All UK employers with a UK bank account are eligible for the Coronavirus Job Retention Scheme, which will pay (up to a cap) employee wages who may have needed to be or are needed to be laid off due to financial pressures within the business. HMRC will cover 80% of the worker’s wage cost, up to £2,500 per month.
The Government uses the words ‘wage’ and ‘salary’ interchangeably in its guidance and therefore we assume that this scheme applies to both wages and salaries (this certainly seems to be the common consensus from everyone we have spoken to in our profession). Wages are for those employees on, for example, an hourly rate whilst salaries are for those on, for example, a more fixed regular amount.
There has been, and continues to be, lots of conjecture about exactly how the scheme will work in practice and the honest answer is, draft legislation is still due to be released. It may be that HMRC instead relies on the more detailed guidance from the Government that was released late yesterday and not actually legislate for the scheme, but we do not know at the moment. Therefore, there still remain some unanswered questions.
It is worth mentioning that at the time of writing the Government has not updated all areas of their website for the latest guidance and therefore some areas of their website include less detail than others. The most comprehensive guidance can be found here and it is well worth a read.
As accountants we are not qualified to advise on employment law matters and the nature of this scheme is that many of the principles are ones subject to employment law. However, we realise that this is a time of uncertainty for you and your practice and we are therefore very keen to be as helpful as possible and provide some practical guidance. We are not formally advising you on areas of employment law and any questions of the legal position would need to be directed at an employment adviser/solicitor. If you do not have such a contact, we would be pleased to put you in contact with someone.
We have summarised the position below for you:
What does furlough mean?
Prior to COVID-19, furloughed was a rarely used term in the UK. It is now widely used! Furloughed means employees on a leave of absence.
How long is the scheme available for?
For at least three months starting from 1 March 2020, i.e. the Government will, subject to monetary specifics detailed below, make payments to employers amounts in respect of employees that have been furloughed on or since 1 March 2020. Please see below timeframe for when these payments are expected to be made. The Government has indicated that they may extend the scheme beyond three months, but it is a matter of watch this space.
Is my practice eligible?
Employers need to have been registered as an employer, i.e. have a PAYE scheme setup and have had started to use it on or before 28 February 2020. For those practices that have only operated a payroll on or since 1 March 2020, they will unfortunately not be eligible.
In order to reclaim from the Government in respect of a particular employee, that employee must have been on the payroll at 28 February 2020. Please see below for employees made redundant since 28 February 2020.
Organisations who receive public funding in order to provide services necessary to respond to COVID-19 are not expected to furlough staff; this point is unlikely to apply to the majority of veterinary practices.
Employer decision
Employees cannot choose to be furloughed, it is the decision of the employer. That said, good communication and honest discussions with employees is of course really important.
No work at all
The employee must not undertake any work at all whilst they are furloughed. If they do, the practice will not be eligible for funding for that employee whilst they are furloughed.
Although the scheme effectively started on 1 March 2020, if an employee worked for any period on or since 1 March 2020, they would not be able to be classified as furloughed for that working period.
If an employee was made redundant, say with effect from 1 March 2020 (i.e. which was before the Job Retention Scheme was announced) then they could be rehired and furloughed with an effective date of 1 March 2020, provided they have not and do not undertake any work whilst furloughed.
Do all my employees need to be furloughed because you have said “no work at all”?
No. The point of “no work at all” refers to each employee in isolation. You do not have to furlough all of your employees, you can choose which ones.
How do I choose which employees to furlough?
The Government’s guidance on their website in the link above is:
“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.”
Provided you adhere to the above, it is up to you as the employer to decide which employees to furlough.
National minimum wage/national living wage:
An interesting and sensitive point: employees are only entitled to the national minimum wage/national living wage (NMW/NLW as applicable here) for hours that they are working. If an employee is furloughed and therefore is not working, if 80% of their wage/salary takes them below the NMW/NLW (as applicable) based on their normal working hours, that is permissible. That said, if they are training for work (but not working), they are entitled to the NMW/NLW (as applicable).
Shall I run my payroll in the normal way?
Payrolls should be run in the ‘normal’ way, i.e. the Government is not paying employees directly.
Whatever wage or salary an employee may be paid whilst on furlough, their gross pay will be subject to deductions, e.g. income tax, NI and any other, in the normal way.
What should I pay furloughed employees and what can I reclaim from the Government?
As a minimum, a furloughed employee must be paid the lower of 80% of their ‘regular’ wage/salary and £2,500 per month.
For both full and part time employees, their ‘regular’ wage/salary should be based on the employee’s actual gross, i.e. pre tax wage/salary, as of 28 February 2020.
What if an employee’s pay varies? The guidance does not specifically say whether you should still take their pre tax wage/salary as of 28 February 2020 when calculating what to pay that employee. However, the guidance does suggest that in terms of what the employer can reclaim when an employee’s pay varies, that the employer is able to reclaim the lower of:
(i) 80% of the higher of (a) their same month’s earnings from the previous year and (b) their average monthly earnings in the 2019/20 tax year which ends on 5 April 2020 or if they have not been employed for 12 months, then their average monthly earnings since they started work;
and:
(ii) £2,500.
