Update 19th May, 10am:
Furlough update from Doug Crawford
As I set out in my below message, based purely on our guidance from HMRC and our legal advisors, the period of furlough could only be applied to employees whose assignments have been terminated due to COVID-19 and for a period until the end of the original assignment date.
We have understood the serious challenges this initial stance from government has created for a portion of our workforce and we therefore have been actively pressing HMRC for further assistance and clarity on this point.
We’ve now finally received written confirmation directly from HMRC’s senior policy team outlining their position on how the guidance must be applied to the period for which an umbrella employee is eligible for furlough:
The position concurs with the legal view you have obtained, i.e. that CJRS [Coronovirus Job Retention Scheme] would not be due for any period which extended beyond the end of the agreed assignment. Whether or not the assignment may have been extended would be a matter of fact, based on the evidenced agreed position between the employee and the engager.
Update from HMRC
Based on our discussions with HMRC around the nature of umbrella assignments, it was acknowledged that the policy and guidance was not specifically drafted with the way in which an umbrella employee works in mind but also that there was not an intention to treat Umbrella employees differently.
The special advisory team at HMRC also affirmed that where a contractor is in a fixed term assignment which would come to a natural end, that date is the end of the eligible period for furlough purposes. This is because the assignment has not specifically ended as a result of COVID-19. It was also made clear that an assignment cannot be extended solely for the purposes of claiming under the government scheme.
Unfortunately, this confirmation is not the answer we were hoping for, but it does now give final clarity in that HMRC’s view on the period of eligibility for furlough for an umbrella employee is the period for which the assignment would have otherwise been expected to run.
How does this amend our view?
Although the above is far from ideal given it brings an end point to furlough eligibility, why an assignment end date is taken to be the point at which it would have ended is now clear. For contractors on rolling assignments specifically, we discussed that although there is no committed future term, the likelihood is that the contract would be expected to last for an extended period; and, similarly, it is not uncommon for contractors on assignment to have their assignments extended.
In both instances it was then raised whether, if the commitment to an extended date could be evidenced, the new end date of the assignment could be taken as the point to which the eligibility period for furlough could be extended. At this time, given HMRC is still considering its guidance in full, we did not get a firm commitment on this point but it was acknowledged that subject to the correct evidence being available, it could be taken as a reasonable approach under the existing guidance.
As a result, we have made the decision to update our policy so that the period of furlough will be taken to run until the later of:
- The original assignment end date; or,
- The date to which the assignment would have been extended had it not been for COVID-19, where we have evidence to confirm this position from our agency partners. We have affirmed we do not need direct evidence from the end client.
What is next?
As committed in my previous communication, we will be reaching out over the course of this week to anyone who may now also be eligible in light of this new information.
Whilst this latest update from HMRC presents an improved position for even more of our contractors, we recognise that the eligibility and period of furlough remains restricted for others. Therefore please be assured, that although as a fully compliant and responsible business we must always operate with the rules and guidance passed down to us from government, this will not stop us from continuing to tirelessly work and lobby in the background to achieve further wins and the best possible outcome on our contractor’s and sector’s behalf.
If you have any questions, please do not hesitate to get in touch.
When I joined the Optionis Group, and therefore Parasol, as CEO nine months ago, I could never have predicted what the future would hold. Frankly, none of us could. And whilst my background may not have previously been from this industry, working here for the last nine months has allowed me to confirm two things, first-hand. The first is, what government themselves say about contractors is true; you really are “the backbone of the UK economy”. The second is, it is in Parasol’s DNA, and the individuals and teams within it, to put these same contractors at the heart of everything we do.
We have been wanting to confirm our position regarding furloughing for some time, however it was clear from the original guidance that government hadn’t fully considered the way in which an umbrella employee works. In particular, the guidance did not deal with how the definition of regular salary should be interpreted for such employees.
As a result, our initial view, based on our conversations with HMRC and our advisors on the guidance at the time, was that we could only calculate furlough payments on an average of basic pay (National Living Wage) based on our employment contract.
We have always structured our employment contracts in the best interests of our umbrella employees. This is so that we can offer continuous employment between assignments and ensure umbrella employees receive the same rights and benefits as regular employees. As examples, this is helpful for employment record purposes for mortgage applications and accruing employee rights like regular employees. Unfortunately, no one could have predicted COVID-19 and that these same contracts, drafted specifically in our umbrella employees best interests, would be a huge challenge when government introduced the job retention scheme and guidance around it.
We knew this position was clearly not in the best interests of our employees and the wider Umbrella workforce. Somewhat understandably, this is completely new territory for government and has had to be thought up in haste, and we did not believe it was government’s intention to treat umbrella workers differently than other workers. Therefore, we have worked tirelessly to lobby to get clarity on this point and push for the very best support for our contractors.
As a result, finally following written guidance from HMRC and further advice from our advisors, we were extremely pleased last week to confirm that we will be including commission in the furlough pay calculation for any eligible umbrella employees for the full furlough period.
Having received the written confirmation from HMRC that we were eagerly awaiting, our position on furloughing is:
- We are paying any furloughed employees 80% of their average earnings inclusive of commission from the last tax year up to the maximum of £2,500 per month.
- Holiday pay does accrue during the period an employee is furloughed. The basis of the holiday pay is in line with the current legislation and set out in the government guidance which is at 100% of the reference pay.
I would also like to confirm that the cost of holiday pay or apprenticeship levy to our organisation which is not repayable through the government scheme, has played no part in our decision making or the speed of our policy announcement to employees last week. Our response has only been driven by ensuring we are able to pay our umbrella workers as quickly but fully as possible, and knowing we are doing so from a fully compliant standpoint, which is central to everything we do. Similarly, at no point did we expect to deduct a margin from any furlough payments to workers.
We have already started making our first furlough payments. We hope that these payments help towards just some of the much needed financial support and peace of mind for employees who may have had assignments terminated or postponed as a result of COVID-19.
What further guidance are we seeking?
Whilst the position achieved above means that we have been able to start supporting many of our umbrella workers, frustratingly, based on our current guidance from HMRC and our advisors, the period of furlough could only be applied to employees whose assignments have been terminated due to COVID-19 and for a period until the end of the original assignment date.
Clearly, this guidance does not deliver an answer we want or believe is in the interests of our employees or the wider Umbrella workforce. In many respects, much like the issues around the basis of pay calculation, the guidance still does not deal with the nature of how umbrella employees work. In particular, this represents problems for employees who work on rolling assignments or whose assignments would have been extended had it not been for COVID-19.
To address this matter, we have escalated our concerns to HMRC’s most senior specialist team, via our relationship manager, urgently seeking their guidance and support. We will continue to pursue this matter until we have an answer. I know this is a very serious challenge and worry for many of our contractors and we hope to be able to provide clarity soon.
I would like to confirm and commit to all of our employees that at any point we receive a change of view in eligibility from government, we will contact any of our employees who, based on the current guidance, is currently ineligible, so that we can prioritise ensuring they are paid in full as soon as we practicably can.
Alongside continuing to make furlough payments to eligible employees, we are continuing to urgently seek clarification on the matter outlined above as our top business priority. As soon as we receive any word from government, we will update our guidance and share it with you as a priority.
We have already been in contact with our agency partners and employees to define next steps and fully confirm our position. If you have any questions please do not hesitate to get in touch.