In light of the COVID-19 outbreak and measures to restrict all but necessary activities away from home, the Government is set to introduce the Coronavirus Job Retention Scheme to help employers and employees to overcome the financial challenges of the crisis. HMRC expects the scheme to be up and running by the end of April 2020.

What does the scheme do?

The scheme will allow employers to seek financial compensation from the Government to continue to pay those employees who are laid off because of the effects of the virus on the employer's business. These employees will be on "furlough leave" which is an entirely new form of lawful absence.

How does it work?

Employers need to designate affected employees for whom there is likely to be little or no work and notify them. Employers will then need to discuss with employees if they will agree to remain off work for up to three months. If employees do not wish to remain off work under these circumstances, then employers may need to explore either unpaid leave or carrying out a redundancy consultation.

Once they have designated the relevant employees, employers must submit information to HMRC about employees, their earnings on a new online portal.

To make a claim, an employer will need to provide:

· its ePAYE reference number

· the number of employees being furloughed

· the claim period (start and end date)

· amount claimed (per the minimum length of furloughing of three weeks)

· its bank account number and sort code

· a contact name

· a phone number

How much pay can be claimed from the Government?

HMRC will reimburse 80% of costs up to a cap of £2,500 per month per employee plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.

An employer may choose to top up wages to 100% but is not obliged to do so. For full-time and part-time salaried employees, the employee's actual salary, before tax, as at 28 February 2020 should be used to calculate the 80%. Commission and bonuses should not be included.

As for employees whose pay varies, in the case of employees who have been employed for at least a year, the employer will be able to claim for the higher of the employee's earnings in the same month the previous year or the employee's average monthly earnings in the 2019/20 tax year. In the case of an employee who has been employed for less than a year, the employer will be able to claim for an average of the employee's monthly earnings since he or she started work. In the case of an employee who only started in February 2020, the employer will be required to pro-rate the employee's earnings so far.

Which employers does it apply to?

It applies to all UK companies, sole traders, LLPs, partnerships and charities so long as they have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.

Where a company is being taken under the management of an administrator, the administrator will be able to access the Job Retention Scheme.

Which employees does it apply to?

It will apply to all employees who have been on the payroll since 28 February 2020 on any type of contract, including full-time and part-time employees, employees on agency contracts and employees on flexible or zero-hour contracts. Significantly, employees who have been made redundant since 28 February 2020 can be furloughed if they are rehired. There is no limit on the number of employees per employer.

An employee is considered furloughed only if he or she does no work for the employer. The scheme therefore does not cover the wages of employees whose hours are reduced.

Employees that have been furloughed have the same rights as they did previously i.e. Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and the right to accrue holiday.

What about employees off sick or self-isolating?

Employees on sick leave or self-isolating in accordance with guidance from Public Health England should get Statutory Sick Pay but can be furloughed after this.

What happens for employees with more than one job?

If an employee has more than one employer, they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.

Can employees on maternity leave be furloughed?

Yes, they can switch from maternity leave to furlough leave if it does not apply to the two weeks immediately following the birth of their baby.

What about employees on National Minimum Wage?

Since employees are only entitled to the NMW while doing work, furloughed employees, who are not working, must be paid at the 80% rate (or £2,500) even if, based on their usual working hours, this would be below the applicable rate of NMW. However, HMRC guidance states that if employees are required to, for example, complete online training courses while they are furloughed, then they must be paid at least the NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

How long is it in place for?

The Government has said that it will be in force from 1 March 2020 for three months and extended if necessary. When the Government ends the scheme, employers must decide whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).

Do employees' contracts need to be amended?

The written employment contract itself does not need to be amended, but the agreement to place the employee on furlough should be confirmed in writing.