On Friday 20 March the Chancellor announced a scheme whereby the government would pay 80% of salaries up to £2,500 per month.
Under the Coronavirus Job Retention Scheme, all employers in the UK will be able to access support to continue paying part of employees’ salaries who would otherwise have been laid off during the ongoing crisis.
Furloughed workers are employees whose employers cannot cover staff costs due to coronavirus, and as such they have been asked to stop working but have not been made redundant. Employees who are furloughed msut be so for a minimum of 3 weeks. Such employers are now able to access support to continue paying part of their staff’s wages, to avoid redundancies and so they can retain their teams.
To avoid fraud, there are expected to be cross-checks between the applications for grants against PAYE records for each employer.
Employers will be required to make one claim for the entire workforce, record how many workers are covered and will need to keep records.
The scheme is openn to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020.
Who can claim
• UK businesses
• Recruitment agencies who have agency workers being paid through PAYE
• Public Authorities (we won’t be covering this here but you can find more detail at gov.uk)
How the scheme works
• The employer should discuss with affected employees and notify them (preferably in writing) that they have become ‘furloughed workers’. ACAS have a suggested information that should be included that we have adapted and is at the bottom of this article with suggested letters.
• The employer can claim a grant of 80% of workers’ wages up to £2,500 a month once they have been furloughed.
• The employees remain on the payroll deducting tax and national insurance under the pay as you earn (PAYE) system.
• The grant covers the cost of gross salary, employers national insurance and minimum employer pension contributions. The £2,500 relates to gross salary. The scheme will cover employer national insurance & minimum employer pension contributions in addition to the £2,500.
• If employers want to top up pay levels, they can. They are not obliged to plug the gap but if they do they will not be able to claim for more than 80 per cent of £3,125 plus NIC & Pension.
• The furloughed workers should not undertake work whatsoever, for their employer while they are furloughed.
• The scheme is available to all employees, but you don’t have to furlough every employee.
• The employer needs to get agreement from the worker to do this, unless it’s covered by a ‘lay off’ clause in the employment contract.
• The employer needs to submit information to HMRC about the employees that have been furloughed and their earnings. The submission will be through a new online portal which is expected before them end April (HMRC will set out further details on the information required).
• If an employee’s salary is reduced as a result of these changes, the employee may be eligible for support through the welfare system, including Universal Credit.
• For employees on zero-hour contracts, the employer can use the monthly pay in February 2020 as a benchmark for each person’s pay when furloughed. If any employee did not work in that month, they should claim Universal Credit.
• 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 months’ earnings from previous year or the average of their monthly earnings since they started work.
• If employees have to stay at home to look after young children, the employer is likely to be allowed to claim compensation if they furlough these workers.
• The scheme only covers employers who were on the payroll at 29 February 2020 i.e. you have to have submitted an RTI summary to HMRC by that date for teh employee to qualify.
• The scheme covers employees who were made redundant since 28 February 2020, if they are
rehired by their employer.
• The scheme is available to all employees including sole director / shareholder companies. However, only the regular salary element paid via payroll will be eligible for the scheme – dividends are not included. The monthly pay figure submitted in the February 2020 payroll will be used as the basis for the monthly furloughed eligible amount.
• A sole director of a limited company can be an employee for the purposes of the furlough, providing there is an employment relationship between the company and the individual. They may also need to evidence any distinction between the director’s role as an officeholder and that of the employee. Based on the current available guidance, it seems a sole director of a limited company can furlough themselves. Concerns have been expressed that this would effectively mean leaving no-one running the company. If the individual is an employee on the payroll of their own limited company, then they would be furloughed as an employee, not as a director. The director continues to run the affairs of the company, while the employee is furloughed.
• The basis for establishing the director’s employment status would be dependent on facts such as
Whether there is a genuine contract of employment between the director and the limited company
Is there a ‘statement of written particulars’ issued, providing distinction between officeholder duties and those of an employee
What the obligations of each party are in pursuance of the contract
The Coronavirus Job Retention Scheme will run for at least 3 months from 1 March 2020 but will be extended if necessary.
Clarification from HMRC
Unpaid leave – if you placed an employee on unpaid leave before 29 February 2020, they cannot be furloughed;
Statutory Sick Pay – if you have employees on sick leave or they are self-isolating they should be getting SSP. However after this period, they can be furloughed. Employees who are socially distancing themselves in line with public health guidance can be placed on furlough.
More than one job – if an employee has more than one job, they can be furloughed for each job. Each job is separate and the cap applies to each individual employer.
Voluntary work – a furloughed employee can take part in volunteer work or training, provided it does not provide services to or generate revenue or, or on behalf of your organisation. If workers are required to complete online training courses whilst they are furloughed, they must be paid at least the national Minimum wage for the time spent training, even if this is more than the 80% of their subsidised wage.
SMP/SPP etc – Individuals on or planning to go n Maternity leave must take at least 2 weeks off work (4 weeks in a factory or workshop) immediately following the birth. If your team member is eligible for SMP or Maternity allowance normal rules apply. If you offer enhanced contractual pay to women on maternity leave this is included as wage costs that you can claim through the scheme.
Working out the claim – 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.
HMRC 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.
Employees with variable pay – if your team member has been employed for a full 12 months you can claim either:
- the same month’s earnings from the previous year; or
- average monthly earnings from the 2019-20 year, which ever is the higher.
National living Wage/National minimum wage – individuals are only entitled to the NLW/NMW for the hours they are working. As furloughed workers who are not working, they can only receive 80% or their usual salary or £2,500, even if based on their usual working hours this would be below the NLW/NMW.
To make the claim you will need the following information
- 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 3 weeks)
- your bank account number and sort code
- your contact name
- your phone number
- the amount you are claiming.
HMRC retain the right to retrospectively audit all aspects of any claim.
How to claim – you can only submit on claim at least every 3 weeks (the minimum period an employee can be furloughed). Claims can be backdated to 1 March 2020. When HMRC have confirmed your eligibility the sum claimed will be paid via BACS into a UK bank account. You must pay the employee the whole grant that you receive for their gross pay, but it will be subject to tax and national insurance in the usual manner.
HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.
It is expected that employers borrow or self-fund in the short term to provide the wage package.
If a business needs short term cash flow support, it may be eligible for a Coronavirus Business Interruption Loan.
Our advice is don’t make any rash decisions in relation to your employees. If however, you think it might be appropriate to furlough your employees you may wish to send them this link and tell them to go to the section on furloughed workers. It provides them with the information they need too.
We have template letters that you can use for staff members that you think might be appropriate for this scheme.
Keep an eye on this page because we will be updating it as we get more information.