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Pinsent Masons: Furlough scheme ‘unlikely’ to halt difficult decisions in energy sector

Claire Scott, legal director at Pinsent Masons LLP.
Claire Scott, legal director at Pinsent Masons LLP.

The furlough scheme is certainly helpful to energy sector employers and employees but there are some grey areas which mean businesses and individuals may not benefit as was intended.

It was a welcome intervention at a time when oil and gas industry employers are facing a perfect storm of challenges. Employers are having to grapple with the massive impact of Covid-19 and the extraordinary practical challenges in maintaining essential supply and the safety of offshore workers during the pandemic.

Yet they are also facing the lowest oil price in 18 years and as a knock-on from the pandemic, the lowest demand for oil in 25 years. This means that for many well-intentioned employers the furlough scheme is unlikely to be enough to prevent difficult decisions from being made.

The oil and gas sector, like infrastructure, also relies on a large number of contractors who are engaged through personal service companies. While the guidance around the Coronavirus Job Retention Scheme has confirmed that they potentially can be furloughed, this means that they can only carry out their duties as a statutory director and nothing more than that. This is more limited than at first thought, and may prevent contractors, for example, from discussing future work with potential clients during the furlough period as they are prevented from doing anything which might generate commercial revenue for the personal service company.

The Chancellor’s decision to extend the furlough scheme cut-off date to 19 March has to be welcomed but the truth is that there are some potential payroll issues which mean that, although intended to enable more workers to benefit from the scheme, it might not actually result in that.

Employees must have been on the employer’s PAYE payroll by 19 March 2020 and notified to HMRC via what’s called an RTI submission on or before 19 March 2020. This is to avoid fraud – the scheme was announced on 20 March – so HMRC are looking for people on the payroll before that date, however, it can take a while to be added to payroll, so employees might not have been added in time and therefore may not be eligible for furloughing.

The date for TUPE transferred employees and PAYE succession mechanisms also changed to 19 March 2020, which might (probably unintentionally) have knocked out employees who TUPE transferred in before that date, so a number may well be in a limbo between their old and new employers and can’t be furloughed by either.

Rumour and informal statements on social media are not helpful to employers and clear and unequivocal guidance is key to trying to interpret the scheme. Employers are trying to make urgent and business critical decisions based on guidance which changes on a regular basis and which in some places conflicts with the Treasury position.”

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