COVID-19 Job retention scheme
Following the announcement of the Coronavirus Job Retention Scheme, the Government has now released much anticipated information about how the scheme will work. Click here for a link to the guidance.
Some of the key points from the guidance are as follows:
About the scheme
- Open to all UK employers that had created and started a PAYE payroll scheme on or before 28 February 2020. This includes businesses, charities, recruitment agencies, public authorities and administrators acting on behalf of a company.
- It is a temporary scheme, expected to last for at least three months, starting from 1 March 2020. It can be used at any time during this period.
- It is expected to be up and running from the end of April, when companies can submit one claim for all of their furloughed employees, every three weeks.
Employees you can claim for
Furloughed employees must have been on the PAYE payroll on 28 February 2020 and can be:
- Full-time employees
- Part-time employees
- Employees on agency contracts
- Employees on flexible or zero hours
Employers should discuss the changes with their staff and reach an agreement on any changes to the contract of employment. They should then write to their employees to confirm they have been furloughed and keep a record (appropriate legal advice should be taken, as necessary).
The minimum amount of time an employee can be furloughed is three weeks.
Who can be furloughed?
- Employees who are long term sick or self-isolating should get statutory sick pay (SSP) and can be furloughed after this.
- Employees who are SHIELDING in line with public health guidance can be placed on furlough.
- Employees with more than one job can be furloughed by each employer and the £2,500 cap applies to each employer individually.
- Employees who have been made redundant since 28 February can be included if the employer rehires them.
Who cannot be furloughed?
- Employees hired after 28 February 2020 cannot be furloughed or claimed for through the scheme.
- Employees cannot work for the employer whilst they are furloughed.
- Employees who are on unpaid leave cannot be furloughed if this was prior to 28 February 2020.
How much can you claim?
Businesses will receive a grant for 80% of a furloughed employee’s earnings (as calculated below and capped at £2,500 per month) plus the associated employer’s national insurance contributions (NIC) and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included. It is unclear how benefits in kind, and in particular those being payrolled, will be reflected in the calculation – clarification will be sought on this point.
The maximum claim for the higher paid employees is £2,500 + £245 (employers’ NIC) + £59 (auto- enrolled pension contribution) = £2,804 that can be applied for, per employee, per month.
Calculating furloughed pay
The following explains how to calculate pay of a furloughed employee:
Full and part-time employees
You should calculate the 80% for furloughed pay based on the employee’s actual salary before tax, as at 28 February 2020. You should exclude commission and bonus payments.
Employees whose pay varies
If the employee has been employed for a full twelve months prior to the claim you can claim the higher of EITHER:
- the same month’s earnings from the previous year; OR
- the average monthly earnings from the 2019-20 tax year.
If the individual has not been employed for a year, then you will use the average monthly earnings since they started.
If they started in February 2020 then use a pro-rata for their earnings so far.
Please see our examples below to demonstrate the calculation.
Set Free Ltd employs Mrs Tee. Her annual salary as at 28 February 2020 was £25,000, so £2,083.33 monthly. Mrs Tee opted out of auto-enrolment so no pension payments need to be made.
The available grant for the employee is the lower of:
- 80% of £2,083.33 or,
Plus, the employer’s NIC on this amount
So Set Free Ltd can claim a grant of £1,666.66 plus £130.77 (employer’s NIC) = £1,797.43
£2,083.33 x 80%
£1666.66 – £719* = £947.66 x 13.8%
If Mrs Tee had been in the company’s auto enrolment pension scheme (paying minimum contributions), then Set Free Ltd would be able to claim the following:
£2,083.33 x 80%
£1666.66 – £719*= £947.66 x 13.8%
£1666.66 – £512** = £1,154 x 3%
So, the total grant to be applied for is £1,832.06
If Set Free Ltd wanted to top up Mrs Tee to full salary they would then need to pay an additional £416.67. This cannot be claimed back through the job retention scheme.
Set Free Ltd employs Mr Hay. His annual salary as at 28 February 2020 was £45,000 so £3,750 monthly. Mr Hay opted out of auto-enrolment so no pension costs.
The available grant for the employee is the lower of:
- 80% of £3,750; or
Plus, the employer’s NIC on this amount.
So Set Free Ltd can claim a grant of £2,500 plus £245 (employers NIC) = £2,745
If Mr Hay had been in the pension scheme, then Set Free Ltd would be able to claim the following:
= £3,000 this exceeds the limit so £2,500
£2,500 – £719* = £1,781 x 13.8%
£2,500 – £512** = £1,988 x 3%
So total grant to be applied for is £2,804 – this is the maximum that can be claimed under the scheme.
If Set Free Ltd wanted to top up Mr Hay to full salary they would then need to pay an additional £1,250. This cannot be claimed back through the job retention scheme
* secondary threshold will change to £732 from April 2020
**LEL will change to £520 from April 2020
Pension reclaim is based on the minimum auto-enrolment employer contribution and may vary slightly depending on the pension set up
Do the payments need to go through the PAYE system?
Whilst on furlough, the employee’s pay will be subject to the usual income tax and NIC deductions and the employer will need to account for employer’s NIC contributions and relevant auto-enrolment pension contributions in the normal way. HMRC will issue guidance on how these are to be processed prior to the scheme starting.
How will the payments received by HMRC be taxed in the business?
Payments received by a business under this scheme are made to offset normal deductible revenue expenditure. They will therefore be treated as taxable profits for income tax and corporation tax purposes, in accordance with normal principles. Similarly, businesses can deduct employment costs as normal when calculating their taxable profits.
Can the furloughed employee still work in the business?
A furloughed employee can take part in volunteer work or training, if 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 their national living wage (NLW)/national minimum wage (NMW) for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
Can an employee be moved in and out of being furloughed if work becomes available to an employer and then ceases again?
The scheme is being designed to allow for flexibility so that furloughed staff can be brought back to work, for example, to replace those still working who later become sick. An employee must remain on furlough for a minimum period of three weeks, although a further period may immediately follow the previous furlough if agreed. This will ensure flexibility where needed in the case of other employees ceasing work, becoming sick etc.
Does an employee have to accept furlough if offered?
No, but the employer could then make the employee redundant instead using the usual employment law procedure.
How do you make a claim?
Employers should discuss with their staff and make any changes to the employment contract by agreement (seeking legal advice and negotiating with union representatives where necessary).
To claim, you will need:
- your ePAYE reference number
- the number of employees being furloughed
- the claim period (start and end date)
- amount claimed (per the minimum length of furloughing of three 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.
Contact your accountant for assistance in preparation of forms and to confirm the above. Hope that helps.