Coronavirus Job Retention Scheme – Key Points (updated 09/04/2020)
About the Scheme
The government has announced that to avoid job losses and/or redundancies, they will fund 80% of staff salaries who would otherwise have lost their employment.
Who is eligible?
Any employee who has been employed on or before 28th February 2020 and has been placed on furlough leave. All businesses in the UK irrespective or size or sector will have access to the scheme.
Employees who are on unpaid leave cannot be furloughed, unless the leave was taken after 28th February 2020.
Furlough leave is for a minimum of 3 weeks so employers will not be able to claim any funding for a shorter period.
If an employee left the business before 28th February, they can ask to be re-employed and placed on furlough leave. Although the employer can do this, they are under no obligation to accept any requests. It is at the employer’s discretion only.
Can directors be furloughed?
The new government guidelines suggests that company directors and salaried members of Limited Liability Partnerships (LLPs) are eligible to receive the Job Retention Scheme funding.
Directors have certain obligations to the business, so long as they do ‘no more than would be judged as reasonable’ and are not generating any revenue or providing services on behalf of the company, the funding is available.
Can agency workers be furloughed?
Yes, as long as they are paid through PAYE agency workers are eligible.
The agency and the employee should discuss and agree the change to furlough status, but this should also be discussed with any clients, as work may still be available.
Can my employee do volunteer work while they are furloughed?
Employees are free to carry out volunteer work while they are furloughed, so long as the work does not generate a revenue for the company and is in line with public health guidance.
How does the scheme work?
Once furlough status has been agreed, it will remain the responsibility of the employer to pay their staffs wages at a rate of at least 80% of their normal earnings and claim this back from HMRC. Employers will be able to submit their claim through a new HMRC portal. To claim the funding, the employer must be registered for online PAYE, this can take up to 10 days. Employers should look at a Coronavirus Business Interruption Loan if appropriate to cover salaries in the meantime.
To claim, employers will need:
• 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
Please be aware that should employers chose not to pay salaries, this is a breach of the employment contract and an unlawful deduction of earnings, which could result in a tribunal claim.
Employers are able to pay the additional 20% of salary if they so wish but are under no obligation by the government to do so and this cannot be claimed back.
It is important to remember that while an employee is on furlough leave they must not undertake ANY work for the business. This means any activity that provides a service or generates revenue.
How long will it last and do I have to pay it back?
The government have advised that the scheme will initially run for 3 months, starting from 1st March 2020. Employers will not have to pay the funds back. This is a grant, not a loan.
The funding begins on the day the employee stopped working.
Please be aware that the scheme runs during March, April and May and not for 3 months from the employee being furloughed. This may be extended should there be a requirement.
How much are my employees entitled to?
Employees will be entitled to at least either 80% of their normal earnings or £2500 per month. Whichever is lower.
It is worth noting that the £2500 cap also includes employer NIC and pension contributions.
What about Apprentices?
Apprentices can be furloughed but they must have their salaries topped up to either Apprentice Minimum Wage, National Minimum Wage or National Living Wage for any time they spend training.
Can you give me an example of how this will be calculated?
Should an employee earn £24,000 a year, this is calculated as a gross pay of £2,000 per month. Their net pay would be £1,665 after deductions of PAYE £191 and employees NIC of £144.
The employer pays £174 NIC contributions.
The employer should receive the funding as calculated:
£2,000 plus £174 NIC = £2,174 minus 20% gives a total of £1,739 funding available.
It will remain the responsibility of the employer to pay NIC and income tax contributions on behalf of the employee as well as employers NIC contributions.
What about pension contributions?
If the employee has not opted out of auto enrolment or other pension schemes, the employer would still be required to make the minimum auto enrolment contributions on their behalf.
If this is the case, the funding would be calculated on an employee’s gross salary plus employers NIC plus pension contributions.
Will my employees still accrue holiday if they are on furlough leave?
The simple answer is yes.
