Coronavirus Job Retention Scheme
In response to the economic fallout that has resulted from the coronavirus disease 2019 (COVID-19) pandemic, the UK government has recently implemented the Coronavirus Job Retention Scheme. This temporary scheme is designed to support employers whose business operations have been severely impacted by COVID-19.
At a glance, the scheme is open to all employers that created and started a PAYE payroll scheme on or before 28th February 2020. This scheme allows employers to use an online portal to claim 80 per cent of furloughed workers’ (employees on a leave of absence) usual monthly wage costs—up to £2,500 a month—as well as the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on those wages.
The scheme will be available from 1st March 2020 until 31st October 2020. Employers can use the scheme at any time throughout this period. However, employers will be expected to ‘share the cost’ of the scheme from 1st August 2020 by gradually transitioning their furloughed staff back to work.
Review the following guidance for further information on who can make a claim, which employees can be claimed, how to calculate what you can claim, the materials needed to make a claim and how the claim process will operate.
Who Can Make a Claim
Any organisation with employees can apply to the scheme, including the following:
- Businesses
- Charities
- Recruitment agencies (with agency workers paid through PAYE)
- Public authorities
However, your organisation must have created and started a PAYE payroll scheme on or before 28th February 2020 and possess a UK bank account to qualify for the scheme. In the event that your organisation is being taken under the management of an administrator, your administrator will be able to apply to the scheme.
The government does not expect this scheme to be utilised by many public sector organisations, seeing as many public sector employees are continuing to provide essential public services or contribute to the UK’s COVID-19 response efforts.
Where employers receive public funding for staff costs, and that funding is continuing, the government expects 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 that 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 circumstances (eg where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the COVID-19 response), the scheme may be appropriate for some public sector employees.
Employees Whom You Can Claim
To be able to claim a furloughed employee for the scheme, the employee must have been on your PAYE payroll on or before 28th February 2020. The employee can be on any type of contract, including the following:
- Full-time employees
- Part-time employees
- Employees with agency contracts
- Employees on flexible or zero-hour contracts
- Employees who were made redundant since 28th February 2020, but were rehired by their employer
To be eligible for the scheme, when on furlough, an employee can not undertake work for or on behalf of your 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.
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 upon.
In addition, keep in mind the following furlough conditions:
- If the employee is on unpaid leave— Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28th February 2020.
- If the employee is on statutory sick pay (SSP)—Employees who are on sick leave or in self-isolation should receive SSP, but can be furloughed afterwards. Employees who are ‘shielding’ in line with public health guidance can be placed on furlough.
- If the employee has more than one job—Employees with multiple jobs can be furloughed by each employer. The scheme applies to each employer individually.
- If the employee does volunteer work or training—Furloughed employees can take part in volunteer work or training, as long as they do 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 while they are furloughed, they must be paid at least the National Living Wage (NLW) or National Minimum Wage (NMW) for their time spent training—even if this is more than the 80 per cent of their wage that will be subsidised.
- If the 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 two weeks off of work (four weeks if they work in a factory or workshop) immediately following the birth of their baby. If an 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. If you offer enhanced (earnings-related) contractual pay to employees on maternity leave, this is included as wage costs that you can claim through the scheme. The same principles apply for any employee who qualifies for contractual adoption, paternity or shared parental pay.
Be sure to consult your employees before making any changes to their employment contracts. When you are making decisions in relation to the furlough process, including deciding who to offer furlough to, keep in mind that equality and discrimination laws apply (eg the Equality Act 2010).
To be eligible for the scheme, make sure that you write to your employees confirming that they have been furloughed and keep a record of this communication. It’s important to note that employees hired after 28th February 2020 cannot be furloughed or claimed for in accordance with this scheme.
How to Calculate What You Can Claim
Your organisation will need to make a claim for wage costs through this scheme. You will receive a grant from HM Revenue & Customs (HMRC) to cover the lower of 80 per cent 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, you must pay your employee the lower of 80 per cent of their regular wage or £2,500 per month. You can also choose to top up an employee’s salary beyond this, but it is not required under this scheme.
Full-time and Part-time Employees
For full-time and part-time salaried employees, the employee’s actual salary before tax (as of 28th February 2020) should be used to calculate the 80 per cent. 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 12 months prior to the claim, you can claim for the higher of either:
- The same month’s earnings from the previous year
- The 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 just started working in February 2020, you can use a pro-rata calculation for their earnings so far to claim.
Employer National Insurance and Pension Contributions
Your organisation will remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of your furloughed employees.
You can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80 per cent 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 per cent of income above the lower limit of qualifying earnings—which is £512 per month until 5th April 2020 and will be £520 per month from 6th April 2020 onwards.
NLW and NMW
Individuals are only entitled to the NLW or NMW for the hours they are working. Therefore, furloughed workers who are not working must be paid the lower of 80 per cent of their salary or £2,500, even if—based on their usual working hours—this would be below the NLW or NMW.
However, if workers are required to, for example, complete online training courses while they are furloughed, then they must be paid at least the NLW or NMW for the time spent training, even if this is more than the 80 per cent of their wage that will be subsidised.
Materials Needed to Make a Claim
To make a claim, you will need the following:
- Your ePAYE reference number
- The number of employees being furloughed
- The claim period (start and end date)
- The amount claimed (per the minimum length of furloughing of three 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.
How the Claim Process Will Operate
The government has created an online portal for employers to submit claims. You can only submit one claim every three weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until 1st March 2020, if applicable. After the scheme has been closed by the government, HMRC will continue to process remaining claims before officially terminating the scheme.
Once HMRC has 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.
Furloughed Employees’ Rights
Employees who have been furloughed have the same rights as they did previously. That includes SSP entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.
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.
You 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 Scheme
Payments received by your organisation under the scheme are made to offset deductible revenue costs. They must, therefore, be included as income in your organisation’s calculation of its taxable profits for income tax and corporation tax purposes, in accordance with normal principles. Your organisation can deduct employment costs as normal when calculating taxable profits for income tax and corporation tax purposes.
Click here for further government guidance on this scheme. For the latest updates and additional resources related to COVID-19, contact us today.