Introduction
As lockdown restrictions are reduced, there are going to be lots of businesses considering whether to continue paying furlough to their employees, especially when the government stops refunding employee’s wages and salaries paid by employers.
I think that where employees are related to, or connected to the management of the company, that the business needs to be clear about the detailed Coronavirus Job Retention Scheme (CJRS) claim rules as to whether they can continue to reclaim furlough money paid back this from the government.
Any decisions, as to whether or not to continue paying furlough pay to closely connected / family employees, either on a part time or fulltime basis, should be made on a commercial basis, and for the purpose of the business as a whole, and not based on whether or not the government will repay most or all the wages and salaries to the business through the CJRS.
Ethical issues, as whether to, or not to, claim for employees, can become more of a problem in smaller owner managed based businesses where family members are involved as employees.
I therefore think it is important to consider official guidance before making any claim.
Official guidance
In April 2020, the government issued a Treasury Direction under the Coronavirus Act 2020. It sets out the law relating to the CJRS. HMRC issued its own guidance based on the Treasury Direction.
The aim of the furlough scheme is to allow businesses to continue employing their employees, even when lockdown, and related circumstances, mean that there is little or no work for them to do.
Treasury Direction states that “the purpose of CJRS is to provide for payments to be made to employers on a claim made in respect of them incurring costs of employment in respect of employees who are within the scope of CJRS arising from the health, social and economic emergency.”
The current employer guidance states that employees can be furloughed if you “cannot maintain your workforce because your operations have been affected by coronavirus”.
A business could be adversely affected by coronavirus, for example, if it had to scale down or temporarily stop trading because:
a) its supply chain has been interrupted
b) it has fewer or no customers or clients
c) its staff are unable to come in to work e.g. because of sickness, shielding, caring responsibilities e.g. looking after children
Employers do not have to ‘prove’ to HMRC that employees are being furloughed, as a result of the coronavirus crisis, when making a CJRS claim. However, to be eligible for furlough, an employee must have been instructed to cease working "by reason of circumstances arising as a result of coronavirus or coronavirus disease."
The Treasury Directions warns, early in the document, that “no CJRS claim may be made in respect of an employee if it is abusive or is otherwise contrary to the exceptional purpose of CJRS.”
The Direction also considers the issue of whether employers can only access the scheme if their business has been adversely affected and/or they would otherwise need to make redundancies.
It is not a condition under the CJRS that furloughed employees would otherwise have been made redundant. However, the decision by an employer to furlough their employees must be connected with circumstances arising due to the coronavirus pandemic.
Employers can furlough employees who:
are caring for shielding employees,
are shielding themselves,
are people who are clinically extremely vulnerable and cannot work safely
have caring responsibilities for others
are parents and are struggling to provide childcare while working from home (even if there would be work available for those employees to do)
are parents that have to look after children while schools are shut.
Furlough could also apply to an employee who refuses to attend work due to health and safety.
Conclusion
It is therefore crucial to determine why your employees, or you or your close family personally, if you run your own business, are on furlough. Is it because of coronavirus or another reason?
Other reasons could include trying to sell a product or service that is not in demand, a shortage of resources not linked to coronavirus, a lack of finance to run or expand the business or the inability to obtain a permit or licence to trade. Of course, these other reasons could be linked to coronavirus, but how strong is that link?
The decision is not always a simple one. I think that you need to step back and ask yourself if you are taking advantage of a scheme set up to support employees, and the employer's business, and not to profit unfairly from the coronavirus situation.
Government guidance states “if you cannot afford to make the minimum contribution required then you will need to remove employees from the furlough scheme, and consider your other options such as agreeing new terms and conditions or redundancies.”
HMRC have been tasked with reviewing all repayment claims under the CJRS and testing whether claims have been made in accordance with the detailed rules and guidance. Therefore, consider how you would demonstrate your case to a third party before continuing to make furlough claims.
Almost in the words of Magnus Magnuson, a former presenter on Mastermind, just because you've started to claim under the CJRS does not mean that you have to finish on the day that the scheme finally closes.