Furlough Varied vs Fixed Employee

pmac183

Hi Everyone, 
I'm at my wits end and can find any guidance on what to do. I have 2 contracts with my employer but they are both through the same payroll.  One is fixed at 15 hours a week and the other is a zero hour contract at an hourly rate. However, I get one pay slip - one pay and one report to HMRC. 

Before agreeing to be furloughed I sought advice from HMRC and was told that as my gross pay is completely different every month between 1000-2500 with an average of 1800 they would expect me to be a varied employee and gave me some calculations. When I accepted the furlough I shared this with my employer and got them to confirm their understanding was the same. The reason being my average pay for 2019/20 was 1800 whereas my february 2020 pay was only 1100. (1000 for my fixed and 100 for my zero hours)

However when my payslip has arrived my employer has only used February payslip as the basis and said that their accountants had informed them that I was a fixed employee as part of my wage was fixed. I again shared the information I got from HMRC and pointed out the agreement when furloughed. It went up to the MD who said he though me querying it was disrespectful and I should be grateful I am getting any money at all. He said that was the end of the matter. 

I honestly don't know what to do and can find no guidance on gov.uk for when the employer has calculated it wrong. I can't pay my bills on 880 a month.

Any advice would be greatly appreciated

daKlone

I have to say, that's a new one on me! I've never heard of an arrangement like this before.

I seems to me that you ought to either have one contract that covers the hours situation; 15 hours plus addition hours as a rate per hour, or two pay slips each reflecting the wages from a contract. To have them mixed-up in this way seems to be a recipe for trouble.

I doubt very much that they would be able to make two claims for you on the CJRS, so have to pick which type of payment calculation to use for the entire claim, and seem to have picked the 'safe' bet. The one that means they have to pay out the least, and has no risk of them being told they've used the wrong one and paid you too much.

It appears that they have arrived at the amount correctly (for the type of payment they have chosen) by using Februarys wages as the reference.

I'm afraid I don't think there's a lot you can do legally speaking, but I would certainly get everything in writing.

Write to your boss, setting out in calm, clear words that you believe that they have made a mistake by selecting the 'fixed rate full or part time employees on a salary' calculation and that you believe they should use the 'employees whose pay varies and were employed from 6 April 2019' or 'employees whose pay varies and who started employment after 6 April 2019' (as appropriate) calculation.

https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme

You could point to the example of a worker on a fixed monthly salary and explain why this isn't you. Re-iterate the comments you got from HMRC and the timeline of events. Ask them for an explanation of why they've taken the position they have. Keep it calm and try not to accuse them of anything or use inflammatory language, just put your point across and ask for thiers. Send it recorded delivery.

Best of luck!

Jeremy535897

I would start by saying that what you are entitled to be paid is as per your amended contract of employment, not what your company can claim under CJRS, and will just assume the two are the same.
The issue here is less complicated than it seems at first. It does not matter how many bits of contract of employment you have. The Treasury Direction treats the two elements as one. It would be more complicated if two different payrolls were used for each bit of the wage, but that is not the case here.

The only question to ask is whether the employee is a fixed rate employee or a variable pay employee. HMRC have already given their opinion. The accountant's opinion is wrong because it does not matter if there is a "fixed element" to the pay. Someone on a basic salary with a variable compulsory commission would be treated as a "fixed rate" employee if this were the case. So would someone who was guaranteed 4 hours a week of work but typically worked 40 hours. Paragraph 7.6 of the Direction says:

"7.6 A person is a fixed rate employee if-
(a) the person is an employee or treated as an employee for the purposes of CJRS by virtue of paragraph 13.3(a) (member of a limited liability partnership),
(b) the person is entitled under their contract to be paid an annual salary,
(c) the person is entitled under their contract to be paid that salary in respect of a number of hours in a year whether those hours are specified in or ascertained in accordance with their contract (“the basic hours”),
(d) the person is not entitled under their contract to a payment in respect of the basic hours other than an annual salary,
(e) the person is entitled under their contract to be paid, where practicable and regardless of the number of hours actually worked in a particular week or month in equal weekly, multiple of weeks or monthly instalments (“the salary period”), and
(f) the basic hours worked in a salary period do not normally vary according to business, economic or agricultural seasonal considerations."

I doubt 7(e) is met, at least.

