The Coronavirus Job Retention Scheme was introduced by the Government in March 2020 to cover wages of furloughed employees. The scheme has now been extended to the end of October, but employers will need to start to contribute towards the wage costs from August. 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 19 March 2020. This includes businesses, charities, recruitment agencies, public authorities and administrators acting on behalf of a company.
- It is a temporary scheme, which started on 1 March 2020 and has been extended up to the end of October 2020. The scheme will close to new entrants from 30 June 2020, meaning that an employee must have been furloughed for a period of at least three weeks prior to this date to be eligible for furlough from 1 July. The Government has since caveated though that this effective cut-off date of 10 June, to place an employee on furlough for the first time, will not apply to those returning from parental leave. The employer must, however, have previously made a claim for other employees within the business to be eligible.
- Companies can submit one claim for all their furloughed employees in a claim period which would normally be in line with their standard pay period depending on frequency that the payroll is run.
- Any claims in respect of the period to 30 June will need to be submitted by 31 July 2020.
- New flexibility will be introduced to the scheme from July to help workers return part-time with employers being asked to pay a percentage towards their salaries. Further details on how the scheme will operate from this date can be found in our article here.
Employees you can claim for
Furloughed employees must have been on the PAYE payroll on 19 March 2020 and have been notified to HMRC via an RTI submission on or before this date. This is a change from the original guidance that had a reference date of 28 February 2020.
The change could open the CJRS to some additional employees but, in reality, the scope will be limited. Those most likely to benefit are those who joined after 28 February 2020 but before 19 March and are paid weekly or fortnightly. Some employers that made their RTI submission early (i.e. prior to 19 March) or ran on a different monthly payment date such as the 15th of the month may also have additional employees who could benefit.
Furloughed employees can be:
- Full-time employees
- Part-time employees
- Employees on agency contracts
- Employees on flexible or zero hours
- Other eligible individuals who are not employees
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 or stopped working for an employer after 28 February but before 19 March can be included if that employer rehires them.
- Employees who have been transferred to a new business after 19 March 2020 where the TUPE or the PAYE business succession rules apply.
- Office holders (including company directors), salaried members of LLPs, agency workers and limb workers provided they are paid via PAYE but subject to some further conditions.
Directors of limited companies can be furloughed in respect of the salary they have withdrawn under PAYE previously even if they are the sole employee (subject to the wider furloughing requirements). They have to stop working for this company although they can continue to carry out their statutory obligations as directors e.g. carry out legal filings etc. A furloughed director should not, however, carry out revenue generating work or other services beyond their statutory obligations. The decision to furlough a director should be minuted by the board and the director should receive written notification of this.
Who cannot be furloughed?
- Employees who were first notifed to HMRC on an RTI submission after 19 March 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. Any contractually obliged payments (e.g. where set out in the employment contract) such as wages, fees, past overtime and compulsory commission should be included. Discretionary commission and bonuses (including tips) should be excluded.
Any non-cash benefits such as benefits-in-kind and those provided under a salary sacrifice arrangement should also be excluded from the reference pay and will need to be provided in addition to the payment under this scheme. The Government has confirmed that COVID-19 should be treated as a ‘life event’ such that salary sacrifice arrangements can be varied if required.
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.
The employer cannot pay less than 80% of the employee’s reference pay (or £2,500 if higher) to their employees. Admin or any other fees cannot be charged by the employer and they cannot enter into any agreement to reduce the amount the employee receives.
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 19 March 2020. HMRC has confirmed that if you have already calculated based on previous guidance using 28 February 2020 as the reference date you can still use this for your first claim. You should exclude any discretionary 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 19 March 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 19 March 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:
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.
Interaction with employment allowance
The online portal is now open for applications. One of the points that has come out of the additional guidance published on Friday is the interaction between the CJRS claim and employment allowance (EA). EA is there to offset against the Employer’s NIC liability in the year (£3,000 in 2019/20, £4,000 in 2020/21). The latest guidance confirms that EA must be exhausted before any employer’s NIC can be claimed. It is not pro-rated over the year, so in order to make any claim for employer’s NIC in April, the full £4,000 must have been utilised. For smaller businesses, this will reduce the amount they might be expecting to receive. Find out more about the scheme or for support on an application below.
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 the employee work for another company whilst on furlough?
Providing it is not prohibited in their employment contract, an employee can work for another business whilst on furlough. The new employing organisation should, however, not be linked to, or associated with, the organisation from which the employee has been furloughed.
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.
Furlough or redundancy?
The Government has designed the scheme so that businesses can retain their staff wherever possible to avoid mass redundancies. As the business will not have to cover the employees’ salary costs during this period (unless they decide to top up the additional 20%) the hope is that most businesses will choose furlough over redundancies. In some cases, however, redundancy may be the only option available, for example, where the employee has recently joined the business and an RTI submission was not made before 19 March 2020. It should also be noted that whilst on furlough, employees will have the same statutory employment rights.
The Government has also confirmed that once the job retention scheme ends, the business can still then make the decision whether to bring the employee back into the business or subsequently make them redundant depending on work available etc. Note that statutory redundancy payments may apply for employees who have been employed for more than two years. Statutory redundancy periods of notice may also apply depending on the length of employment. This notice period will commence from the date the employee is notified of redundancy and not from the date they were furloughed.
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).
HM Revenue & Customs have confirmed that employers wishing to apply directly themselves, will need both a government gateway account and also be enrolled for ‘PAYE online’. For further details on how to set up these, if you do not have access already, please read our article here.
To claim, you will need:
- your ePAYE reference number
- the number of employees being furloughed
- national insurance numbers of furloughed employees
- names of furloughed employees
- payroll/employe number of furloughed employees (optional)
- business UTR or company registration number
- 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
For employers with less than 100 furloughed staff, details of each employee will need to be added directly to the portal. For employers with more than 100 furloughed employees, it will be possible to upload a file with details.
You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
HMRC estimate the grant will be paid within six working days following submission of the claim.
HMRC has recently amended the online system so that you can make adjustments if you have over-claimed in a previous submission. This facility is currently only available where you are continuing to make furlough claims. There is also no formal route of making an amendment where you have under-claimed in a previous period.
Please get in touch with your usual Hazlewoods contact if have any queries on any of the above.
Are you at risk of making a fraudulent claim? Find out here.