In the three weeks since HMRC first issued detailed guidance on the terms of the Coronavirus Job Retention Scheme (“CJRS”), that guidance has changed 3 times, first on 4 April, again on 9 April and then again on 15 April. Employers grappling with difficult decisions about their workforce at a time of immense economic uncertainty could be forgiven for wishing there was legislation in place in order to plant the shifting goalposts more firmly in place. However, with the publication yesterday of the Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction (“Treasury Direction”), establishing a legislative framework for the CJRS, this could be a case of ‘be careful what you wish for’.

The Treasury Direction is made under sections 71 and 76 of the Coronavirus Act 2020 and as its name suggests is a direction from the Treasury to HMRC as to how the CJRS should be implemented and administered. It is not legislation and has not been through the usual legislative process for a statutory instrument but it does take legal precedence over the guidance. Unfortunately it differs in some significant and some less significant respects from previous versions of the guidance on which employers will have based their decisions regarding furlough.

Employees in scope

The first and most significant change is that the Treasury Direction states that employers can make a claim under the CJRS in respect of employees who are on payroll as at 19 March 2020 (rather than 28 February) and to whom the employer has made an RTI submission notifying payment prior to that date. The practical effect of this is that employees who were hired and put on payroll before 28 February but had not yet been paid prior to 19 March will not be in scope. This should affect a relatively small group of employees but means that if an employer has already furloughed these employees they may be contractually bound to pay them at  80 or even 100% of pay but unable to recover any of those costs under the CJRS.

Do you need agreement to furlough?

The guidance states (uncontroversially) that employers should make changes to the employment contract by agreement. However, to be eligible for the grant an employer need only confirm in writing to the employee that they have been furloughed. Some employers will have taken the view that if they are continuing to pay furloughed workers 100% of pay, they do not need agreement. However, the Treasury Direction states that an employee has been instructed by the employer to cease all work in relation to their employment (which is required in order to be furloughed) only if the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work. Employers who imposed furlough or who sought consent but did not receive it from all furloughed employees may now wish to take steps to obtain employee consent in order to protect their position.

Salary vs variable pay

The guidance distinguishes between ‘employees on a salary’ and ‘employees whose pay varies’. It was unclear whether employees who receive a basic salary but are also entitled to additional variable elements of pay (eg commission, overtime) should be regarded as employees on a salary or employees whose pay varies; an important distinction as the method of calculation of what you can claim for differs for the two groups. The Treasury Direction, however, distinguishes between ‘fixed rate employees’ and everyone else. Fixed rate employees are (essentially) employees who receive a basic annual salary in respect of basic hours but receive no other payment in respect of basic hours other than salary. This makes it clear that just because an employee receives some element of variable pay (eg commission, overtime) this does not make them an employee whose pay varies.

What can you claim for?

Employers can claim 80% of the ‘reference salary’ of a furloughed employee up to a maximum of £2,500 per month. As stated above, the method of calculation of the reference salary is different for fixed rate employees and other employees. For non-fixed rate employees, the reference salary is the greater of the average monthly or daily or other pro-rata amount paid to the employee for the tax year 2019-20 and the actual amount paid to the employee in the corresponding calendar period in the previous year. For these employees, the amount claimed may vary from pay period to pay period over the course of the CJRS.

For fixed-rate employees the reference salary is the amount payable to the employee in the latest salary period ending on or before 19 March 2020. This will be a fixed amount across the course of the CJRS.

In both cases, in calculating the reference salary no account is to be taken of anything which is not regular salary or wages. Unfortunately, this is where the Treasury Direction is considerably less clear than the guidance. The guidance states that “You can claim for any regular payments you are obliged to pay your employees. This includes wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payment should be excluded”. It is far from clear that the definition of regular salary or wages matches up to the guidance. Employers will need to look at all elements of variable pay to determine whether they are covered by the Treasury Direction and can be claimed and consider any mismatch with what employees have already been informed they will be paid.

Self-isolation vs shielding vs sick leave

The position regarding whether you can furlough employees who are self-isolating due to symptoms or household symptoms, shielding in line with public health guidance as they are classed as extremely vulnerable and at very high risk of severe illness from coronavirus, or absent on coronavirus-related or other sick leave has shifted several times since the CJRS was announced.

The latest version of the guidance states that employees on sick leave or self-isolating will receive SSP but that employers could furlough them, at which point they would no longer receive SSP. Shielding employees were not entitled to SSP but could be furloughed.

Overnight that position has changed again as regulations have now been made (on 16 April) to extend SSP to shielding employees. The Treasury Direction states that, where SSP is payable or liable to be payable before the employee is placed on furlough, furlough does not begin until after the SSP period comes to an end. This is a significant mismatch between the guidance, the regulations and the Treasury Direction.

When will the portal open for claims?

Having previously said 20 April, then week commencing 20 April, HMRC now says the portal will open for claims at the end of the month.

Is this the final position?

The Treasury Direction leaves open the possibility of further changes being made by Direction and it is possible there could be further guidance clarifying the Treasury Direction. A number of grey areas remain (including, still, the interaction between holiday and the CJRS) and more ambiguities and problem areas may become apparent as time passes.