Coronavirus Job Retention Scheme – Guidance For Startups
As the UK Government publishes more info on the Coronavirus Job Retention Scheme many startup Founders still feel they have more questions than answers.
To get the answers we’re all looking for, we caught up with Michael Buckworth, Partner at Buckworths – the only UK law firm working exclusively with startups and high growth businesses.
Job Retention Scheme Overview
The scheme allows employers to “furlough” employees. This means that the employees remain employed but have no work to do for their employer. Employers can claim 80% of furloughed employees’ salaries up to a cap per employee of £2,500 per month.
The scheme applies to full-time employees, part-time employees, employees on agency contracts and flexible working / zero hour employees.
The salary is calculated by reference to the pay as at 28 February 2020 for full-time and part-time employees.
For employees with variable working hours:
- if the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, the employer can claim for the higher of either:
- the same month’s earning from the previous year
- average monthly earnings from the 2019-20 tax year,
- if the employee has been employed for less than a year, the employer can claim for an average of their monthly earnings since they started work,
- if the employee only started in February 2020, the employer should use a pro-rata for their earnings so far to claim.
Founder Questions – Answered
1) We currently have enough work for our whole team, however, we expect this to dry up within the next few weeks should nothing change. Do we have to furlough employees immediately to qualify for the grant or can we continue as normal and furlough at a later date if needed?
Answer: There is no requirement to furlough employees immediately. They can be furloughed at any point whilst the scheme is available. Note that furloughed employees must carry out no work for the employer. Simply reducing the working hours for employees does not make the employer eligible for furlough payments.
2) Half of our employees currently can’t perform their roles and so we’ve taken the decision to furlough them. Could we initiate a second round of furloughs for remaining staff at a later date if needed?
Answer: yes, you can. There is no restriction on how many rounds of furloughs you can carry out.
3) We have a new employee joining our startup next month, however, we currently don’t have enough work for them. They’re a great hire so we don’t want to lose them. They have already committed to leaving their current employer and relocating to join us but we haven’t yet issued an employment contract. Can we still bring them onboard and immediately furlough them?
Answer: employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with the scheme.
4) We made a number of employees redundant prior to the Coronavirus Job Retention Scheme being announced. Can we reverse the redundancy decision and instead furlough those employees?
Answer: The scheme covers employees who were made redundant since 28 February 2020, if they are rehired by their employer. There are some employment law considerations here though, so please take legal advice.
5) My Co-Founder and I are 50/50 shareholders and the sole employees of a bootstrapped startup (Ltd company). What little revenue we have has now dried up and we need to make our cash reserves last. Can we place ourselves on furlough to reclaim 80% of the cost of employing ourselves?
Answer: we think so. There is nothing in the guidance that explicitly prevents directors from furloughing themselves. However, there is a risk that HMRC could argue that directors still have ongoing obligations to the employer and so are still working a part of their time for the company thereby excluding themselves from the scheme. I would apply for furlough and see what happens.
6) We have recently completed our quarterly performance reviews and agreed salary increases for a number of our employees who have now been / may be furloughed. Can we postpone those salary increases, even though they were committed to by email but employment contracts were not updated?
Answer: this depends on the wording of the email communications and the employment contracts. Speak to a solicitor. The practical answer may be to ask employees to voluntarily agree to a delay in the pay increase until things are back to normal.
7) I furloughed several employees mid-March. Do I just pay them 100% of their salary for the first two weeks and 80% of their salary for the remaining two weeks?
Answer: that would be my understanding as they were presumably working for you during those first 2 weeks. However, note that HM Government are applying the furlough scheme from 1 March 2020. If your employees were at home on unpaid leave or otherwise not working, it would seem logical that you could backdate the commencement of furlough to the date they stopped working.
8) We were preparing to terminate the employment of an underperforming member of our team and had taken the necessary steps to do so. Now our team is remote we’ve still seen no improvement, can we hold the employment termination meeting remotely?
Answer: you should comply with your normal procedures despite remote working. Meetings (including a termination meeting) could be held via video conference – such as Zoom. I would suggest a video conference and not a call. You should handle any grievances and appeals to dismissal in the usual manner, albeit remotely.
9) Our startup uses a number of freelancers / ltd company contractors and we’ll likely need to terminate their contracts. A number have asked to move onto a permanent contract with us so they can be immediately furloughed. We’re ok with this if they’ll stay with us permanently. Would HMRC view this negatively when applying for the grant for 80% of their salary?
Answer: I don’t think they would be eligible for furlough as they would have to have been employed and paid under PAYE as at 28 February 2020. I would advise them to check out the relief available for self-employed people. Alternatively, if they paid themselves a salary via PAYE from their personal services company, their personal service company could potentially furlough them.
10) We were going to terminate the employment of one of our employees. In such an uncertain market, we now feel bad doing this. Can we furlough them now so 80% of their salary is covered and then terminate their contract when the Coronavirus Job Retention Scheme ends?
Answer: yes, you can do that. There is an explicit acknowledgment in the HMRC guidance that businesses may lay off staff once furlough ends. What is not 100% clear is whether you can have an employee serving their notice whilst on furlough. At this stage, my view is that this is in compliance with the scheme, but HM Government may issue further guidance on this in due course.
Find out more
Buckworths have published an article on the various reliefs available for businesses impacted by COVID-19 which can be found here and is being updated on a regular basis as further guidance is released.
Buckworths are also holding free online seminars for startups and entrepreneurs to explain how to access assistance. Readers can sign up to these events here: https://www.buckworths.com/events/
Should you want to discuss this further, you can contact Buckworths on
020 7952 1723 or firstname.lastname@example.org.
You should not rely on the answers to the above questions as legal advice. Each business may have specific complexities with regards to the scheme and should get advice from a solicitor. The advice from HM Government is changing very fast. This article was published on 27 March 2020 and may be out of date.
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About the author
Hi, I’m Tom – Founder & CEO at Hired By Startups. You can connect with me on LinkedIn here.