- Furloughed members of staff must not work for the employer during the period of furlough.
- Furlough is from 1 March 2020, so is to be backdated. It will last for at least 3 months and will be extended if necessary. Note that while the scheme is backdated to the beginning of March as it is intended to support all those employed then, a firm will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer. This will of course be subject to employment law in the usual way.
- The scheme is available for employees on the payroll at 28 February 2020.
- All UK businesses are eligible, ‘any employer on the country, small or large, charitable or non-profit’ to use the Chancellor’s words.
- The scheme pays a grant (not a loan) to the employer.
- The grant will be paid to the employer through a new online system which is being built for this purpose. There is no detail about the application process at the moment.
- The employer will pay the employee through payroll, and report payments to HMRC using the Real Time Information (RTI) system as usual, as required by the employment contract. This contract may be re-negotiated, but that is a matter for employment law.
- The scheme will be administered by HMRC:
• Relevant employees must be designated as furloughed employees.
• Employers will submit claims to HMRC through a new online portal.
• As the system will take time to build, businesses should look to the Coronavirus Business Interruption Loan Scheme to support cash flow in the meantime. The narrative used in the information released so far says ‘if your employer cannot cover staff costs due to COVID-19 they may be able to access support…’. This is a conditional phrase which may relate to existing funds available to the employer. We do not yet know how these might be determined, nor whether there is a bar of some description. - The maximum grant will be calculated per employee and is the lower of:
• 80% of ‘an employee’s regular wage’ and.
• £2,500 per month.
Plus the associated employers’ national insurance contributions (NIC) on this amount and the minimum automatic enrolment employer pension contributions on that wage.
Fees, commission and bonuses should not be included.
This gives a maximum cap of £2,500 +£245 (employers’ NIC) + £59 (auto- enrolled pension contribution) = £2,804 of total possible grant that can be applied for per employee per month.
Which businesses are eligible?
Eligible businesses include charities and not-for-profit organisations and will include single director companies, although the same rules will apply as to other businesses. The grant applies to all UK based businesses.
Owner/managed companies
Many owner managed company director/shareholders pay small salaries and the balance of income as dividends. The scheme does not extend to dividends. Only the salary is relevant to the scheme. Such companies must have been paying a salary through a payroll to be eligible for a grant.
How is payment going to work in practice?
We understand that the employer will pay the contractually agreed amounts as required by the employment contract in the usual way. This will involve paying the employee the net salary, and HMRC the PAYE and both primary and secondary national nsurance Contributions. The grant will be paid directly to the employer. We do not know how this will operate for employers which use a payroll agency.
Employers will claim the grant through a new separate portal to be built by HMRC.
What is the £2,500 maximum grant based on?
As the £2,500 limit to the monthly grant appears to cover all employment costs, it is unclear how benefits in kind, and in particular those being payrolled, will be reflected in the calculation.
For full-time and part-time employees, the base for the 80% calculation is the employee’s actual salary as of 28 February 2020.
For employees whose pay varies, HMRC guidance advises the following:
“If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either:
- the same month’s earnings from the previous year; or
- average monthly earnings for the year.
“If the employee has been employed for less than a year, claim for an average of their monthly earnings since they started work.
“If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
“Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.”
Will entitlement to other employment benefits continue during the period of furlough?
The rules for the grant will not displace the existing employment contract. So for example, we would expect the entitlement to holiday and sick pay would depend on the contract.
Employees eligible
Eligible employees are those on the payroll on 28 February 2020. Any employee who was made redundant after that date but who was employed then, can be re-employed and furloughed.
We have had many questions asking if workers can be moved in and out of being furloughed if work becomes available to an employer and then ceases again? The scheme is being designed to allow for flexibility so that furloughed staff can be brought back to work, for example, to replace those still working who later become sick. An employee must remain on furlough for a minimum period of three weeks, although a further period may immediately follow the previous furlough if agreed. This will ensure flexibility and permit furloughed employees being brought back to cover, for example, sickness of others.
This will again depend on the employment contracts of those affected.
The matter of which employees an employer decides to furlough will be a matter for negotiation with staff and employment law.
The impact on job sharing employees and the decision to furlough will be a matter for negotiation with staff and employment law.
We presume that, subject to anything different stated in the employment contract, eligible employees will include apprentices.
Agency workers are eligible.
We do not yet know whether the scheme will include deemed employees under the off payroll working rules.
An employee does not have to accept furlough if offered, but the employer could then make the employee redundant instead using the usual employment law procedure.
