Coronavirus Job Retention Scheme - Scheme Details
Coronavirus Job Retention Scheme
Under the new Coronavirus Job Retention scheme, government grants will cover 80% of the salary of PAYE employees who would otherwise have been laid off during this crisis. The scheme, open to any employer in the country, will cover the cost of wages backdated to 1 March 2020 and will be open before the end of April. It will continue for at least three months, and can include workers who were in employment on 28 February.
To claim under the scheme employers will need to:
- designate affected employees as ‘furloughed workers’, and notify employees of this change. Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation; and
- submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. HMRC will set out further details on the information required.
- HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month.
Details of the scheme
- The scheme will be available to all UK employers, of any size and in any sector.
- It involves “furloughing” designated workers who would otherwise have been “laid off” during this crisis.
- This will involve keeping those workers on the payroll instead of dismissing them as redundant or putting them on unpaid lay-off.
- Workers cannot do any work for an employer that has furloughed them.
- The employer can top-up the 80% HMRC payment but does not have to do so.
- Employees will need to agree to be furloughed, preferable in writing. In most cases the employee's contract will need to be amended to allow for them to be furloughed.
- Businesses will need to take HR and legal advice before furloughing employees. This is because reducing a worker’s pay amounts to an unlawful deduction from wages unless there is prior written consent or contractual agreement.
Frequently Asked Questions
Q1: What does ‘furloughed’ mean
This is a term which is typically used in the United States. It means putting employees on temporary leave of absence where they do not work but are retained on payroll and resume their duties when they are needed again.
Q2: Is any work allowed?
Furlough means that the employee does not carry out any work.
Q3: Can directors of a company be furloughed?
The current understanding is that company directors can be "furloughed" even though still carrying on their statutory duties as directors e.g. filing returns at Companies House.
Note that the 80% grant would only apply to directors salaries, not their dividends.
Q4: Does the scheme apply to all businesses?
Yes, all businesses can access the scheme provided they have a PAYE scheme in operation, there is no restriction on size or type. It also applies to not for profit organisations.
Q5: What actions do businesses need to take?
You will need to designate which of your workforce will be furloughed employees and then submit that information to HMRC, along with each employee’s earnings. We will of course be assisting you with the submissions.
Q6: What if only certain employees are furloughed?
Businesses need to designate which employees are furloughed, if you are not placing everyone on furlough, you should consider carefully which employees it applies to.
We strongly advise getting advice from employment law/ HR specialists as the decision may result in discrimination claims from those who allege they were made to do it because of their age, disability or pregnancy.
Q7: How much can businesses claim from the government?
When businesses have designated which employees are furloughed and notified HMRC of their earnings the business will then receive a grant to cover the 80% their wages. The grant will be liable for income tax and employee national insurance contributions (NICs).
Q8: What is the 80% grant based on?
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.
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.
The grant is only available in respect of employees on the payroll at 28 February 2020.
Q9: What about bonuses, commission, fees and overtime?
Fees, commission and bonuses should not be included in the calculation of the employees regular wage. It is unclear at this stage how overtime will be treated.
Q10: What about workers on zero hours contracts or irregular hours?
The Chancellor said the intention was to try to cover as broad a group of people as possible. It has been suggested (as yet unconfirmed) that the 80% test would apply to such workers’ February 2020 pay.
Q11: Do businesses still need to pay the full salary to the employee?
No, there is no requirement to do this, businesses can do so if they wish. Some businesses may chose to reduce the employee’s pay to the amount funded by the government.
Q12: What about employees on short-time working?
Furlough requires the employee to not carry out any work, so short-time working could not continue during furlough.
Businesses should consider re-organising work patterns to allow for some of those on short-time working to go back to full hours and the others to be furloughed. This should be discussed with employees first. This may have employment contract implications and employment law/ HR specialist input will be required - See Q6.
HMRC guidance for employers: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme
HMRC guidance for employees: https://www.gov.uk/guidance/check-if-you-could-be-covered-by-the-coronavirus-job-retention-scheme