Guide 3
The Government Job Retention Scheme
Applicable for the period 1 March 2020 – 30 June 2020 only
(note the scheme has been extended until 31 October 2020 with updated terms – details of the latest iteration of the scheme can be found here)
Introduction
The government introduced the Job Retention Scheme to support businesses whose operations have been severely impacted by the COVID-19 outbreak.
The scheme seeks to avoid the need for permanent redundancies and layoffs by enabling employers to “furlough” employees (put them on ‘paid’ leave of absence) and re- claim up to 80% of their wage costs – to a maximum of £2,500 per month.
The scheme is complex and you should refer to the government website for details:
The information provided in this guide is a summary of our interpretation of the current scheme up to an including 30 June 2020. If you need further support contact CV19questions@peoprohr.com
Time period the Scheme Covers
The scheme is backdated to 1 March 2020 – but eligibility for individual payments will only commence from the date the employee has been formally furloughed and has stopped working. The scheme is set up to run for four months from the 1 March 2020 – but may be extended. Employees can be furloughed multiple times, but the minimum period for a single furlough is 3 weeks.
Eligibility
The scheme is open to all UK employers that had created and started a PAYE payroll scheme on or before 19 March 2020.
(N.B. There are exclusions for Public Sector employees).
Employees must have been on payroll and included on an HMRC RTI submission on or before 19 March 2020 and have a UK bank account to be eligible. The following different types of employees are covered:
- full-time employees
- part-time employees
- employees on fixed term contracts
- employees on agency contracts
- employees on flexible or zero-hour contracts
Employees who have stopped working for an employer (for any reason – including redundancy) since 28 February 2020 (but before 10 June 2020) can be rehired and placed on furlough – provided they were on payroll and included in an HMRC RTI submission on or before 28 February 2020.
Employees who have stopped working for an employer (for any reason – including redundancy) since 19 March 2020 (but before 10 June 2020) can be rehired and placed on furlough – provided they were on payroll and included in an HMRC RTI submission on or before 19 March 2020.
Employees are not permitted to perform work of any kind for the employer during the furlough period. However, if the employment contract allows, a furloughed employee can do paid or unpaid (voluntary) work for another employer or organisation.
What can an Employer Claim?
For each furloughed employee, companies can claim the lower of 80% of an employee’s regular salary (as at the last pay period prior to 19 March) or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions based on that furloughed wage.
Automatic enrolment pension contributions can only be claimed provided the employer pays the whole amount to a pension scheme for the employee as an employer contribution.
Discretionary bonuses, commission and tips should not be included. However, additional “regular payments” that an employer is obliged to pay to employees – including overtime, fees, and compulsory commission can be included.
Non-monetary benefits (such as the value of health insurance or a company car) should not be included in the 80% salary figure. However, they should continue to be provided at the employers expense unless mutually agreed otherwise.
Salary sacrifice benefits (including pension contributions) should not be included in the 80% salary figure. However, HMRC have agreed that COVID-19 counts as a life event enabling employees to change their salary sacrifice arrangements.
What is Payable to the Employee?
Companies are required to pay the furloughed employee at least the lower of 80% of an employee’s regular wage or £2,500 per month – but can top this up if they chose.
When the Scheme Ends
When the government ends the scheme, businesses will need to make a decision, as to whether employees can return to their normal
duties. This will of course depend on the current and future business situation. If not, it may be necessary to consider other options such as redeployment or redundancy.
Statutory Deductions
Payments made to employees are subject to employee tax, national insurance and automatic enrolment pension contributions.
Topping up Payments
Employers can choose to pay more than they claim through the scheme, but are required to bear the cost of the top up plus associated employer national insurance and automatic enrolment pension contributions.
The Furloughing Process
Unless the employment contract has an explicit “lay off” clause then companies are required to consult and gain employee acceptance to the furlough.
Because the reason for furloughing is generally that no or a significantly reduced amount of work is available, the alternative for many employees would be a redundancy situation.
Employers should claim payments through the scheme using an online portal which went live on 20 April 2020. Payments will be backdated to the date individuals were furloughed.
