On 20th March, the UK Government announced that they’d be forming a reimbursement scheme for employees who have been unable to work due to the impact of Coronavirus.
That scheme is called the Coronavirus Job Retention Scheme, and is now ready for Employers who wish to make a claim for furloughed workers.
This blog covers all the main points about the scheme in an easy to digest format. We covered all of these points in a recent webinar for business owners, where we also allowed time for questions. The full webinar can be watched here.
If you have any further questions or concerns, please do ask us!
We’re here to help. We want to do whatever we can to help you get through this, whether it be for the next three weeks, or the next three months. We are still updating guidance as we get clarification on some points, and we’ll continue to update you as we do.
Firstly, what does Furloughed mean?
Until about a month ago, barely any of us had even heard the word furloughed! Now it’s all we can talk about. It basically means a temporary leave of absence. Employees cannot complete any work for their employees whilst they are furloughed.
What has been made available to furloughed staff?
The scheme provides grants to employers to cover their employees wages, up to 80% and restricted to a maximum of £2500. Plus the associated National Insurance, and Auto Enrolment pension contributions on the furloughed pay amount.
The scheme was announced on the 20th March, but it can be backdated to 1st March if you’ve already laid people off. It initially ran for 3 months and was extended until 30 June, but it has just been announced that it has been extended further, until end October 2020. In terms of operating, the scheme will remain the same until the end of July, but there will be more flexibility in August, September and October, allowing for people to return to work part time. Employers will have to make a contribution to the scheme from the date of these changes, but the employee will continue to receive at least 80% of their wages.
Which employees can you claim for?
- Originally the government said employees had to have been on the payroll on 28th February to claim, but this has since been extended to the 19th March. The government have estimated that this will help an additional 200,000 people.
- To qualify, employees need to be included on an RTI submission to HMRC before this date. This still unfortunately means that many people taken on in March will not be included if they are paid monthly and the RTI submission was not run by 19th March.
- Employees can be on any type of employment contract:
– Full time
– Part time
– Agency workers
- Employees that have been made redundant after 28th February can be re-hired.
- Unfortunately employees who are working reduced hours do not qualify for the scheme.
- Fixed term contracts can be extended if work will be there after the lockdown has ended.
Other cases who qualify:
- Employees on unpaid leave (has to have started after 28th February)
- Individuals who are ‘shielding’
- Employees on sick leave
- Employees who need to look after their children (or other carers)
Can Directors be furloughed?
After some uncertainty, the Government have advised that Directors can be furloughed, here’s the criteria for furloughing yourself:
- You should not undertake any work or provide services that will generate an income for the business.
- You are able to carry out statutory obligations but this must be no more than is necessary. We currently believe this means they should be able to file VAT returns and carry out payroll submissions if this is what they normally do – but the guidance is still a bit unclear on this. Our website includes a detailed analysis of directors duties under the companies act, so if this does apply to you – take a look.
- The scheme will cover 80% of your PAYE salary, but unfortunately does not include dividends. So for any owner managed businesses, this may be a relatively small claim in comparison to what you draw down from the company.
What records do you need to keep?
- Good records do need to be kept to back up the claim, including the dates of furlough which must be a minimum of three weeks.
- Employers are asked to notify staff of the decision to furlough them, and records of the notification must be kept for 5 years.
- The government has recently said that records must include a written agreement from employees that they agree to cease all work. This can be in email form.
- HMRC can retrospectively audit any aspect of the claim.
- We have a furlough data capture form here to record all the information for the claim, for you to use if you need it.
How does this affect employment contracts and employment law?
- Employment Contracts should be reviewed and they may need to be varied to allow for the reduced pay under furlough leave.
- The quality and discrimination laws still apply for the process of deciding who to furloughed – employment advice should be sought from a HR person or suitably qualified professional.
- Contractual rights do continue for employees – Working Time Regulations require employees to be paid their normal rate of pay for holidays
- National minimum wage increases do not apply as the employee is not working for you whilst on furlough.
80% of what?
- Full and Part time employees – 80% of monthly salary at the end of February 2020.
- To calculate the 80% to those who receive variable hours, it’s the higher of:
– The same month last year
– The average of monthly earnings for 2019/20 (or since employment started)
- The 80% is up to a maximum of £2,500 a month, this is for the salary only, and Employers National Insurance and Auto-Enrolment contributions in addition.
- This doesn’t include Benefits in Kind or salary sacrifice arrangements (including pension contributions)
- As an employer, you can choose to top up the 80% to provide 100% of an employees full salary, but this isn’t required.
How do you claim?
- The portal is now open for claims, as of Monday 20th April
- You need to:
– Have had a payroll scheme at 19th March 2020
– Be enrolled for PAYE online
– Have a UK bank account
What do you need for the claim?
- Bank account number and sort code
- Name and phone number of who to contact
- Your Self Assessment, Partnership or Company UTR
- Name, employee number and national insurance number of each employee that is furloughed
- The total amount being claimed and the total furlough period
- Payments are expected to be made approximately 6 days
What about training whilst on furlough?
- Employees currently completing training or apprenticeships can continue training as long as they are not generating an income for the work that is being completed.
- They must receive at least the national minimum wage for training hours.
- In the unlikely event this is in excess of the 80% claim, then the employer must pay the excess.
Other important announcements
- The Apprenticeship Levy is not covered by the grant.
- Student loan deductions are not covered either – payments will need to continue to be made.
- The scheme cannot be used to substitute redundancy pay – though at the end of the furlough period it may be necessary to make some staff redundant. Proper processes should be followed according to employment law, please seek advice from a professional for this.
- Employees can be furloughed from one employment and continue to work in another job.
- Grant is taxable for the business, however, for domestic duties (for example, for those who employ a nanny, the grant is not taxable). The grant also remains taxable for the individual employee, and will continue to have tax insurance and national insurance deducted at their relevant rates.
- Where the employment allowance is claimed no amount for employers national insurance should be included in the furlough claim that is covered by the employment allowance.
- HMRC have now published guidance on how to calculate furlough pay for periods where employees are furloughed part way through the pay period.
We hope this extensive guide was helpful to you. If you have a question you feel wasn’t covered here, or is specific to your business, you know where we are.
If you’d like to hear the answers from our Q&A, here’s the original webinar again.
Be safe and take good care of yourselves.