On Friday (29 May), the Government announced more details regarding the extension of the Coronavirus Job Retention Scheme to October 2020. The key changes that you may need to be aware of are as follows:
- From 1 July, the scheme will be more flexible so that furloughed employees will be able to work part time. Employers will need to pay their employees for any time worked but can still claim a grant for the time they are furloughed.
- The scheme will close to new entrants from 30 June. It is our understanding that an employer will only be able to claim under the scheme after 1 July if they have previously made a claim before 1 July.
- From 1 July, employers will only be able to furlough employees that have previously been furloughed for a full 3 week period prior to 30 June. This means that the final date by which an employer can furlough an employee for the first time is 10 June 2020. Employers will have until 31 July to make any claims in respect of the period to 30 June.
- Throughout the period from now until 31 October, furloughed employees will continue to receive 80% of their salary (subject to the £2,500 cap). However, employers will be asked to contribute to that amount from August onwards. In summary:
- June and July: Employers will not be required to contribute anything towards the 80%/£2,500. The Government will continue to pay this as well as the Employers’ National Insurance and minimum pension contributions.
- August: The Government will pay 80% of wages up to a cap of £2,500. Employers will be required to pay any Employers’ National Insurance (if not covered by the Employment Allowance) and minimum pension contributions.
- September: The Government will pay 70% of wages up to a cap of £2,187.50. Employers will be required to pay any Employers’ National Insurance and minimum pension contributions PLUS 10% of wages (to make up the 80%/£2,500).
- October: The Government will pay 60% of wages up to a cap of £1,875. Employers will be required to pay any Employers’ National Insurance and minimum pension contributions PLUS 20% of wages (to make up the 80%/£2,500).
- Employers can agree work hours with their employees to suit their business. This must be confirmed in writing with the employees. As part of a claim an employer will be required to submit data on the usual hours an employee would be expected to work as well as the actual hours worked.
We are expecting further guidance to be published on 12 June, particularly around how the claim should be calculated where an employee is working part time.
How does the scheme work?
- The scheme provides funding to employers who have been severely affected by Covid-19, in order for them to continue paying employees who would otherwise need to be made redundant. It is open to all employers that had started a PAYE payroll scheme on or before 19 March 2020 and employees must have been included on a payroll “RTI” submission on or before 19 March 2020.
- 80% of the employees’ usual monthly wage costs, up to a cap of £2,500 per employee per month plus the associated Employer National Insurance contributions and minimum auto-enrolment pension contributions on this amount, will be covered for at least 4 months starting from 1 March 2020.
- Only regular wages are included, not other earnings such as commissions or bonuses. For salaried employees, their salary from the last pay period before 19 March 2020 should be used. For other employees, the claim should be based on the higher of:
- 80% of their earnings from the same month in 2019; and
- 80% of their average monthly earnings from the 2019/20 tax year (or for the period of employment if less than 12 months).
- A claim can include any regular payments which an employer is obliged to pay e.g. wages, past overtime, fees and compulsory commission payments. However, as noted above, discretionary bonuses (including tips) and commission payments and non-cash payments should be excluded.
- Employers must have a UK bank account to access the scheme.
Which employees are eligible?
- Employers will need to designate affected employees as “furloughed workers” and notify them in writing that they cannot continue to work. A record of this communication must be kept for five years. An employee will be eligible if they were on the payroll on 19 March 2020. Employees that were on payroll as of 28 February 2020 but were made redundant or stopped working for the employer after that (and prior to 19 March 2020) can also qualify for the scheme if they are re-hired and put on furlough.
- Full time and part time employees, agency workers and those on flexible/zero-hour contracts are all covered by the scheme.
- An individual who pays someone through PAYE e.g. their nanny, can furlough that employee if they were on payroll on 19 March 2020.
- An employee can only be “furloughed” and so qualify for the scheme if they are carrying out no duties of employment at all (i.e. those whose hours have simply been reduced will not currently qualify). Volunteer work and training are excluded (in fact training is encouraged) provided that they don’t generate revenue for or provide services to the employer. However, an employee can remain employed with another employer if they have more than one job.
- Before furloughing an employee, the employer should discuss this with them and agree any changes to the employment contract (such as a reduction in their contracted salary). Equality and discrimination laws will apply in the usual way. We would recommend seeking legal advice if there is any doubt over whether an employee should be furloughed.
