The government has now released further details of the Coronavirus Job Retention Scheme. Full details can be found here.
The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers for at least three months starting from 1 March 2020. We expect the scheme to be up and running by the end of April. It is designed to support employers whose operations have been severely affected by coronavirus (COVID-19).
Employers can use a portal to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Employers can use this scheme anytime during this period.
Who can claim?
Any UK organisation with employees can apply, however you must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
Employees you can claim for
Furloughed employees must have been on your PAYE payroll on 28 February 2020, and can be on any type of contract, including:
full-time employees
part-time employees
employees on agency contracts
employees on flexible or zero-hour contracts
The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.
Can employees work whilst on furlough leave?
To be eligible for the subsidy, when on furlough, an employee can not undertake work for or on behalf of the organisation. This includes providing services or generating revenue. While on furlough, the employee’s wage will be subject to usual income tax and other deductions.
Can I claim the grant if my employee is working reduced hours/pay?
No, if an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed.
How do I place an employee on furlough leave?
Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way. It is strongly recommended that you seek specialist advice from us before taking any steps.
To be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of this communication.
Does the purpose of the furlough leave need to be to avoid redundancies?
Whilst the scheme is called the ‘Coronavirus Job Retention Scheme’, there does not appear to be any requirement linking the decision to place employees on furlough leave to a need to avoid redundancies or lay-offs. There is likely to be further guidance issued on this point and we strongly recommend that the decision to furlough staff is linked to a need to avoid redundancies or to lay off staff.
Can employees hired since 29 February 2020 be placed on furlough leave?
No, employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with the scheme.
Do I need to place all my employees on furlough leave?
You do not need to place all your employees on furlough. However, those employees who you do place on furlough cannot undertake work for you.
What If my employee is already on unpaid leave?
Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.
What if my employee is on Statutory Sick Pay?
Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this.
The government guidance states that ‘employees who are shielding in line with public health guidance can be placed on furlough’, which we believe applies to those vulnerable and high-risk employees not able to attend work.
Can my employee take holiday pay whilst on furlough leave?
The government has not issued any guidance on employees taking holiday pay during furlough leave. Holiday pay must be paid at the normal rates. It seems likely however that if an employee takes holiday whilst on Furlough they would, in effect, come “off” the Furlough Leave and you would be required to pay holiday pay. It also seems likely that they will continue to accrue their holiday entitlement during the Furlough period.
The guidance states that any period of furlough must last at least 3 weeks in order to qualify for the grant and so, we would recommend that holiday leave is not taken during any 3 week period of furlough leave to ensure that you can recover the grant.
What if my employee has more than one job?
If your employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
Can a furloughed employee take part in voluntary work or training?
A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of your organisation.
However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the National Living Wage or the National Minimum Wage for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
What can be claimed
Employers need to make a claim for wage costs through the scheme.
You will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included.
At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.
The government has indicated that they will issue more guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, before the scheme becomes live.
Full time and part time employees
For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.
Employees whose pay varies (variable hours staff, zero-hour staff etc)
If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either:
the same month’s earning from the previous year
average monthly earnings from the 2019-20 tax year
If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.
Employer National Insurance and Pension Contributions
All employers will remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.
You can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying those wages.
You can choose to provide top-up salary in addition to the grant. Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded through the scheme. Nor will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards).
Does the National Living Wage/National Minimum Wage apply?
No, individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working.
Therefore, furloughed workers, who are not working, must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.
However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
When the government ends the scheme
When the government ends the scheme, you must make a decision, depending on your circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy). You should seek advice from us before taking any action in this respect.
Employees that have been furloughed
Employees that have been furloughed have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.
Once the scheme has been closed by the government, HMRC will continue to process remaining claims before terminating the scheme.
Income tax and Employee National Insurance
Wages of furloughed employees will be subject to Income Tax and National Insurance as usual. Employees will also pay automatic enrolment contributions on qualifying earnings, unless they have chosen to opt-out or to cease saving into a workplace pension scheme.
Employers will be liable to pay Employer National Insurance contributions on wages paid, as well as automatic enrolment contributions on qualifying earnings unless an employee has opted out or has ceased saving into a workplace pension scheme.
What you’ll need to make a claim
Employers should discuss with their staff and make any changes to the employment contract by agreement. Employers should seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.
To claim, you will need: • your PAYE reference number • the number of employees being furloughed • the claim period (start and end date) • amount claimed (per the minimum length of furloughing of 3 weeks) • your bank account number and sort code • your contact name • your phone number
You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
Claim
You can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until the 1 March if applicable.
What to do after you’ve claimed
Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to a UK bank account.
You should make your claim in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll.
You must pay the employee all the grant you receive for their gross pay, no fees can be charged from the money that is granted. You can choose to top up the employee’s salary, but you do not have to.
Tax Treatment of the Coronavirus Job Retention Grant
Payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles. Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.
More details will be provided once available.
You should contact us if you are considering or if you intend to place staff on furlough leave.
Please do not hesitate to contact us should you have any queries.