Plans have been announced to give employers a 30-day window to confess to furlough fraud after concerns that the system is being abused. The government plans to introduce legislation giving powers to impose penalties and to pursue directors of insolvent companies personally.

The draft legislation will give HMRC the power to check grants made to employees through the job retention scheme have been used correctly to pay workers’ wages, and to ensure employers have not been overpaid furlough reimbursement.

It would allow HMRC to reclaim – through income tax assessments – any furlough money overpaid to employers or not spent on wages as intended. Any organisation caught deliberately using furlough money for anything other than its intended purpose – so-called furlough fraud – would face a financial penalty. The legislation is expected to introduce a 30-day period for employers to "confess" and notify HMRC of any furlough mistake claims. After this grace period HMRC will pursue companies using criminal and civil powers.

Almost nine million workers have been furloughed under the Coronavirus Job Retention Scheme since March, at a cost of £19.6bn to the taxpayer, and as of 29 May, HMRC had received 1,868 reports of fraud to its digital reporting service.

The development comes as research finds a third of employers are fraudulently abusing the Coronavirus Job Retention Scheme. Crossland Employment Law commissioned a poll that asked 2,000 furloughed full-time staff (employed across a variety of sectors and by different companies) about their experiences of furlough. Of the 34% of respondents who were asked to work:

• A third were asked to carry on doing their usual job, while 29% were told to undertake more administrative tasks.
• One in five had been asked to either cover someone else’s job or to work for a company linked to their employer while on furlough.
• The rule breaking was evenly spread across SMEs and larger corporates.

Beverley Sunderland, Crossland’s Managing Director, comments:

“Until 1 July employers are only allowed to ask furloughed employees to undertake training, yet a third of the employees surveyed were asked to work, potentially making the company money and so increasing their profits. The government will pick up 80% of the employee’s wage and could potentially foot a bill of billions in fraudulent furlough wage claims. Like any fraud, this is a serious offence and an exploitation of employees. As it is fraud on the Treasury, employers could face hefty fines, be asked to pay past payments back, have any future payments withheld or even potentially face prison.

“Since the Coronavirus Job Retention Scheme was launched about three months ago, we’ve received an avalanche of calls from worried employees, all unrelated to our own clients and many with the same story: I’ve been furloughed but my employer has asked me to keep working. This is fraud that is impacting many industries, job roles and seniority levels. In one case in the manufacturing sector the employer had not only asked the furloughed employee to work but had also imposed a 20% pay cut, so their workforce was costing them nothing. We heard from employees in the graphic design industry – some had been asked to continue working one day a week so they could be paid 100% of their salary. We’ve had cases of employees working on a work permit (sponsorship licence) in the professional services industry told they must continue working when furloughed or face being dismissed and asked to leave the country. Furloughed employees in the appliance fitting business were asked to carry out orders to justify the ‘money’ they were being paid, whilst investment companies are trying to use the scheme as an alternative to performance management – if an employee isn’t hitting target, they were furloughed or threatened with furlough.

“Some employers seem to be targeting those they feel are less likely to complain, such as those on work visas, with a larger proportion of women saying that although they had been asked to work their also-furloughed male colleague wasn’t.

“Being asked to work when on furlough is a blatant abuse of the system and puts the employee in a very difficult position. There are options. Employees can either complain to their employer first to inform them that it is against the rules, which is best done in writing for evidence, or report them for fraud directly to HMRC which is completely anonymous. But very few employees want to go down either of these routes for fear of loss of their job, especially during the current challenging economic climate.

“With the rules changing from 1 July we will hopefully see less exploitation of the system, as employers can bring previously furloughed employees back to work for whatever amount of time or shift pattern while still under the CJRS. However, this will not stop employers saying that the employee only worked one day when in fact they worked four.”