Toni Robinson, Managing Director of NucleusHR provides an update for employers and shares advice on how this will affect their businesses.
Last night (26th March 2020), the Government released clarification on the Coronavirus Job Retention Scheme (CJRS) announced last Friday. The CJRS is a temporary scheme open to all UK employers for at least three months starting from 1 March 2020. The scheme is now expected to be up and running by 30th April 2020 which is a slight delay to the original guided date of 01st April 2020.
Employers will be able to 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.
The scheme is open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020.
We have collated the following questions that will be on all employers minds over the coming weeks to help you navigate furloughing employees.
Who can claim?
Any UK organisation with employees can apply. You must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
Are all employees covered by the scheme?
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 and employees on flexible or zero-hour contracts.
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.
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.
It is important for employers to be mindful that the minimum period of furloughing is three weeks. If you are going to need your employee to work within that three week period, alternatives to furloughing should be considered.
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, so please contact NucleusHR for assistance on how to avoid such practices.
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.
Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.
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 happens if an employee is on unpaid leave?
Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.
What if an employee is absent on the grounds of illness?
Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this. Employees who are shielding in line with public health guidance can be placed on furlough.
What if an 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.
What happens if an employee does volunteer 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 NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
What happens if I have an employee who is on maternity Leave, contractual adoption pay, paternity pay or shared parental pay?
If your employee is eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance.
Employees who qualify for SMP, will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is currently £148.68 a week, rising to £151.20 a week from April 2020.
If you offer enhanced (earnings related) contractual pay to women on Maternity Leave, this is included as wage costs that you can claim through the scheme.
The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.
What can I as an Employer actually claim?
Employers need to make a claim for wage costs through this 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.
More guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, is expected before the scheme becomes live.
How do we calculate the amount that we claim?
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.
What happens with Employees whose pay varies?
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.
What about Employer National Insurance and Pension Contributions?
All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.
You can however 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 this 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).
What happens if the deduction takes us below the National Living Wage/National Minimum Wage?
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.
What do I need to make a claim?
Employers should discuss with their staff and make any changes to the employment contract by agreement (if necessary). For those with a specific lay-off clause within the Contract of Employment, permitting you to lay-off without pay, should be relatively simple, however, if you do not have such a clause should seek separate advice.
We encourage you to speak with NucleusHR for advice on the actual 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, employers will need:
- Their ePAYE reference number
- The number of employees being furloughed
- The claim period (start and end date)
- Amount claimed (as per the minimum length of furloughing being 3 weeks)
- The bank account number and sort code
- The contact name
- The contact telephone number
Employers will need to calculate the amount that they are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
How often can I make a 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 happens after I have made a claim?
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.
What happens if and 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).
What happens to 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.
What do I do about Tax and 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.
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.
