Government Support for Businesses through the COVID-19 pandemic

COVID-19: Government Support for Business

COVID-19 has certainly caused lot of unease and tension in the business community. However, the Government has made announcements of unprecedented financial support for businesses to help them cope through the Coronavirus pandemic. This financial assistance will be in the form of new schemes, claims and deferring VAT and tax payments.

The nature of many small businesses means that they have been forced to close for an indefinite period. And one of the most pressing problems for them is the retention of their employees throughout the crisis. How will their salary costs be met at the end of the month when the business has no income?

We therefore feel we should give some vital information to employers as soon as possible on the Coronavirus Job Retention Scheme

Additionally, a separate scheme has been proposed to assist the Self Employed who are unable to work due to Coronavirus. This is the Statutory Self-Employment Pay Scheme (proposed)

Coronavirus Job Retention Scheme – Information

The details of the scheme and particularly how employers can access the support are still emerging. What we know so far is that all UK employers, regardless of size or sector, can claim a grant from HMRC. This grant covers 80% of the cost of wages of employees who are not working but kept on the payroll. That is to say that they are designated as furloughed employees.

The employer can claim up to £2,500 a calendar month for each employee. Employers can choose to top up the remaining 20%, but current guidance is that this is the employer’s decision.

The Chancellor has announced that the scheme will be backdated to 1 March 2020. It will be open for at least three months and will be extended if necessary.

HMRC are urgently working to set up the new system of reimbursement, as existing systems cannot be used for this. The government hopes that the first grants should be paid within weeks.

Reporting the details of furloughed employees and their wages costs to HMRC is likely to be via a new online portal.

The links below have the basic details:

COVID-19: support for businesses guidance

COVID-19: guidance for employees

More written guidance is expected to be published on the mechanics of the scheme.

Which employees are covered?

The scheme will apply in respect of all employees on PAYE, including those on zero-hours contracts.

What do employers need to do?

  1. Firstly, decide which employees to designate as furloughed employees
  2. Notify those employees of the intended change
  3. Agree the change with the furloughed employees. Most employment contracts will not permit an employer to make this change to an employee’s status without agreement. However, the majority of affected employees are likely to agree to be placed on furlough leave as the alternatives are likely to be unpaid leave, lay-off, or redundancy.
  4. Confirm the employees’ new status in writing. Ideally, the employer should advise how long it expects furlough leave to continue. However, this may be difficult in the current climate. Employers may wish to put employees on furlough leave for an initial period, subject to review.
  5. Submit information to HMRC about the employees that have been furloughed and their earnings through the new online portal. The COVID-19: support for businesses guidance states that HMRC will set out further details on the information required
  6. Ensure that the employees do not carry out any further work while they are furloughed.

Are all payroll costs covered?

The COVID-19: support for businesses guidance states that employers will be reimbursed “80% of furloughed workers wage costs, up to a cap of £2,500 per month”.

The COVID-19: guidance for employees states that the scheme will allow an “employer to claim a grant of up to 80% of your wage for all employment costs, up to a cap of £2,500 per month”.

At this stage it is unclear whether the £2,500 reimbursement is intended to cover anything other than the employee’s basic salary. However, the use of the words “all employment costs” in the guidance for employees suggests that this may include additional costs such as pension contributions or other benefits.

Are employers obliged to top up the remaining 20%?

The COVID-19: guidance for employees states that “your employer could choose to fund the differences between this payment and your salary, but does not have to”. Withholding 20% of an employee’s salary, will however, amount to breach of contract and unlawful deduction of wages unless the employee gives their consent.

Can an employee request their employer puts them onto furlough leave?

Yes, an employee can request this, but the employer does not have to agree. It is the employer’s decision which employees to place on furlough leave, if any. It seems that it is also the employer’s decision whether to place employees on furlough leave or make them redundant. Potentially redundant employees do not have a right to require their employer to place them on furlough leave as an alternative to redundancy. However, it is hoped that many employers will see the new scheme as preferable to business closure and making redundancies.

Employment Law considerations

Employers need to consider whether they need to consult with employee representatives or trade unions. For this reason they may need to take advice from an Employment Law specialist. For example, where the employer intends to vary the contracts of 20 or more employees, and it intends to dismiss employees who do not consent to the change in their terms, those employees will be classed as dismissed by reason of redundancy. The employer will therefore have a duty to inform and consult appropriate employee representatives. However, it’s unclear at this stage, whether employers are expected to follow this process before placing employees on furlough leave.

Informing your furloughed employees

If you want to initiate this scheme, we suggest informing your furloughed employees by letter. We have drafted an example letter that you can use or edit. You can download the example letter here.

Statutory Self-Employment Pay Scheme (proposed)

The Government’s Coronavirus Bill includes a proposed scheme of statutory pay for the self-employed, similar to Coronavirus Job Retention Scheme. Currently, the proposals are that payments will be made by the government to the self- employed and freelancers.

The aim is that their net monthly earnings do not fall below the lower of:

  • 80% of their average net monthly earnings based on the last three years, and
  • £2,917.

The Bill is still subject to amendments as it is currently being considered by the House of Lords. The final stages expected to take place today (25 March 2020).