The rules allow furloughed workers to undertake training while they are on furlough. The condition is that the worker must not be making money for the employer.
It is a condition of the scheme that the employee must do no work at all during the furlough period. The intention of the scheme is to allow employers to pay staff who are without work. HMRC will of course have visibility of pay records.
Furloughed Employees – more questions answered.
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 coronavirus (COVID-19).
Employers can use a portal to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Employers can use this scheme anytime during this period.
The scheme is open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020.
Who can claim
Any UK organisation with employees can apply, including:
- businesses
- charities
- recruitment agencies (agency workers paid through PAYE)
- public authorities
You must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
Where a company is being taken under the management of an administrator, the administrator will be able to access the Job Retention Scheme.
Public sector organisations
The government expects that the scheme will not be used by many public sector organisations, as the majority of public sector employees are continuing to provide essential public services or contribute to the response to the coronavirus outbreak.
Where employers receive public funding for staff costs, and that funding is continuing, we expect employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them. This also applies to non-public sector employers who receive public funding for staff costs.
Organisations who are receiving public funding specifically to provide services necessary to respond to COVID-19 are not expected to furlough staff.
In a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate for some staff.
Employees you can claim for
Furloughed employees must have been on your PAYE payroll on 28 February 2020, and can be on any type of contract, including:
- full-time employees
- part-time employees
- employees on agency contracts
- employees on flexible or zero-hour contracts
The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.
To be eligible for the subsidy, when on furlough, an employee can not undertake work for or on behalf of the organisation. This includes providing services or generating revenue. While on furlough, the employee’s wage will be subject to usual income tax and other deductions.
This scheme is only for employees on agency contracts who are not working.
If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed.
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.
To be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of this communication.
Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.
You do not need to place all your employees on furlough. However, those employees who you do place on furlough cannot undertake work for you.
If your employee is 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 Statutory Sick Pay
Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this.
Employees who are shielding in line with public health guidance can be placed on furlough.
If your employee has more than one job
If your employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
If your employee does volunteer work or training
A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of your organisation.
However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
If your employee is on Maternity Leave, contractual adoption pay, paternity pay or shared parental pay
Individuals who are on or plan to take Maternity Leave must take at least 2 weeks off work (4 weeks if they work in a factory or workshop) immediately following the birth of their baby. This is a health and safety requirement. In practice, most women start their Maternity Leave before they give birth.
If your employee is eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance.
Employees who qualify for SMP, will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is currently £148.68 a week, rising to £151.20 a week from April 2020.
If you offer enhanced (earnings related) contractual pay to women on Maternity Leave, this is included as wage costs that you can claim through the scheme.
The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.
Work out what you can claim
Employers need to make a claim for wage costs through this scheme.
You will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included.
At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.
We will issue more guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, before the scheme becomes live.
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 (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either:
- the same month’s earning from the previous year
- average monthly earnings from the 2019-20 tax year
If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.
Employer National Insurance and Pension Contributions
All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.
You can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying those wages.
You can choose to provide top-up salary in addition to the grant. Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded through this scheme. Nor will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards).
National Living Wage/National Minimum Wage
Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working.
Therefore, furloughed workers, who are not working, 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.
However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
What you’ll need to make a claim
Employers should discuss with their staff and make any changes to the employment contract by agreement. Employers may need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.
To claim, you 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
You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
Claim
The online service you’ll use to claim is not available yet. We expect it to be available by the end of April 2020.
You can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until the 1 March if applicable.
What to do after you’ve claimed
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.
You should make your claim in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll.
You must pay the employee all the grant you receive for their gross pay, no fees can be charged from the money that is granted. You can choose to top up the employee’s salary, but you do not have to.
When the government ends the scheme
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).
Employees that have been furloughed
Employees that have been furloughed have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.
Once the scheme has been closed by the government, HMRC will continue to process remaining claims before terminating the scheme.
Income tax and Employee National Insurance
Wages of furloughed employees will be subject to Income Tax and National Insurance as usual. Employees will also pay automatic enrolment contributions on qualifying earnings, unless they have chosen to opt-out or to cease saving into a workplace pension scheme.
Employers will be liable to pay Employer National Insurance contributions on wages paid, as well as automatic enrolment contributions on qualifying earnings unless an employee has opted out or has ceased saving into a workplace pension scheme.
Tax Treatment of the Coronavirus Job Retention Grant
Payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles. Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.