Can UK employers claim the furlough grant while employees are on notice? Clarity is required.

7th July 2020

UPDATE: On 17 July 2020, the Government’s furlough guidance (here) was updated and it now confirms that employers can continue to claim for employees under the scheme while they are serving a statutory or contractual notice period, however grants cannot be used to substitute redundancy payments. This update has resolved an issue that had employers and their advisors in a bit of a panic – we can now all breathe a welcomed sigh of relief.

Notice Pay during Furlough Leave

The latest Treasury Direction for the furlough scheme, updated on 26 June 2020, could modify the effect of the Coronavirus Job Retention Scheme. New wording at paragraph 2.2 may be interpreted to suggest that notice pay cannot be claimed through the scheme. With retrospective application, employers require clarification from HMRC as to the intention of this new wording to avoid having to self-report, repay and incur penalties.

Position Pre-June Direction

The general understanding amongst the legal community has been that notice pay can be claimed under the Coronavirus Job Retention Scheme (CJRS) but that payment in lieu of notice payments (PILONs) cannot.

Latest Treasury Direction

On 26 June 2020 the Treasury issued a further direction (June Direction) to HMRC which modifies the effect of the Coronavirus Job Retention Scheme (CJRS).

Paragraph 2.2 of the June Direction states that “Integral to the purpose of CJRS is that the amounts paid to an employer pursuant to a CJRS claim are used by the employer to continue the employment of employees in respect of whom the CJRS claim is made”.

This could be interpreted to suggest that it would be contrary to the purpose of the CJRS to use the furlough grant where employment has been terminated and the employee is working under notice.

The inclusion of ‘continue the employment of employees’ in the June Direction has therefore produced significant uncertainty as to the use of the CJRS to claim furlough grants to fund notice periods, as well as a question over whether, if indeed the position has changed, this change will be applied retrospectively to employers who have funded notice period pay for employees since the start of the CJRS.

Position post-June Direction

It would be surprising if on the one hand employers can re-engage individuals after they have left their employment for any reason in order to make use of the CJRS, but on the other hand the CJRS will not allow employers to claim for what would have been the employee’s notice period. There is also acknowledgement in the CJRS guidance that employees can be made redundant while on furlough leave too.

The costs associated with notice pay may have a knock on effect resulting in further redundancies – to not cover the cost of notice pay would surely be detrimental to the purpose of the CJRS?

Promisingly, Acas reviewed their Notice Pay publication on 1 July 2020 and it currently states that employers can still claim notice pay through the CJRS.

A number of commentators have suggested that if HMRC intended that claims cannot be made for notice periods this would have been stated explicitly in the June Direction.

The HMRC customer helpline has reportedly confirmed to at least one law firm via telephone on 2 July 2020 that employers can continue to use the CJRS during both redundancy consultation and to fund the notice periods of employees whilst on furlough. However as of 3 July 2020 this is not legally binding advice and there is no written confirmation of this position from HMRC.

Moreover, Paman Singh has managed to get informal written confirmation of the same from a contact at the Department for Business, Energy and Industrial Strategy (BEIS) (see Twitter post here.

Impact

Clarification from HMRC would be welcomed. This is particularly important given the potential for retrospective effect of the June Direction changes. If the use of the CJRS grant to cover notice pay is not permitted, and needs to be reported (within 90 days of making the claim) and/or repaid, employers who received CJRS monies for this purpose earlier on in the scheme will be running out of time if they need to self-report.

Given the latest position from Acas, the reported telephone confirmation from HMRC and the email correspondence from BEIS that CJRS funding can continue to be used to fund employee notice pay, employers will be hopeful that HMRC will move quickly to confirm the position. On balance, we are of the view that it is fine to pay notice pay using the CJRS (but not a PILON), but until such confirmation is made employers would be advised to conduct an audit of their claims under the CJRS and identify whether funds have been claimed which are potentially contrary to paragraph 2.2 of the June Direction following which further advice may need to be sought.

Click here to read our Flexible Furlough Factsheet.