Employers will need to:
- Objectively and fairly select which employees will be furloughed – note equality and discrimination laws continue to apply
- Consult, confirm in writing and gain written consent from affected employees
- Stop affected employees from working
- Calculate the amounts to be reclaimed through the scheme
- Submit a claim through the government portal once it is live – see detail at the end of this
- A combined claim can be made to cover all furloughed employees
- Retain written confirmation of each furlough per employee for 5
Holiday Entitlement and Pay
Furloughed employees continue to accrue holiday as per their employment contract, however entitlement can be varied by mutual agreement subject to the statutory minimum Employees can take holiday whilst on furlough, but this period must be paid at the normal rate of pay.
Special Considerations
This is not an exhaustive list – but covers the most common situations – if in doubt refer to the government guidance.
Employees whose pay varies – the basis for the amount to claim should be the higher of either:
- Average monthly earnings in the 2019/20 tax year (or since they started if after April 2019)
- Earnings from the month 1 year prior to the date of
Redundancies – employees already made redundant on or after 28 February 2020 can be covered if they are reinstated to employment and as long as they were on payroll as at 28 February and had been included on an HMRC RTI submission on or before 28 February 2020. Entitlement to the scheme can be backdated to the date of redundancy.
Employees on Sick Leave – retain their right to Statutory Sick Pay (SSP). However, it is up to employers to decide whether to move furloughed employees who become ill onto SSP or to keep them on the furlough scheme.
Employees who are “shielding” on public health guidance – can be furloughed.
Employees who are unable to work because of caring (for example childcare) responsibilities – can be furloughed.
New hires – into a business cannot be furloughed if they weren’t on the payroll on 28 February 2020.
Maternity/Paternity/Adoptive Leave – statutory payments continue as normal. Enhanced payments can be treated in the same way as normal salary and re-claimed through the scheme. However, the employee’s average weekly earnings may need to be calculated differently, if the employee was furloughed and then started leave on or after 25 April 2020
Employees on unpaid leave can be furloughed if their leave started after 28 February 2020.
Employees with second jobs can be furloughed from one job and continue to work for the other.
Apprentices who are furloughed can continue to train but must be paid at least the Apprenticeship Minimum Wage/National Living Wage/National Minimum Wage as appropriate for all the time they spend training.
Limb B workers (who do not have a formal employment contract, but have some form of agreement to undertake or perform work in an employment-like capacity) – can be furloughed if paid through PAYE.
Employees on Fixed Term Contracts – can be furloughed. Their contracts can be renewed or extended before their natural conclusion during the furlough period without breaking the terms of the scheme. It should be noted that fixed term contracts which ended, without extension or renewal, on or before 19 March 2020 will not qualify for the grant once they have ended.
Agency Workers – can be furloughed by the agency, but in consultation with the employing company
Employees working reduced hours or on reduced pay – are not eligible for the scheme.
Individuals (as opposed to companies) – can furlough people they employ – for example nannies – if they are paid via PAYE and meet the eligibility criteria.
Company Directors – can be furloughed and can continue to perform statutory duties only and not more than “would reasonably be judged necessary for that purpose”.
Foreign nationals – are eligible to be furloughed, subject to them having the legal right to work in the UK.
Employment Rights
Furloughed employees retain their statutory employment rights including Statutory Sick Pay entitlement, maternity, paternity and other parental rights, protection against unfair dismissal and to redundancy payments.
Submitting a Claim
Employers should submit claims using the HMRC portal:
www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme
To claim, employers will need:
- the employer PAYE reference number
- the number of employees being furloughed
- National Insurance Numbers for the furloughed employees
- Names of the furloughed employees
- Payroll/employee number for the furloughed employees (optional)
- Self Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number
- the claim period (start and end date)
- amount claimed
- bank account number and sort code
- contact details
Employers will need to calculate the amount they are claiming. HMRC will retain the right to retrospectively audit all aspects of any claim.
Where there are fewer than 100 furloughed staff the details of each employee will need to be entered into the system. Where claims for more than 100 employees are being made an upload file is provided.
All records and calculations in respect of claims need to be retained.
HMRC will check the claim, and if eligible, pay it by BACS to a UK bank account.
Employers must pay the employee all of the grant
Furloughed staff must receive no less than 80% of their reference pay (up to the monthly cap of £2500).
HMRC will check claims made through the scheme. Payments may be withheld or need to be repaid in full to HMRC if the claim is based on dishonest or inaccurate information or found to be fraudulent.
Company Tax Treatment
Payments received by a business under the scheme must 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.