For the purposes of this earnings calculations in (i) and (ii) above, the initial guidance indicated that bonuses, fees and commissions should not be included. However, the guidance has recently been updated and says “You can claim for any regular payments you are obliged to pay your employees. This includes wages, past overtime, fees [Hazlewoods comment: it is not entirely clear what is meant by “fee” because it is not defined”] and compulsory commission payments [Hazlewoods comment: it is not entirely clear whether a bonus structure detailed in someone’s employment contract would count as compulsory commission payments. We have spoken with an HR advisor and their feeling is that it would likely include this scenario. The key point being that the bonus is contractual (but could be based on e.g. certain performance criteria]. However, discretionary bonus (including tips) and commission payments and non-cash payments should be excluded.”
This arguably more confusing calculation is only relevant where an employee’s pay varies (and note that if it varies only due to bonuses, fees or commissions then this point is moot anyway).
We would therefore assume (but cannot say for certain without further clarification from the Government) that where an employee’s pay varies, that in considering that you must pay them the lower of 80% of their (regular) wage/salary and the £2,500 per month, that you could also apply the same principles as you would as an employer when you are assessing what you can reclaim from the Government. In other words, take the lower of (same formula as above):
(i )80% of the higher of (a) their same month’s earnings from the previous year and (b) their average monthly earnings in the 2019/20 tax year which ends on 5 April 2020 or if they have not been employed for 12 months, then their average monthly earnings since they started work;
and:
(ii) £2,500.
For the purposes of this earnings calculations in (i) and (ii) above, bonuses, fees and commissions should not be included.
To recap, this arguably more confusing calculation is only relevant where an employee’s pay varies (and note that if it varies only due to bonuses, fees or commissions then this point is moot anyway).
It does say elsewhere in the Government guidance that “you must pay the employee all the grant you receive [from the Government] 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.” This does suggest that our assumption above seems sensible; being that where an employee’s pay varies, that in considering the 80% calculation for what you pay them, that you can apply the same principles as the reclaim from the Government calculation.
An employer can choose to top up an employee’s wage/salary up to 100% of their normal wage/salary but does not have to. An important point is that in order to pay less than 100% the employment contract needs to be renegotiated with the employee. In practice, we understand that does not necessarily mean that the employment contract needs to be completely rewritten, rather any relevant section would need to be changed or the contract have an addendum to it. You should speak with an employment law advisor/solicitor about this and it goes without saying that we would recommend an empathetic approach with employees at what will be a difficult for them too.
What about employer’s NI and employer pension contribution?
In addition (i.e. on top of the maximum £2,500) an employer can reclaim the associated employer’s NI and minimum employer pension contributions.
We understand that any employer pension contributions on top of the minimum requirements under auto enrolment are not reclaimable.
What if an employee is on reduced hours because there is less work to do at the practice due to the coronavirus?
They are not able to be furloughed because they would still be carrying out some work. Really(?) I hear you ask. Yes. The Government has advised that the reason for this is because the purpose of the Job Retention Scheme is to help those who would otherwise have been unemployed and that public health guidance is clear that people should stay at home unless they are a key worker.
How and when do I reclaim from the Government?
The Government has indicated that the online portal will be in place from 20 April 2020.
The “What you’ll need to make a claim” section of the government’s website is worthwhile looking - click here.
It is expected that reclaims from the Government will be at a maximum frequency of every three weeks and as noted above, claims can be backdated to 1 March 2020 where applicable, but the repayments from the Government will not be made until their portal is in place.
It is currently anticipated that employers may need to have a Government Gateway account in order to make a claim under the scheme.
You may, therefore, wish to check now that you already have an account, and retrieve your login details, or create an account if you have not already done so as it can sometimes take a few days to set up. This could potentially avoid a delay to submitting a claim and receiving payment of the grant once applications can be made.
For an increasing number of services HMRC require an account to be set up and/or agent authorisation to be given via the Government Gateway. This includes Making Tax Digital (MTD) for VAT and most recently the new capital gains tax return for residential property disposals. Even if it is not subsequently required for claiming a grant, it is still likely to be of use in the future.
Please see below for our simple step by step guide on how this can be set up. To make it easier you should have your National Insurance number and a recent payslip or P60 or a valid UK passport to hand. We are expecting that the government gateway account should be setup in respect of the employer on the basis it is employers that will be making grant claims under the furlough scheme:
Step-by-step guide:
- Go to HMRC’s login page.
- Click on the ‘Sign in’ button under the heading ‘Sign in to HMRC Online Services’
- You will then be directed to a login page. Under the sign in button, click on ‘Create sign in details’.
- Enter your email address and click on ‘Continue’.
- A confirmation code will then be sent to you by email which should be used to verify your email address.
- Once confirmed you will then be issued with a User ID for your government gateway account. Please take a note of your User ID and keep it somewhere safe as it is not straightforward to retrieve at a later date.
Further details of how to retrieve your user credentials for an existing account can also be found here.
What records do I need to keep to prove to the Government that as an employer my practice is eligible for the scheme?
We are waiting on further guidance as to what information will need to be provided through the online portal.
