The furlough mistakes you and your employer must avoid
The speed with which the Coronavirus Job Retention Scheme (CJRS) has been introduced and the urgency employers have faced in accessing the grant to pay wages has led to concerns that incorrect applications could be made.
These furlough errors could have serious consequences for employees:
Claiming for employees who are still required to work
If an employer is requiring their employee to carry out work for them while on furlough, this is in direct contravention of the CJRS and should prevent wages being claimed through the Scheme.
By working during a time when they know they are on furlough leave and their wages are being claimed under CJRS, an employee could be complicit in defrauding HMRC.
Government guidance specifies that employees cannot undertake any work for their employer while on furlough leave. This means that making money or providing services to your employer is completely prohibited, but undertaking training is allowed.
Employees who believe they are wrongly being required to work should raise the issue internally. Employees who raise concerns over suspected fraudulent behaviour by their employer will typically be protected under whistleblowing legislation if they face repercussions as a result.
HMRC has introduced a confidential whistle-blowing hotline for employees to report employers who misuse the CJRS. Being required to work for your employer while on furlough leave would be an example of something you could report through this hotline.
Claiming for incorrect amounts
Under the CJRS, employers are able to claim 80% of an employee’s monthly wages, as well as employer’s National Insurance Contributions and automatic enrolment pension contributions based on the employee’s furlough salary.
There is a risk that employers could be overclaiming on amounts.
One example of this is reports of businesses making applications through the CJRS which include the full cost of employer’s National Insurance Contributions, despite the fact that many employers are able to benefit from a reduction to their National Insurance Contributions under the government’s Employment Allowance.
The Employment Allowance allows businesses that pay less than £100,000 in National Insurance Contributions to reduce their annual National Insurance liability by up to £4,000. As a result, some employers may inadvertently be claiming more under the CJRS than they will in fact be required to pay once the reduction is applied.
Certain payments can’t be claimed for under the CJRS, including an employee’s tips, discretionary bonuses or commission payments. Employers also can’t claim for non-monetary benefits such as a company car.
The risk for employees of mistakes made by their employers at this stage is not clear. HMRC has expressed its right to retrospectively audit all aspects of a claim made through the CJRS. Payments may be withheld or need to be repaid in full to HRMC if a claim is found to be based on dishonest or inaccurate information, or found to be fraudulent. This is likely to have substantial implications for employers if they have made errors; criminal action could also be taken.
If an employer was required to make payments to HMRC, this would not remove their obligation to pay wages to the employee and sums could not be clawed back from the employee. Employees should be wary of any furlough agreement that contains “claw back” provisions or makes wages conditional on an employer receiving payments from the government.
The greater risk to employees therefore, is not knowing what action could be taken against them if it transpires that they are aware that their employer is deliberately claiming incorrect amounts under the CJRS – they could be seen to be complicit in fraudulent conduct.
Claiming 80% of an employee’s wages under CJRS, but paying the employee less
The government’s guidance is clear that the full 80% or £2,500 reclaimed by the employer must be paid to the employee in question.
These grants can’t be used by the employer to pay for anything else. Paying the employee less than this would therefore appear to be a deliberate breach of the CJRS. It is unlikely that rogue employers intending to deliberately defraud the system would get away with this for long without HMRC intervening and claims being pursued. However, there may be some employers who genuinely intend to pay staff in the proper manner, but have cashflow difficulties and then fail to do so.
If an employee is not paid the agreed furlough salary they could bring a claim for unlawful deduction of wages or breach of contract. If however the employer was in a situation of facing cashflow issues, employees may find that an internal grievance results in wages being paid up-to-date, as the vast majority of employers will want to avoid claims or any investigation by HMRC.
Stephen Moore is partner and head of Ashfords’ Employment Team