You could be tempted to point out to the MD that you actually have his best interests at heart, because HMRC have said how to calculate your reference salary, and by paying less than 80% of that, the employer is entitled to no CJRS at all for you per paragraph 7.1(b)(ii), which says:

"7.1 Costs of employment meet the conditions in this paragraph if-
(a) they relate to the payment of earnings to an employee during a period in which the employee is furloughed, and
(b) the employee is being paid-
 (i) £2500 or more per month (or, if the employee is paid daily or on some other periodic basis, the appropriate pro-rata), or
 (ii) where the employee is being paid less than the amounts set out in paragraph 7.1(b)(i), the employee is being paid an amount equal to at least 80% of the employee’s reference salary."

That might be the fast track to redundancy though.

unholyangel

You are a fixed rate employee if you meet the following conditions:

7.6 A person is a fixed rate employee if-
(a) the person is an employee or treated as an employee for the purposes of CJRS by virtue of paragraph 13.3(a) (member of a limited liability partnership),
(b) the person is entitled under their contract to be paid an annual salary,
(c) the person is entitled under their contract to be paid that salary in respect of a number of hours in a year whether those hours are specified in or ascertained in accordance with their contract (“the basic hours”),
(d) the person is not entitled under their contract to a payment in respect of the basic hours other than an annual salary,
(e) the person is entitled under their contract to be paid, where practicable and regardless of the number of hours actually worked in a particular week or month in equal weekly, multiple of weeks or monthly instalments (“the salary period”), and
(f) the basic hours worked in a salary period do not normally vary according to business, economic or agricultural seasonal considerations.

So if your contract sets basic hours and sets a rate for those hours and you're paid the same per month regardless if you happen to do 60 hours in a month or 67 (ie february with exactly 4 weeks versus march with 4.4 weeks), then you would be a fixed rate employee. Even if you usually do more than the basic hours and your pay ends up varying as a result. Although it does not cover those who may be on a contract which stipulates 10 hours a week oct-mar and then 32 hours a week april-oct.

If you are not a fixed rate employee, then you would/should be dealt with under the pay averaging method. If that is the case here, then perhaps approach your employer with the above and point out how you do not meet the conditions of a fixed rate employee. 

It's your contract that determines if you were a fixed rate employee or not, rather than your pay. 

I suspect the confusion has arose due to their use of worker whose pay varies in the guidance (the directions make no such distinction) and they intended it to be in line with how it is understood in employment law (under ERA 1996 for example) but those who don't have the foggiest about employment law have interpreted it to mean if your pay varies at all. 

pmac183

Thank you for the helpful responses. I think my employer is sticking to 7.6(b) as I am entitled to an annual salary albeit that figure only accounts for half my overall pay due to the zero hour component. I suppose they feel there is less risk underpaying us than over. We used to be fully zero hour contract but were TUPE two years and they introduced this two contract system to save money as the annual salary actually works out a loss less than the zero hour but you have the guarantee of a basic wage. 

It is a difficult one as the advice I got from HMRC was similar to go back with my gross pay monthly figures for 2019/20 and show that they were so varied that the varied guidance would clearly apply. This is when it was escalated to the MD who said I was being disrespectful by questioning the instructions they had got from their accountants. I was left with no illusion that if I didn't drop it my position would be on the line. 

So far I have only had verbal advice from HMRC, I will try and write to them to see if they will give me a written response. In the meantime I will try and survive on this which will be hard. I thought I had done everything right by ensuring I understood the payment and speaking to HMRC before agreeing terms of furlough with my employer but it hasn't worked. I should have stuck to my guns and not agreed the furlough - there is still work in the company just not a lot of it so I would have been better off. 

Jeremy535897

You have to meet all the conditions in 7.6 to be a fixed rate employee, otherwise everyone would be a fixed rate employee under 7.6(a).

There is more risk to them underpaying (they risk losing all CJRS on the claim for you) than overpaying (where they might have a shortfall).

pmac183

Thanks, I think if you look at the 15 hour contract it probably would meet all of those in respect of those 15 hours but that doesn't take account of the reality of my pay which is usually 28-35 with the rest being counted as zero hours. I suppose (e) doesn't refer to the basic hours and my pay varies so that is the extent to the argument.
 It is grossly unfair as most other colleagues are on zero hour contracts and they are therefore being paid as a varied employee. It does seem an overzealous interpretation of guidance which is not in the spirit of the overall policy directive. I suppose guidance can't take account of all eventualities but you would think if there was a grey area the accountant should get a direction from HMRC.