However, you should write to your employee confirming that they have been furloughed and keep a record of this communication. As to what to put in this communication, you should take advice from an employment law advisor/solicitor.
What if my practice does not have the bank/cash funds to pay employees in the meantime?
We recommend that you consider the other support measures available, details of which can be found on our website here.
If you would like to discuss matters further, we would be very pleased to help, please do not hesitate to get in touch.
Length of furlough leave and rotating of employees
Furlough leave must be taken by an employee in minimum blocks of 3 weeks.
This therefore prevents rotation of employees over a shorter time period. However, there is nothing specifically in the guidance that suggests that you could not rotate employees in and out of furlough every 3 weeks (but each employee must be furloughed for at least 3 weeks each time).
Sick pay
If an employee is sick and they are on sick pay or they are self-isolating in accordance with government guidelines (i.e. in the latter case self-isolating because they or someone that they live with have coronavirus symptoms), they cannot be furloughed. They can however be furloughed afterwards.
Maternity, paternity, shared paternity and contractual adoption
If an employee is on maternity leave, they would continue to receive statutory maternity pay (SMP) if they are eligible for it (normal rules). Someone on maternity cannot be furloughed. Similar principles apply for paternity leave and contractual adoption.
However, if an employee is on maternity, if they agreed with you as the employer to come back to work early, they could then be furloughed if there was no work for them. Alternatively if there is the possibility of shared paternity leave, they could look go back to the work and then be furloughed by their employer.
Shielding
If an employee is shielding because they are in the extremely vulnerable category (details of such people here), they can be furloughed.
Training and volunteering
An employee can be furloughed if they are training or carrying out volunteer work, e.g. if they are studying for a Certificate or are volunteering for the NHS, but the same rules apply, i.e. they must not carry out any work for the practice (i.e. they must not provide services for the practice and/or generate income) and they must be furloughed for a minimum of three weeks.
In its guidance, the Government uses the example that if a worker (by this they mean an employee) ‘required’ to complete online training courses whilst they are furloughed, then they must be paid at the least the NMW/NLW for the time spent training, evening if this is more than 80% of their wage/salary. We do not know for certain but we wonder whether the word ‘required’ means where the practice requires them to carry out the training for work purposes. We assume, but again do not know for certain, that if the employee chooses to carry out training but that training it is not a requirement of their job, that the NMW/NLW does not apply. We wish we could be conclusive on this point, but it is not clear from the guidance.
Redundancy
As noted above, an employee must have been on the payroll on 28 February 2020 to be eligible for the Job Retention Scheme. If they have been put on the payroll since then, they are not eligible. That said, if an employee was on the payroll on 28 February 2020 and has been made redundant since, they can be reemployed (by the same employer) and be eligible for the scheme.
We understand that redundancy proceedings can be commenced whilst an employee is on furlough leave. Clearly this is a sensitive matter and we appreciate you might well consider this to be a last resort.
Further details regarding redundancy can be found here.
Unpaid leave
An employee on unpaid leave on or before 28 February 2020 cannot be furloughed. An employee placed on unpaid leave on or after 1 March 2020 is eligible to be furloughed.
What if an employee has more than one job?
Each job should be considered separately by each employer. That person could be furloughed by one or both employers. The monetary cap on how much can be reclaimed from the government applies to each employer individually.
Employee rights
Whilst furloughed, employees remain just that, i.e. employees. The government have advised that furloughed employees continue to have the same rights as they did previously.
What if I am employed by an agency?
It is up to the agency as to whether to furlough you or not.
Tax position
The cost to the practice of paying employees is tax deductible. The reclaims from the Government will be taxable. This is as we expected because they are essentially reducing the cost to the practice of paying employees.
What if I am a Director or Company Secretary in my company?
If you are a Director in a company (as opposed to e.g. a sole trader, Partner in a Partnership or Member/Partner in an LLP), then we understand that provided you do not undertake any work for your company, then you could be furloughed. Strictly speaking it would be the company as your employer that would furlough you.
Many Directors (who may also be a shareholder in the company) receive a relatively ‘small’ salary at the employer’s NI threshold (approximately £9,000) and may also receive other income in the form of dividends, Directors’ loan account (DLA) drawings and/or rent.
For many companies, it is perhaps unlikely (although certainly not unfeasible) a Director would not be needed to work for three weeks (which is the minimum furlough period), although for others, e.g. locums using their own personal services companies, this might be more relevant.
The salary through the payroll can be treated in the same way as other employees, i.e. is eligible for the Job Retention Scheme, but dividends, DLA draws and rent cannot be.
The same principles apply if you are a Company Secretary.
The same principles apply to spouses/life partners who are a Director or Company Secretary.
What if I am self-employed?
You are self employed if you are a sole trader, Partner in a partnership or partner/Member in an LLP. You are not self employed if you (only) are a Director/Company Secretary/shareholder in a Limited company.
The Job Retention Scheme does not apply to self employed people themselves, although those self-employed people who are also employers to other people, it does apply to them in their capacity as an employer.
The Government has just announced details of help for self-employed workers, details of which are included here.
If you have any questions, we are here to continue to support you.