As furlough leave is designed to help employers retain their employees and continuity of employment will apply, holiday during leave will be accrued in the usual way and as if the employee is still working.
The government have now announced that employees will be able to roll over any accrued, but unused, holiday for a period of 2 years following this crisis.
What if my employee has regular overtime payments, bonuses or shift allowances?
HMRC have advised that employees who receive varied salaries will have their pay calculated on either the salary of the same month the previous year or the average salary calculated over the tax year 2019-2020. Whichever is higher.
How do I calculate earnings for an employee who is employed under a zero hours contract?
Employees who are employed under a zero hours contract should have their salaries calculated by using the preceding 12 weeks’ as reference period.
It should be noted that should you be making regular salaried payments to an employee who is employed under this sort of contract, it may be worth reviewing the terms of their employment. These employees remain part of the workforce and make a valid contribution.
What about National Living Wage/National Minimum Wage increases?
It is our understanding that any employee who is on furlough at the time of the NLW/NMW increase in April will not benefit from these increases.
The amount of funding should be calculated on the salary as at 28th February 2020.
The salary will only be increased once the employee returns to work or if employees undertake any training while on furlough.
What is the difference between compulsory commission and discretionary commission?
The government have stated that compulsory commission should be used to calculate any employees normal pay. This is when there is a contractual obligation for the employer to make these payments.
If there is no contractual obligation or the commission structure is ‘discretionary’ the commission should not be used when calculating normal pay.
What about employees who are currently shielding or on sick leave?
If an employee is on sick leave/isolating and receiving SSP they will only become eligible for the Job retention Scheme funding once that period of absence is over and they are available for work but have no work to return to.
If an employee is shielding in line with public health guidance, they are eligible to receive furloughed status. However, the selection process for furloughing employees should be fair and consistent and not only include those who are shielding.
Employers will be subject to usual auditing processing by HMRC so they must ensure they have a valid business reason for placing any employee on furlough leave.
What about employees with caring responsibilities?
It is our understanding that any employee who is unable to undertake work for the company due to having caring responsibilities, such as caring for their children, is eligible to be furloughed. This is due to the fact that the business is unable to provide any work for these employees.
Can my employees still undertake training while on furlough leave?
Employees can take part in volunteer work or training (online) as long as it is not creating revenue for the business or providing services.
Employees must be paid at least National Living Wage or National Minimum Wage for time spent training. This means that if 80% of their salaries does not amount to the NLW/NMW, employers must ensure any time training is subsidised.
Holidays and Furlough
Employees are able to accrue holiday in the usual way while they are on furlough leave but annual leave should only be used once the furlough period is over.
Furlough leave is for a minimum of 3 weeks at a time, so should the employer wish their employees to take annual leave, this should be done after the initial period of furlough leave and then a new agreement should be signed following the annual leave period. Employers must give notice of 2 days for every 1 day they require their employees to take as annual leave.
The government have relaxed the rules for carrying holiday over to protect employers who have employees on furlough leave from having to allow employees to take their leave by the end of the holiday year. Employees can now carry over up to 4 weeks holiday for 2 years.
For employees who have a contractual right to take bank holidays, employers must pay any bank holidays that fall within the furlough period at 100% salary. This means that the employer must top up the 80% funding by a further 20%.
For employees who do not have a contractual right to bank holidays, the employer is under no obligation to enhance pay for any bank holidays that fall within the furloughed period.
If an employee had booked annual leave before being furloughed, it is our understanding that they can have this holiday paid at 100%.
When will the HMRC portal be open?
The government have suggested that the portal will be open from 20th April 2020 and there will be a 4 to 6 day processing period while background checks are being carried out.
This is to prevent any fraudulent claims.
How long will it take to receive the funds?
Once the application has been made for funding, it is unclear how long the funds will take to release. The optimist in us hopes that the funds will be available to employers straight away but with the volume of applicants accessing this scheme, employers may need to be a little bit patient.
I still have questions!
Don’t worry, as always we’re here to help, just call us on 01536 215240.