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May 12th 2020

Coronavirus: Job Retention Scheme (updated 12 May)

The Scheme will provide grants to employers to reimburse 80% of "furloughed" workers wages costs, the maximum grant is £2,500 per employee per month. The Scheme also covers the associated Employer's NIC and minimum Auto Enrolment pension contributions.

It is backdated to 1 March (paving the way for some employers to take back staff who have been laid off over the last three weeks) and, following an announcement on Tuesday 12 May, will run in its current form until the end of July.

From August until October, the Scheme will run in a modified form, allowing payments to be made to furloughed staff who return to work part-time. It is thought that the furlough payments will be reduced, with business expected to start sharing the cost of the Scheme, although the Treasury has said it will continue to pick up "the lion's share" of the cost. Further details of the revised arrangements are expected to be announced by 30 June.

The Chancellor has yet to rule out extending the Scheme even further; about a fifth of the entire UK workforce, 7m people, are currently furloughed; and some sectors (e.g. pubs, clubs and airlines) could be closed for most of 2020. From 1 August we expect to see significant and increasing numbers of redundancies across certain sectors, as the downscaling of state support forces employers to decide whether jobs "frozen" under the scheme actually still exist.

All UK businesses are eligible - any employer, large or small, for profit or non-profit.

The Scheme is administered by HMRC through a new online portal; payroll agents are able to file claims on behalf of their clients.

Who can claim

Any UK organisation with employees can claim, provided it created and started a payroll scheme before 28 February 2020 and it has a bank account.

The Government says that organisations that have received public funding for staff costs are expected to continue to pay staff "and not furlough them".

Who can you claim for

You can claim for furloughed employees who were on the payroll on 19 March 2020 (previously the guidance said 28 February, as of 15 April that guidance was changed) and who are on any type of contract. This includes employees:

  • who are full time
  • who are part time
  • on agency contracts
  • on zero hours contracts

The employee must have been notified to HMRC through an RTI submission notifying payment in respect of that employee on or before 19 March 2020.

The Scheme also covers employees who were made redundant since 28 February 2020 - provided they are re-hired by the employer.

You cannot claim for:

  • employees who continue working in any capacity (even if on reduced hours)
  • employees hired after 28 February 2020

To furlough employees, employers need to formally "designate" them as "furloughed workers". Employers should retain evidence of who has been furloughed and the date(s) on which they were furloughed. Employers need to bear in mind employment law requirements when deciding who to furlough.

While on furlough, the employee's wages should continue to be payrolled and will be subject to normal income tax, NIC and other deductions.

Furlough minimum period

The guidance says that employees have to be furloughed for a minimum period of three weeks.

Employees on unpaid leave

Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.

If your employee is on SSP

If your employee is on sick leave, they should get SSP but can be furloughed after this.

Those who are "shielding" in line with official advice can be furloughed.

If your employee has more than one job

They can be furloughed by each employer individually. The wage "cap" is not split between the different employers.

If your employee does volunteer work or training

Furloughed employees can take part in volunteer work or training, provided that does not involve providing services to, or generating revenue for, the employer.

Furloughed workers who complete training courses must be paid at least the National Minimum Wage/ National Living Wage for the time spent training.

What about an employee who is on Maternity Leave?

If your employee is eligible for Statutory Maternity Pay or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance.

What can employers can claim?

Employers will need to make a claim through the Scheme.

HMRC will pay a grant to cover the lower of

  • 80% of an employee's "regular wage"; or
  • £2,500; and
  • the associated Employer's NIC and minimum Auto Enrolment employer pension contributions on the subsidised wage. Fees, commissions and bonuses should not be included. Dividends are not included.

As a minimum, employers must pay the furloughed worker the lower of 80% of their regular wage; or £2,500 per month. Employers can choose to top up an employee's salary beyond this - but they do not have to.

Grants under the scheme will also cover a proportionate part of both Employer's NIC and the minimum Auto Enrolment pension contributions.

How do I calculate the employee's "regular wage"?

For full and part time salaried employees, use the employee's actual salary before tax as of 28 February 2020.

What if their wage varies?

If the employee has been employed for a full 12 months prior to the claim, the employer can claim for the higher of:

  • the same month's earnings from the previous year; or
  • average monthly earnings from the 2019/20 tax year.

If the employee has been employed for less than one year, use an average of their earnings since they started work.

If the employee only started in February 2020, use a pro-rata for their earnings so far.

Employer's NIC and Pension Contributions

All employers remain liable for reporting and paying Employer's NIC and Pension Contributions in respect of furloughed employees, through the PAYE system. If Scholes Chartered Accountants provides payroll services to your business, we'll be doing that for you.

HMRC will subsidise the NIC and minimum employer pension contributions associated with the 80% furlough payments. However, employers who choose to top-up the salaries of furloughed workers - i.e. pay more than the subsidised amount - will also have to fund the cost of Employer's NIC and pension contributions associated with the top up element.

Voluntary Employer Pension Contributions beyond the mandatory employer contribution will not be subsidised.

National Living Wage/ National Minimum Wage

Individuals are only entitled to NLW/ NMW for hours they work. Furloughed workers 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.

What employers will need to make a claim

Employers will need:

  • ePAYE reference number;
  • the number of employees being furloughed;
  • the claim period start and end dates;
  • the amount claimed;
  • the employer's bank account number and sort code; and
  • the employer's contact name and phone number.

Employers need to calculate the amount they are claiming; HMRC will have the right to retrospectively audit all claims.

Claiming from HMRC

Claims can only be made every three weeks which is the minimum furlough period for an employee. They can be backdated to 1 March, where applicable.

Grants will be paid by HMRC direct into employers' bank accounts.

Rights of employees

Employees that have been furloughed have the same rights as they did previously, including rights to SMP, SPP, SSP, rights against ufair dismissal, and rights to redundancy payments.

Continuity of service is maintained and holiday entitlements will continue to accrue as well.

The tax treatment of CJRS grants

The grant will be subject to Income Tax or Corporation Tax. The associated employment costs will be deductible under normal principles. This is in line with the treatment of revenue grants in most circumstances.

The full guidance can be accessed here.

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