- Employees who are shielding in line with public health guidance, are on long term sick leave or have caring responsibilities (including looking after children) can be furloughed.
- Apprentices can be furloughed in the same way as other employees and they can continue to train whilst furloughed. However, they must be paid the applicable minimum wage (Apprenticeship Minimum Wage/National Living Wage/National Minimum Wage) for all time spent training.
- Employees who are unable to work because they are “shielding” due to being in a vulnerable category, or if they have caring responsibilities resulting from coronavirus (e.g. need to look after children) can be furloughed.
- Company directors, office holders and salaried members of LLPs can be furloughed provided that they are paid via PAYE (even if not strictly employees under employment law).
- Regarding directors, the guidance states:
- As office holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed. Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.
- Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.
How will a claim be made?
- Claims are made online through the HMRC portal.
- Employers should pay their employees in the usual way and then reclaim the amounts they are eligible for through this portal (maximum of one claim every 3 weeks).
- In order to make a claim, employers must either have enrolled for PAYE online for Employers or have authorised a PAYE Agent (i.e. us as your accountants).
What else do I need to know?
- Employee wages will be subject to the usual Income Tax and National Insurance deductions while they are furloughed.
- Employers can “top-up” employees’ wages to pay them their usual salaries (i.e. to cover the 20% not funded by the scheme and / or amounts in excess of the monthly cap) but this is not a requirement of the scheme. Employers who choose to top-up wages will not be able to claim back the additional Employer National Insurance contributions or auto-enrolment pension contributions on the extra amounts.
- Once the scheme ends, employers must decide whether employees can return to their duties or whether redundancies need to be considered.
- Furloughed employees have the same employment rights as if they were working, e.g. Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.
- An employee can be furloughed more than once (each for a minimum of 3 weeks)
- Grants will be prorated if an employee is only furloughed for part of a pay period;Finally, grants received under the Job Retention Scheme will be taxable for the employer (Corporation Tax/Income Tax) but employment costs will still be deductible.
In addition, we have received a number of queries regarding the Job Retention Scheme and here are a few Frequently Asked Questions:
Q: I am the sole director of my limited company, am I eligible for the Covid-19 Job Retention Scheme?
A: Yes, a director can be eligible for the scheme, provided that during the furlough period they do not provide any services to the company or generate any revenue for the company. As noted above, directors who need to carry out duties to fulfil their statutory obligations can continue to do so, provided that they do no more than would “reasonably be judged necessary for that purpose”. There is currently no guidance on what duties might or might not be considered reasonable. We expect that this would cover very basic obligations such as approving statutory accounts and filing confirmation statements, for example.
The same rules apply as for any other employee, for example the director must have been on a PAYE payroll on or before 19 March 2020. A claim can only be made for 80% of a director’s regular PAYE salary (not dividends), up to the cap of £2,500 per month. It will therefore be important to consider on a case by case basis whether it is feasible/beneficial for a director to do no work for the company for a period of time in order to claim under the scheme.
Q: Will my employees continue to accrue holiday whilst they are furloughed?
A: Yes, our understanding is that employees will retain the same rights whilst on furlough as they had previously, including entitlement to holiday pay. The government have also announced that employees will be allowed to carry over up to 4 weeks of unused holiday into the next 2 years, if they are prevented from taking holiday due to coronavirus.
Q: Can I pay my furloughed employees 80% of their normal wage if this is below the National Minimum Wage?
A: Yes. Employees are only entitled to the National Minimum Wage/National Living Wage for the hours they are actually working (including if they are required to complete any online training during the furlough period). Furloughed workers can be paid the lower of 80% of their salary and £2,500 even if this would be below the National Minimum Wage/National Living Wage based on their usual working hours.
Q: I took on a new employee on 2 March 2020 – can he/she now be furloughed?
A: It depends. The scheme applies only to individuals on payroll on or before 19 March 2020 and who have been notified to HMRC on a payroll "RTI" submission on or before that date. If an employee was hired on 2 March and was to be paid monthly, they may not have been included on a payroll submission on or before 19 March. A weekly or fortnightly paid employee hired on 2 March may qualify as it is likely that they would have been included on a payroll submission by 19 March.
If you have any questions on the above, please contact your Client Manager in the first instance.