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COVID-19 – Job Retention Scheme Details

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With further guidance published by the government on 26 March 2020 and 4th April, here are the up to date details.  See also our FAQs.

Jump to the updated guidance issued.

The Government paying up to 80% of wages for staff

pound sign

This will be of great relief to both employers, wanting to retain staff while they are unable to use them, and especially for employees worried about how they pay their bills if they are not getting paid.

How this will work

This measure is in respect of “furloughed” workers – i.e. those told there is no paid work for them to do for the time being.  In these circumstances:

  • The Government will provide funds to pay 80% of the wage, up to a maximum of £2,500 per month. 
  • This is a grant to employers and unlike loans, grants do not have to be repaid later.

This is only available where employees have no work  and is not a measure to subsidise the pay for those still working.  There are some considerations required to ensure employers implement this properly:

  • Most significantly ensuring that employment contracts are not broken.
  • In simple terms this means that an agreement is required between employer and employee that their employment is being furloughed.

The employer will be granted 80% of their normal pay per month, capped at £2,500.  The employer must pass all of this on to the employee and is entitled – but not obligated – to top up the payment if they are able to fund the difference themselves.

Further Job Retention Scheme Guidance

In further  guidance published on 26 March and 4 April 2020, the Government confirmed:

1 – Updated entry criteria softens the original position on companies who ‘cannot afford to pay’ to being for   “employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy. However, all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus’

2 – Any entity with a UK payroll can apply and foreign nationals can be included in the scheme.

3 – Employees can be furloughed multiple times, subject to minimum 3 week period on each occasion.

4 – When on furlough, an employee cannot undertake work for, or on behalf, of the organisation, including providing services or generating revenue. Employers are free to consider allocating any critical business tasks to staff that are not furloughed.

5 – Furloughed workers are permitted to work for another employer.  (Consider restrictions however either in their contract or inserted into furlough agreement)

6 – 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.  More details on how to calculate will be issued before launch.

7 – You must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.  You must also enrol – if you have not already – for PAYE online.

8 – Furloughed employees must have been on company PAYE payroll on 28 February 2020.  Employees hired after 28 February 2020 cannot be furloughed.  However, employees who were made redundant or who stopped working for the employer on or after 28 February can be rehired and placed on furlough.

9 – Employees of individuals are eligible e.g. nannies

10 – Fixed term workers can be furloughed and their contracts can be renewed or extended during furlough.  If their contract ends however you can no longer claim.

11 – Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.

12 – Employees on sick leave or self-isolating for the required period after showing symptoms should get Statutory Sick Pay or company sick pay, but can be furloughed after this.

13 – Employees who are shielding in line with public health guidance can be placed on furlough.

14 – Employees who are unable to work because they have caring responsibilities resulting from COVID-19 can be furloughed e.g. those that need to look after children.

15 – A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for the organisation; but if they are required to train they must be paid at least NLW/NMW for that time.

16 – The employer can ‘agree to find furloughed employees new work or volunteering opportunities whilst on furlough if this is in line with public health guidance’.

17 – Apprentices can be furloughed and can continue to train, for which they should receive the appropriate minimum wage.  Further guidance is provided.

18 – Those on maternity / adoption / paternity / shared parental leave the normal rules for statutory payments apply but any enhanced, contractual payments can be claimed through the scheme.

19 – For salaried employees, the actual salary before tax on 28 February will be used.

20 – The reference salary must not include the cost of non-monetary benefits including taxable benefits in kind, including those provided through salary sacrifice.  Where benefits are provided they should be in addition to wages paid under the scheme.

21 – However, HMRC agreed that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements.  This means that that contractual changes can be agreed to forego the benefits and increase the reference salary.

22 – Regular past overtime can be included in claims along with wages, fees and compulsory commission payments.

23 – Discretionary bonuses, tips, commissions and non-cash payments should be excluded.

24 – Apprenticeship Levy and Student Loans must continue to be paid and are not covered by the Scheme.

25 – For those on variable pay and employed for 12+ months prior to claim, the higher of a) same months earnings for the previous year or b) average monthly earnings in the 2019/20 tax year will apply.

26 – For those on variable pay and employed for <12 months prior to claim, the average of their monthly earnings since they started work will apply. If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.

27 – Wage will be subject to usual income tax and other deductions.

28 – Employer NIC and AE contribution on any additional top-up salary will not be funded.  Nor will any voluntary AE contributions above the 3% minimum on income above the lower limit of qualifying earnings (£512pm rising to £520pm on 5 April).

29 – Minimum furlough length is 3 weeks.  One claim can be submitted every 3 weeks.

30 – It appears that to claim you just need the number of employees being furloughed and the amount being claimed, against the possibility of a future HMRC audit.

31 – Grants will be paid via BACS to a UK bank account.

32 – All of grant must be paid to employees as gross salary.

33 – If the scheme ends but employees are unable to return to their duties, redundancy may be necessary.

34 – Furloughed employees retain the same rights eg SSP, maternity unfair dismissal etc.  It does not mention statutory paid holiday accrual!!

35 – Employees will continue to pay AE contributions unless they have opted out or cease saving.

36 – The grant can be claimed for office holders (incl, Directors), salaried members of LLPs, agency workers (including those employed by umbrella companies and limb (b) workers, if they are paid via PAYE.  Check for specific considerations for those paid via PAYE but not necessarily employees in employment law.

37 – Detailed guidance has been issued for contingent workers in the public sector – i.e. where the party receiving the services is a Central Government Department (CGD), an Executive Agency of a CGD or a Non-Departmental Public Body.

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Andrew Brookes - CTA

Senior Manager

Andrew Brookes is a Senior Manager in the Menzies Solent office specialising in employer tax solutions and corporate tax advisory services.