In our previous newsletters we have discussed the furlough scheme (or the Coronavirus Job Retention Scheme). We are now entering the last three months of the scheme, in which there will be further changes to how it operates. From the 1st July, employers have been able to place employees on ‘flexible furlough’ where they return to work part time and are furloughed on the remainder of their usual working days.
From this month, employers have to pay National Insurance and pension contributions on the pay claimed for furloughed employees. This will continue until the end of the scheme in October. From the start of September, employers will additionally need to pay 10% of wages for furloughed employees, rising to 20% in October. The scheme remains due to end on 31st October 2020, at which time furloughed employees will require to return to work, or employers will unfortunately have to make decisions about measures such as redundancies or changes in terms and conditions if the furloughed employees are not required or the business cannot afford to retain them.
See our previous blog on the changes to the scheme for further details.
Regulations on redundancy pay for furloughed employees
It has been reported in the news recently that surveys suggested around a third of employers may make redundancies in the coming months, which may include employees currently furloughed. The UK government passed regulations which came into force on 31st July 2020 which seek to ensure that a furloughed employee who is made redundant receives redundancy pay based on their pre-furlough wages. Statutory redundancy pay is generally based on a weeks’ pay for every complete year of service subject to a cap of £538 per week. This is lowered to 0.5 weeks’ pay for each year the employee is aged under 22, and rise to 1.5 weeks’ pay for every year they are aged over 41.
There were concerns that a loophole could mean employees who have been furloughed and are subsequently made redundant could receive less redundancy pay than they are due if the calculation is based on the 80% of pay they were receiving under the furlough scheme, rather than the usual wages prior to being furloughed. The new regulations seek to redress this. The provisions are relatively complicated, but broadly provide that any reduction in pay due to being furloughed is disregarded in considering what the employee’s usual pay is for redundancy purposes. The regulations also provide that the same is the case for statutory notice pay – this must be based on pre-furlough wages.
See our previous blog on these regulations for further details.
Guidance on errors and penalties
There have been reports in the news of employers abusing the furlough scheme, such as by claiming for employees who were never furloughed, or forcing employees to continue working while furloughed, which is a breach of the scheme rules. HMRC have been taking steps to investigate ‘furlough fraud’ and are reported to be investigating up to 8000 claims under the scheme which have been reported as fraudulent.
There are cases where employers have claimed the incorrect amount due to genuine error, rather than a deliberate attempt to defraud the scheme. HMRC have recently published guidance for employers on what to do if they have made errors and claimed too much or too little under the scheme. If they have claimed too little, the claim can be amended but now only for the period from 1st July 2020 onwards. The employee must be given the correct payment even if the employer has claimed too little back from the scheme.
If an employer has claimed too much, they must notify HMRC and arrange to make repayments. HMRC can recover the overpayment through an income tax charge and may charge interest and penalties on late repayments. They can also impose penalties of up to 100% of the overpayment where the failure is found to be deliberate and concealed. The financial consequences for employers found to have abused the scheme could therefore be significant.
See the guidance on errors here.
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