HMRC have issued further guidance regarding the new job retention scheme under which employees can be furloughed and part of their salaries recovered from the government. Many details remain to be clarified but the picture is gradually becoming clearer. Here is a summary of the guidance for both employers and employees:
The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers for at least three months starting from 1 March 2020. It is designed to support employers whose operations have been severely affected by coronavirus (COVID-19).
Once live, 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 grant will start on the day the employee was placed on furlough anytime after 1 March.
The scheme is open to all UK employers that have created and started a payroll scheme on or before 28 February 2020. The employer will also require a UK bank account. Claims will be made by the employer and not the employee.
Employees that can be claimed for
Furloughed employees must have been on the employer’s 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. The scheme also covers employees who were made redundant since 28 February 2020, should they be rehired by their employer.
To be eligible for the subsidy, an employee can not undertake work for or on behalf of the organisation when on furlough. 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 the employer will have to continue paying the employee through the payroll and pay their salary subject to the terms of their employment contract.
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.
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. Employers do not need to place all of their employees on furlough.
Full time and part time employees
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.
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, an employer can claim for the higher of either:
If the employee has been employed for less than a year, the employer can claim for an average of their monthly earnings since they started work.
If the employee only started in February 2020, the employer should use a pro-rata for their earnings so far to claim.
Once the employer has worked out how much of an employee’s salary can be claimed for, they must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions they are entitled to claim.
If an employee is on unpaid leave
Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.
If an employee is on Statutory Sick Pay
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.
If an employee has more than one job
If an 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.
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 the employer offering the furlough.
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.
If the employee is on Maternity Leave, contractual adoption pay, paternity pay or shared parental pay
Individuals who are on or plan to take Maternity Leave must take at least 2 weeks off work (4 weeks if they work in a factory or workshop) immediately following the birth of their baby. This is a health and safety requirement. In practice, most women start their Maternity Leave before they give birth.
If an 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 the employer offers enhanced (earnings related) contractual pay to women on Maternity Leave, this is included as wage costs that the employer can claim through the scheme.
The same principles apply where the employee qualifies for contractual adoption, paternity or shared parental pay.
Work out what the employer can claim
Employers need to make a claim for wage costs through this scheme. They 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.
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.
The employer can 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.
The employer can choose to provide top-up salary in addition to the grant. Employers 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).
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.
If an employee is on Universal Credit
If an employee is earning less because they are on furlough, their Universal Credit payment might change.
Making a claim
Employers should discuss with their staff and make any changes to the employment contract by agreement. Employers may need to seek legal advice on the 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, the employer will need:
The employer will need to calculate the amount they are claiming. HMRC will retain the right to retrospectively audit all aspects of the employer’s claim so please retain your calculations.
The online service the employer will use to claim is not available yet. HMRC expect it to be available by the end of April 2020.
Employers 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.
Once HMRC have received an eligible claim, they will pay it via BACS payment to a UK bank account.
The employer should make their claim in accordance with actual payroll amounts at the point at which they run their payroll or in advance of an imminent payroll.
The employer must pay the employee all the grant the employer receives for their gross pay – no fees can be charged from the money that is granted. Top up payments are at the discretion of the employer.
When the government ends the scheme
When the government ends the scheme, the employer must make a decision, depending on circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).
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.
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.
As and when further details become available we will be in touch update you. If you have any questions in relation to this scheme please do not hesitate to contact us.