Spanner in the works over furlough grant availability during notice period

With employers expected to pay an increasing contribution towards the cost of furloughed employees from the 1st August, many businesses may be faced with making difficult decisions around employee redundancy.

This raises a question under the furlough scheme – where notice of termination is given can the employer continue to claim the furlough grant for the employees’ wages during the notice period?

Previously it had been assumed in some quarters that where notice to terminate has been given by either party, the employee could remain on furlough with the employer able to claim the furlough grant so long as the other conditions of furlough continued to be satisfied. However, on the 25th June, the Treasury issued a further direction to HMRC that casts considerable doubt on this assumption.

The new direction states that it is integral to the scheme that employers use the amounts paid under the scheme to ‘continue the employment of employees’, and any grant not used for that purpose must be ‘returned immediately’. If a decision is made to terminate employment, then it is very difficult to see how any furlough payment claimed following the decision has the purpose of ‘continuing employment’. There is a clear intention that the job will not be retained.

The wording of the new direction therefore appears to prohibit the claiming of a furlough grant for payments made in respect of a notice period. Accordingly, employers should be aware that any claim for furlough grants for employees during a notice period may be rejected or, if already claimed, have to be repaid.

However, there is an argument that a Direction only has effect from the date it is published. As the purpose of the scheme (reminder it is called ‘The Job Retention Scheme’) has always been to retain jobs, and the new direction states that job retention is ‘integral to the scheme’ it could be implied that a grant would never have been available for payments during a notice period. To support that view, it has always been said that applications not in tune with the spirit of the scheme would be rejected. Given that neither HMRC guidance nor a Treasury direction had previously specifically addressed this issue, perhaps it was previously felt that there was no need to spell this out. In which case claims for wages during a notice period will always have been rejected. So, why the new direction now? The timing implies that claims made prior to 26th June would be met, so creating significant conflict.

Having said that, how many decisions around redundancy have been dependent upon receiving furlough payments for the notice period?

Since the position at least from 25th June seems clearer, the ambiguity around this is only likely to affect those employers where notice has been given prior to 25th June, and who have claimed or were planning to claim grants for wages during the notice period. It appears sensible to assume grants will not be available, given the new spanner in the works.

Finally, the timing of this new direction statement could imply that the Treasury is expecting massed redundancies and wants to cut its losses. This will undoubtedly have been on the radar for some time, so why complete clarity around ‘grant during notice’ has not been available earlier remains a mystery. Given that job retention is integral, a simple statement ‘no grant may be sought for any period of notice of termination’ or the opposite, would have resolved the confusion from the outset!