What is the Coronavirus Job Retention Scheme?
It’s a temporary scheme put in place by the Government to support those workers who would otherwise have been laid-off as a result of the crisis. Such workers have been designated as ‘furloughed’. It is open for at least three-months and will be extended if required.
What organisations are eligible?
The scheme is open to all UK employers that had created and started a PAYE payroll scheme by 28 February 2020.
The organisation must be located in the UK, and the Scheme includes businesses, charities, recruitment agencies (agency workers paid through PAYE) and public authorities. The organisation must have a UK bank account. This Scheme does not cover the self-employed for whom there is a separate scheme.
The Scheme does not extend to dividends. For instance, many owner-managed companies pay small salaries with the balance as a dividend. Only the salary is relevant to the Scheme. There may also be practical problems with furloughing a director, particularly a sole director.
Who qualifies as a furloughed employee?
A furloughed employee must have been on the payroll at 28 February 2020 (note: not 29 February) and can be on any type of contract. Agency and Zero-Hour contracts are included.
The Scheme covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.
A furloughed employee can not undertake any work to qualify for the grant. This is a very strict definition, and the only activities they can undertake are voluntary work or training, as long as it does not provide services to or generate revenue for, or on behalf of the organisation.
Reduced hours employees do not qualify for the scheme. Employers will need to clearly think about the structure of their remaining team given this restriction.
The Government advises that employers should discuss with their staff when deciding to offer furlough and make changes to the employment contract by agreement. They also advise that it may be necessary to engage collective consultation practices to secure agreement to changes to terms of employment. We would recommend that legal advice is sought on this process.
To be eligible for the subsidy, employers should write to their employee confirming that they have been furloughed and keep a copy of the letter.
Employees hired after 28 February 2020 are excluded, as are those who were on unpaid leave before 28 February 2020.
Employees on sick leave or self-isolating are subject to Statutory Sick Pay provisions and can only be furloughed once they can return to work. Employees who are self-isolating in line with public health guidance can be placed on furlough.
If an employee has more than one employer, they can be furloughed for each job. Being furloughed by one employer will not prevent an employee from continuing to work for another employer.
There are specific rules for employees on maternity and paternity pay.
The minimum furlough period is three weeks.
You can further details on eligibility here.
What are the financial implications?
HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 a month, plus the associated Employer National Insurance Contributions (NIC) and minimum automatic enrolment employer contributions on the 80% wage. The mechanics of how to attribute the relevant NIC and pensions have yet to be determined by the Government.
Fees, commission and bonuses are excluded. Those employees with commission-based remuneration packages could be significantly affected by this restriction.
Additional employer pension contributions above the minimum mandatory employer contribution are excluded.
An employer can choose to top-up the salary of the furloughed employee if they wish but is under no obligation to do so.
For full-time and part-time staff, the relevant basis to determine the 80% wage is by using the basic pay of the furloughed employee at 28 February 2020. More guidance on variable pay is stated below.
Wages for furloughed employees will be subject to Income tax and National Insurance. Employers NIC will be payable by the company, but will be reimbursed.
The grant itself is a taxable receipt for the employer for Corporation Tax or Income Tax.
It is expected that the first grants will be paid by the end of April 2020. It will therefore be necessary for many employers to consider how they will be able to finance the bridge between the receipt of the grant and the paying of the March wages. The Coronavirus Business Interruption Scheme may assist in this regard.
We are unclear at this stage whether the funding of the wages by HMRC will be offset by any outstanding tax liabilities. This could negate the effectiveness of the Scheme for distressed businesses, who were deferring relief under Time to Pay.
How do you determine variable pay?
The calculation of Variable pay will require employers to have access to detailed payroll records for the last year. If you use a payroll agency, you will need to ensure you get the relevant information from them.
If the employee has been employed for at least a year before the claim, you can claim either for:
• The same month’s earnings from the previous year.
• Average monthly earnings from 2019/2020 tax year.
If the employee has been employed for less than a year, then average earnings is based on the worked period.
How to claim
Claims will be made via an online portal. To make a claim you will need the following details:
• ePaye reference number
• number of employees being furloughed
• the claim period (start and end date)
• amount claimed
• bank account and sort code
• your contact name and phone number
The employer will compute the amount being claimed and HMRC can audit the claim subsequently. You can claim every three weeks, but your claim should be in accordance with actual payroll reports, so for many businesses in practice this will be monthly.
Payment will be direct to the business bank account. Note that, as stated earlier, this must be a UK bank account.
Businesses will need to quickly assess which employees would be appropriate for the Coronavirus Job Retention Scheme. This will require careful planning and detailed cashflow forecasting.
Identifying furloughed employees will necessitate looking at likely income streams, which for discretionary spend will no doubt be deferred. Businesses should also be aware that they may need additional resource to service their existing client base to cover sickness caused by the Coronavirus.
Finally, for those businesses who started a redundancy process before the announcement of the Coronavirus Job Retention Scheme and may now wish to reverse their thinking, we would recommend that legal advice is sought.
Updates to guidance
We will update our guidance as soon as more details are published. If you would like to discuss any of the above or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or one of the Partners to the right.
You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest updates and insights.