed
The updated Direction makes it clear that an employer and employee may agree to end a period of incapacity for which the individual would otherwise be entitled to Statutory Sick Pay (SSP) in order for that individual to be furloughed under the CJRS, regardless of any remaining entitlement to SSP. The original Treasury Direction indicated that an individual would not qualify for a grant under the CJRS until their existing entitlement to SSP had expired. The original Treasury Direction therefore suggested that individuals who were shielding would not qualify for a grant under the CJRS until the period of shielding had ended. The updated Treasury Direction now clarifies, in line with Government guidance, that such individuals may be furloughed by agreement with their employer upon terminating their entitlement to SSP.
2. How the CJRS applies to employees taking unpaid leave
The updated Treasury Direction confirms that no employee who is taking unpaid leave is eligible under the CJRS until their unpaid leave terminates.This is sensible, given that such employees would not be receiving wages in respect of which their employer could seek reimbursement.The more complicated question is, in what circumstances may the employee’s period of unpaid leave be terminated and the employee furloughed and the employer be eligible for a grant under the CJRS? There is clearly a risk of abuse of the CJRS in respect of employees who would otherwise have been taking unpaid leave at the current time and the updated Direction seeks to address this.
The updated Direction provides that those employees who commenced a period of unpaid leave prior to 1 March 2020 are not eligible under the CJRS until that period of unpaid leave expires on the date on which it was originally intended to expire. The only exception is if the employer and employee had agreed before 20 March 2020 to an earlier expiry date of the unpaid leave, in which case the revised end-date applies.
The CJRS was announced on 20 March 2020 and there is a risk, therefore, that any agreements after this date to reduce the length of existing periods of unpaid leave would have been made purely in order to access funds under the CJRS.
Where an employee commenced a period of unpaid leave on or after 1 March 2020, the updated Treasury Direction does not expressly prohibit the employer from terminating this period of unpaid leave earlier than initially intended. It appears that, in such circumstances, an individual may qualify for a grant under the CJRS if they were subsequently furloughed in accordance with the CJRS.
3. Activities that a director may undertake while furloughed
The updated Direction confirms that furloughed directors will not breach the terms of the CJRS by making a claim under the CJRS or by paying salary or wages to employees. A director may also, in most cases, be permitted to perform the duties of a trustee or manager of an occupational pension scheme while furloughed.The original Treasury Direction confirmed that furloughed directors are also permitted to comply with legal obligations in relation to their company, including the filing of company accounts.
4. Clarification as to the nature of the agreement required to furlough under the CJRS
The original version of the Treasury Direction caused concern because it stated that employees had to agree in writing to be furloughed. The updated Direction now states that the agreement itself does not have to be in writing, provided that it is confirmed in writing (which may be by email).
The agreement must specify the main terms and conditions upon which the employee will cease all work in relation to their employment and the agreement must be incorporated (expressly or impliedly) into the employee’s contract. The employer must retain the written agreement or confirmation until at least 30 June 2025.
5. Further detail as to what training may be undertaken while furloughed
The updated Direction confirms that furloughed employees are permitted to undertake study or training to improve the employee’s effectiveness in the employer’s business or to improve the performance of the employer’s business. However, such study or training will breach the terms of the CJRS if it provides a service to the employer (or a person connected with the employer), contributes to the business activities of the employer, generates income or profit for the employer, or significantly contributes to the production of goods or services for sale by the employer.
6. Additional information regarding reference salary for purpose of calculating furlough pay
The updated Direction confirms that employers may not claim for any benefits in kind or benefits provided as part of a salary sacrifice scheme. In some circumstances employers may claim for certain variable elements of pay, such as overtime, fees or commission.
If individuals are returning from unpaid leave, or sick leave, or family-friendly leave during which they received less than their normal pay, then their reference salary for the purposes of the employer claiming under the CJRS should be calculated on the basis of the pay the individual would have received if they had taken statutory annual leave instead.
7. Changes to the application of the CJRS to business transfers
The Direction has been updated to extend eligibility under the CJRS to employees who were employed by their former employer on 28 February 2020 and have subsequently transferred to a new employer pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”), bringing this in line with Government guidance.
Further, former employers may now also claim for employees who transferred to the new employer before the end of the minimum period of three weeks’ furlough leave, provided that the new employer continues to furlough the employees.
The updated Direction also includes provisions relating to business transfers where the former employer is insolvent.