On 1 July 2020, the Government updated the furlough guidance which included further commentary on the issue of whether an employee can be furloughed during a holiday period.
The addition to the guidance reads:
“Employees can take holiday whilst on furlough. If an employee is flexibly furloughed then any hours taken as holiday during the claim period should be counted as furloughed hours rather than working hours…Employees should not be placed on furlough for a period simply because they are on holiday for that period”
It is our view that the purpose of this additional wording is to suggest that an employer should not furlough a member of staff who would otherwise be working normally, just for the period that they were going to be on annual leave for a pre-booked holiday, for example, a family holiday to Cornwall.
This additional wording (and the guidance generally) is not written with independent schools in mind and the issue is specific to us, and because of this, there will be an element of risk whichever way schools interpret the guidance.
Schools, of course, have a large number of staff that work term time only, who would not normally work during the summer holidays. These may be separated contractually into those whose contract is term-time only and those who are year round but generally do not work during the school holiday periods. Teaching staff, whilst not fully working, have an expectation that some work is to be carried out over the summer. As the furlough scheme is not available to maintained schools, whether or not schools can furlough teachers during the summer holidays is an issue that is unique to independent schools and it is not likely that this issue will be clarified in further guidance. We published a guidance note on 27 May 2020 regarding this issue, and it is our view that despite the above amendment, the position has not changed. The full guidance note can be accessed here.
In short, if teachers and other term time only staff have been furloughed before, or are already on furlough, it is our view that schools are permitted to furlough these staff during the summer holidays, subject to certain considerations. It is not possible to furlough new staff that had not previously been furloughed before 10 June and therefore, schools will be unable to furlough new staff (of any type) for the summer holidays only.
Factors for schools to consider will be what the contract of employment says with respect to school holidays. If school holidays are described as ‘holiday’, as is sometimes the case with older contracts, there may be a greater argument, given the new guidance, that schools should not be able to access the furlough scheme for staff/teachers during the summer holiday. However, if you are using the ISBA template contract, the contract reads that annual leave entitlement should be taken during school holidays, in which case, the entirety of the summer holiday would not usually be considered annual leave. This would, in theory, provide more scope for a school to furlough teachers during the summer.
Our view is that this additional phrase within the guidance is about nominated holiday. School staff who work term time only do not usually designate school holidays as a holiday from work; these are non-working weeks rather than annual holiday. Subject to what their contract says, it goes back to the argument as to whether someone is required to be ‘at work’ in order that they can be furloughed.
This remains a difficulty as there is inconsistency between the wording of the Treasury Direction and the guidance for employers/employees. If a school is paying furlough pay at 100% the risk is however mitigated.
Furloughing staff is not without risk. The risk remains that HMRC may consider that schools should not furlough staff if they are not required to be ‘at work’; we do not know how HMRC will approach this. There is also the risk that HMRC may change their approach or clarify their position through a further Treasury Direction (or otherwise) further down the line, and schools should be aware of this.
Taken in isolation, the additional phrase from the guidance has a different meaning if you consider it in the context of the question “Is C19 damaging your business?” then it is set as it should be and furloughing is justified. With this in mind, when considering whether or not to furlough staff during the summer period, schools should ask themselves the following questions:
- Are you considering compulsory or voluntary redundancies?
- Will your staff number reduce as a result of C19?
- Are you going to freeze pay for school staff this year?
- Are you considering deferring salaries?
- Has your income been reduced for this academic year?
In doing so, schools begin to discern quite how much damage C19 has done to their schools and the justification for accessing furlough will either begin to emerge, or the idea will begin to lose its justification.
The DfE have confirmed in their latest guidance “Coronavirus (Covid-19): financial support for education, early years and children’s social care” issued on 9 July 2020 that the Government expect independent schools to continue to access the support schemes, not least where they are funded in the main by fee income paid by parents, to enable them to retain staff and ensure that schools are ready to welcome back their pupils from September. The guidance does however acknowledge that as pupil contact increases over the coming months they do expect to see a decline in the level of claims made under the furlough scheme, as more and more pupils return to school, and consequently, staff return to work from furlough. Confirming also that independent schools are able to take advantage of the flexibilities of the furlough scheme where appropriate. Whilst this guidance does not address the point directly, it is helpful in supporting an argument that term time only staff can be furloughed during the summer holiday period.
Furlough and notice
With regards to notice pay during furlough, the guidance is inconclusive and there is some debate about whether or not you are required to top up furlough pay during an employee’s notice period. Our view is that an employee should receive “normal” remuneration during his/her notice period (i.e. the School should top up pay to 100%) so that the employee is not disadvantaged by agreeing to be furloughed but also mindful of the fact that the employee may not agree to be furloughed and will be entitled to their normal remuneration in any event. There is also a potential problem with paying at a reduced rate during the notice period if (as will often be the case) the employee only agreed to a temporary pay cut in order to avoid being at risk of redundancy. We would therefore recommend that the employee is paid in full.
In terms of whether it is permissible to claim the furlough grant from HMRC during an employee’s notice period, there has been a recent update to the Treasury Direction on the furlough scheme and the current edition now suggests that funds should only be claimed from the scheme where the employer “intends to use them to continue employment of the employees in respect of whom the claim was made”. As such, although not explicit (either in the guidance or the Direction), this wording arguably gives rise to an increased risk in continuing to claim under the furlough scheme once notice has been given to terminate an employee’s employment (namely that HMRC will deem such a claim to be an erroneous claim, not in accordance with the spirit/purpose of the furlough scheme and seek to recover the sums paid and/or issue penalties).
Having said that, there has been no previous indication that claiming in such circumstances was not in line with the furlough scheme guidance and a huge number of employers have relied on the earlier guidance and earlier editions of the Treasury Direction. A switch in approach, without any announcement and via a revised Treasury Direction, is perhaps unlikely. Given the current ambiguity and until there is further clarity on the point, we recommend that the School continues to claim furlough funding under the furlough scheme. However, in doing so, you should be aware of the risks and be prepared to repay the grant (and/or possibly a penalty) if required by HMRC, should the guidance change. We should add that, whilst we cannot rule out the risk of a penalty being applied, such action by HMRC does not seem likely in view of how this uncertainty has arisen. The full direction can be accessed here.
Accessing the scheme in any circumstance is not without risk, whichever option schools take. Schools should keep a written record of their rationale for furloughing staff, to include their consideration of the above questions and evidence of financial position where appropriate. This will support their position that furloughing staff during the summer was a justified.
We recommend that schools review our full guidance note on this issue, available here.