Coronavirus Job Retention Scheme: what is ‘work’ and what do you do if you can’t afford furlough payments?

Since the government announced the Coronavirus Job Retention Scheme (CJRS) on 20 March, we’ve been tracking the government’s updates and guidance on how the scheme will work for businesses.

While the guidance on the CJRS is still in its early stages, we will have to wait to see how the scheme will work in practice when it’s fully launched. We can, however, share with you our guidance and the advice we’d give in light of what we know.

Two questions we’ve seen cropping up a lot in recent days surrounding both what constitutes ‘work’ when it comes to furloughed employees and the issue of employers not being able to afford furlough pay at the moment.

Our experts have taken a deeper dive into these issues and highlighted our stance while we wait for more information from the government.

What is ‘work’?

We’ve had a few questions coming through about what would constitute ‘work’ within the meaning of the CJRS, as some clients have mistakenly taken the view that it would be fine for employees to send emails or make or take telephone calls when on a period of Furlough.

It seems that there is a school of thought which defines ‘work’ as something which would earn the company money and we’ve heard several clients have been told externally that this is likely to be given a broad interpretation by HMRC.  This is definitely not Citation’s stance, for two reasons.

Firstly, in an area filled with gaps and ambiguity, this is one area where the scheme’s guidance is very clear. The employer’s guide states:

“to be eligible for the grant, when on furlough, an employee cannot undertake work for, or on behalf, of the organisation. This includes providing services or generating revenue”.

The employee’s guide is even more specific, stating:

“Once you are on furlough you will not be able to work for your employer. You can undertake training or volunteer subject to public health guidance, as long as you’re not:
  • making money for your employer or a company linked or associated to your employer
  • providing services to your employer or a company linked or associated to your employer

The position is therefore set out very clearly  – no work should be done. The term ‘work’ is clearly wider than just the provision of services or generation of revenue because it is described as ‘including’ those elements, rather than being defined by them.

Secondly, this is not really surprising given the enormous amount of public money being put at employers’ disposal in a short space of time with probably a very basic checking process at the point of a grant award. The situation would be open to widescale abuse if the rules were not very clear. A scheme of this scale would be incredibly difficult to police and audit if it built in a degree of flexibility which required HMRC to exercise significant discretion.

Our advice is that, unless it is unconnected to the duties of the role (such as attending a disciplinary hearing, submitting expense claims or receiving an email with a general company update), employees should not be asked to do any work whatsoever, including responding to emails, making telephone calls etc. Indeed, HMRC has launched a whistleblower’s hotline to report employers who ask them to work during a period of furlough.  Of course, it is completely up to you but we would advise that businesses err on the side of caution to ensure your entitlement to the furlough grant is not jeopardised.

What if the employer can’t afford furlough pay at the moment?

In an ideal world, the array of measures announced by the government a few weeks ago to support businesses through the COVID-19 crisis would dovetail together to provide a seamless financial package for employers and employees.

In particular, the wage subsidy offered by the CJRS would provide immediate relief to employees and if businesses experienced some cashflow problems in covering furlough payments, the Coronavirus Business Interruption Loan Scheme (CBILS) would be there to provide.

Unfortunately, CBILS has so far been ineffective in getting funds into the hands of those who need it most and as at Friday 3 April, only £145million of the £330billion finance the government has made available had been lent. When the Treasury asked for feedback from businesses on this, they received over 14,000 responses, the principal problems being:

  • Bank branches have closed and employers are struggling to get through on the phone (the CEO of RBS said today that their call centres are now taking 25,000 calls a day when normally it would be 3000).
  • When they get through, bank staff did not seem to be familiar with CBILS.
  • They had to show that commercial lending terms were not available to them before they would be eligible under CBILS.
  • Banks were applying a current viability test and as many businesses were closed, they could not pass.
  • Banks were requiring personal securities which business owners were reluctant to give.

Last Friday the Chancellor announced changes to the scheme, including the removal of the requirement to show commercial lending was not available to the business and the banning of personal guarantees for loans under £250,000. In addition, the government has put a lot of pressure on local authorities to ensure the business rates grants of up to £25,000 available to smaller businesses get distributed as quickly as possible.

However, many businesses still lack the funds to pay furlough payments at the moment. What should they do?

The CJRS has two main purposes – saving jobs to make sure businesses can remain largely intact and therefore better able to rebound after the current crisis passes, and providing direct financial support to workers. The importance of the secondary purpose can be seen by the fact that the government bowed to pressure to allow the potential inclusion of employees who had voluntarily left a business to be included under the scheme (which has nothing to do with job retention).

It was originally envisaged under the scheme that if the employer and employee agreed to furlough, the employee would receive furlough pay and this would be recovered by the employer by claiming a grant under the CJRS.

Although the initial guidance has now been replaced by the updated guidance, the focus was very much about reclaiming monies which had been paid – thereby getting financial aid to the employees as quickly as possible. Since then, the business community has been very vocal about the fact that funding to help businesses meet furlough payments is just not available or not available sufficiently quickly to meet these payments and this has been recognised by the government (hence the CBILS revamp).

We think it’s now more likely that an employer’s inability to pay will be viewed sympathetically. It’s also worth remembering that when the Chancellor announced the scheme, he specifically stated that this would help employers keep employees on the payroll “when they could not afford to pay them”.

However, employers should bear some key things in mind:

  • If they have the cash flow available to pay, they should be paying furlough pay.
  • This will be a very worrying time for their employees and therefore it is important to keep them updated in terms of when they can expect to receive payment if they don’t have funds available.
  • Although the government hopes to have the portal up and running between mid to late April, we don’t know exactly how long it will take and we don’t know how long it will be before grants are received. It would, therefore, be helpful if employers can show that they had investigated possible funding through CBILS (there are at least 40 commercial lenders on the scheme so they can shop around). They should also follow up on whether business rates grants are available to them.
  • They should retain records of their attempts to raise finance to pay furlough pay.
  • As soon as the furlough grant is received, it should be paid over to employees without delay.

Keeping you updated on how to protect your business through COVID-19

These are uncertain times, especially for employers and business owners. Our HR and Employment Law experts are tracking the news and latest government updates to help you understand what’s available to you to keep your business running throughout the coming weeks of changes.

Keep an eye on our latest articlesfree guides and social media for more advice and guidance. And if you’re already a Citation client, you can call our advice line on 0345 844 4848.

If you’re not yet a client of ours and you want the advice and backing of a team of HR and Employment Law experts feel free to give our team a call on 0345 844 1111 to talk through your business needs. Or, simply fill out your details in the form opposite and we’ll be in touch as soon as possible.

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