“COVID-19 – Important Furlough Scheme Developments Employers Need To Know About”

“COVID-19 – Important Furlough Scheme Developments Employers Need To Know About”

Friday, June 26, 2020

Adam Convisser, Employment Partner

 

The UK Coronavirus Job Retention Scheme (commonly referred to as the furlough scheme) has undoubtedly saved thousands of British jobs.  However, it will end in October, and employers need to plan for what will happen when the scheme ends.  A report released last week showed that one-third of employees had been asked to continue working whilst they have been on furlough.  Legislation is being fast-tracked through Parliament to empower HMRC to claim back incorrect payments and investigate potential criminal fraud.

We have helped many employers, ranging from those with a few employees to companies with hundreds of staff, implement the furlough scheme.  This article explains how the scheme will be wound down and what to do if inadvertently you have allowed furloughed employees to continue working.

 

A quick guide to the furlough scheme

In March 2020 it became clear that the Covid-19 pandemic was spreading through the UK at a rate which could no longer allow normal life to continue.  Recognising that without government help employers would be forced to make thousands redundant, Chancellor Rishi Sunak introduced the Coronavirus Job Retention Scheme.

During the scheme, which began on 1 March, the government pays the employer 80% of the any furloughed employees’ wages, up to a maximum of £2,500 per month (subject to various specific rules).

To ensure the scheme could begin operating immediately, few checks and balances were put in place.  For instance, the scheme is not ‘means-tested’, which has led to heavy criticism of celebrities such as Victoria Beckham furloughing staff (she later reversed her decision).  There is also no requirement for a business to show it is suffering from financial hardship.  However, one rule that was made clear is that a furloughed employee cannot undertake work for their employer.

It is important to note that workers who have been furloughed can still be made redundant, but the legal process for redundancy must be strictly adhered to.

On 12 May 2020, the Chancellor announced that the furlough scheme would be extended until October.  However, from August, the scheme will be wound down in stages to encourage employees back to work.

 

How the furlough scheme will be wound down

The following table sets out how the furlough scheme will gradually end and the incremental increase in employer contributions:

 

  July August September October
Government contribution: NICs and pension contributions Yes No No No
Government contribution: wages 80% up to £2,500 80% up to £2,500 70% up to £2,187.50 60% up to £1,875
Employer contribution: employer NIC’s and pension contributions No Yes Yes Yes
Employer contribution: wages 10% up to £312.50 20% up to £625
Employee receives: 80% up to £2,500 per month 80% up to £2,500 per month 80% up to £2,500 per month 80% up to £2,500 per month

 

Furlough scheme fraud

Because the furlough scheme was enacted quickly, at a time when many employers were under enormous pressure, some organisations will have inadvertently misused the scheme.  The most common way this has been done is having employees do work whilst they are on furlough. For example, you may have had a non-furloughed staff member self-isolate due to one of their family members having Covid symptoms.  No one else had the skills to undertake the self-isolating employee’s tasks, except a furloughed worker.  To ensure work continues, you ask the furloughed worker to cover for the self-isolating employee for a few days.  Although such an action may seem sensible, it is prohibited under the scheme.

Draft legislation allowing HMRC to reclaim funds wrongly provided, which could be in place as early as July, will allow for a 30-day amnesty for employers to self-report any discrepancies or misuse of the scheme.  Employers who have furloughed staff should urgently review their records and ensure that their paperwork is accurate, and the guidelines of the scheme have been adhered to.

 

Final words

The Coronavirus Job Retention Scheme is expected to cost around £60 billion, making it the highest upfront cost of the pandemic to the Treasury.  Given the sums involved, it is inevitable that HMRC will be tasked with recovering as much money as possible from both accidental and deliberate misuse of the scheme.  And given that by the end of May, the Government had received almost 2,000 reports of furlough fraud from whistle-blowers, it is highly likely any misuse will quickly come to light over the coming months.

If you have intentionally misused the furlough scheme, you should seek legal advice immediately.  Fraud is a serious crime that can result in reputational damage, a hefty fine, loss of a Tier 2 or 5 Sponsor Licence for immigration purposes, and carries the potential of a prison sentence.

Self-reporting discrepancies or fraud during the amnesty will save considerable time, money, and stress should HMRC later investigate your organisation.

If you require any advice on the furlough scheme, redundancies or any other employment law matters, please get in touch with Adam Convisser, a Partner in our Employment team.

Please note – this article does not constitute legal advice.