Detailed guidance on the Coronavirus Job Retention Scheme for Furloughed 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 COVID-19
- The scheme is open to all UK employers that had created and started a PAYE payroll scheme by the 28th February 2020 and have a UK bank account
- Full time employees, part-time employees, employees on agency contracts and flexible or zero-hour contracts all are eligible for this scheme
- The scheme also covers employees who were made redundant since 28 February 2020, if they are hired again by their employer
- It is important that the employee conducts no work for the business whilst on furlough pay
- This scheme does not apply to anyone hired after 28th February 2020. Therefore, these staff members cannot be furloughed and no reclaim for their wages can be made
- If an employee is working but on reduced hours or reduced pay, they will NOT be eligible for this scheme
The scheme is available from 1st March. Can I backdate my claim to 1st March?
- This scheme as mentioned above is also available for employees who have been laid off or made redundant before this scheme was announced, along with any employees who will be laid off as a result of this crisis in the next three months (subject to extension by the government)
- Therefore, if your business had started to struggle and you laid an employee off or made them redundant in early March you can bring them back into employment and furlough them, so they remain on the payroll but do not conduct any work for you.
- Your claim would then be from the date the employee was furloughed.
- For many this may be from the date this scheme was announced or possibly later in March when stricter lock down procedures came into force.
- However, some businesses were adversely affected from the crisis in early March so this scheme ensures their employees who had already been paid off or made redundant would be brought back and will receive 80% of their usual salary.
When can we process the reclaim and do we pay the staff wages before we receive this repayment?
- The scheme is expected to be up and running by the end of April.
- Please note this means no repayment grants for the wages will be available before this date. However, claims will be back dated to the date your employee was furloughed.
- This means employers will pay their staff the new agreed 80% salary and then when the repayment mechanism is up and running, they will receive a grant from HMRC to recover this cost
- We understand many companies will suffer from insufficient cashflow and may struggle to pay the wages out before the scheme is live. The government has also introduced the grants and Business Interruption Loans and companies should seek further information on this to help with their current cashflow issues. (Facebook videos and emails from Kirkwood Wilson should help here)
What to do as an employer?</h2?
- 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.
- As an employer you should write to your employees confirming that they have been furloughed and keep a record of this communication
- We can provide this letter template for you.
- Once your employee has consented to this form of leave, please provide this evidence to your payroll processor. I.e. Kirkwood Wilson, if we complete this for you.
What can we claim as an employer?
- An online HMRC portal will be used once up and running to claim 80% of furloughed employees usual monthly wages.
- At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 gross per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.
- The employees usual wage calculation cannot include fees, commission and bonuses. It relates purely to salary / hourly wages (Which will be calculated on an averaged basis, discussed below)
- The cap of £2,500 per employee per month relates to gross pay.
- If an employee’s salary exceeds £2,500 per month then you can only claim the £2,500. The remaining amount payable to the employee would be at the expense of the employer.
- The claim for associated Employers National Insurance contributions and minimum automatic enrolment employer pension contributions on that employee’s wage is in addition to the £2,500 cap.
- This means if your employee’s salary at 80% is £2,500 you can still claim for the associated cost for Employer National Insurance and Employer pension contributions. As this claim is in addition to the £2,500.
- Many directors take a small monthly salary and higher dividends for tax planning purposes
- This scheme does not include dividends.
- Therefore, if a director is furloughed as the business has temporarily closing due to this crisis, they will only be entitled to a reclaim of 80% of their salary processed via the payroll system as at 28th February 2020
Tax on income
- The furlough pay is a replacement of earnings and therefore will be subject to usual income tax and other deductions (Therefore, your staff will still pay tax on their income)
Employee pension contributions
- Automatic enrolment contributions for the workplace pension will still be payable by the employee
- Unless they have already opted out of the scheme
How to calculate the 80% pay?
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 for a full twelve months, you can claim for the higher of either:
– the same month’s earning from the previous year (I.e. March 2019)
– average monthly earnings from the 2019-20 tax year
- Employed for less than a year:
– claim on an average of their monthly earnings since they started work.
- Only started in February 2020:
– Use a pro-rata for their earnings so far to claim
What you need to make a claim
- 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
If we complete the payroll for you, we will have the majority of this information, as mentioned above it is vital you send us the dates in which you furloughed your staff members and also their written confirmation to the new retention scheme.
You can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Again, if we complete the payroll we will help with the administrative burden when this portal becomes live.
How will I receive this money back?
Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to a UK bank account.
Compliance with the scheme
Claims made must be made in accordance with payroll records.
Your employees must receive the full 80% of their pay declared, in no way as an employer can you benefit from such scheme. Therefore, no fees can be charged to your employees from the money that is granted.
What happens if business struggles after the scheme ends?
When the government ends the scheme, you must make a decision, depending on your circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).
Employee rights and entitlements
Employees that have been furloughed have the same rights as they did previously.
Including Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.
Will the business be taxed on this repayment received?
Yes, the income received under this scheme is made to offset against the staff wages cost
This income will therefore be included in the business’s calculations of its taxable profits for Income Tax and Corporation Tax purposes.
Wage cost illustration
Example, Salary of £1,650 per month –
Amount to process via the payroll system £1,650*80%= £1,320 (GROSS)
This will be processed as ‘Furloughed pay’.
If the remaining 20% is going to be payable by the employer you would put the remaining £330 through the payroll system on the usual salary line.
The £1,320 furloughed pay above will them be declared on the HMRC portal as this is lower than the £2,500 cap and therefore the full amount is recoverable.
You will receive payslips for your staff members as normal, making the net payments to them like you do each month.
When you receive the grant from HMRC, this will be the gross salary total for all your furloughed employees.
This includes PAYE, Employees’ NI and Employees’ Pension. As the employer you would have already paid this out in your usual monthly PAYE bill, and therefore your grant covers this for you also as you only pay your employees the net figure.
Employer NIC and Employer Pension cost –
This will be calculated on an employee by employee basis.
Your payroll software will calculate this for you, again if we do your payroll, we will declare this on the portal to reclaim this cost back for you.
Hopefully this explains that employees on the furlough scheme, receiving only 80% of their wage results in the employer paying nothing.
The only difficulty firms will face is cash-flow issues as discussed above, please refer to other government financial support to help you through this difficult time.