COVID-19 – Job Retention Scheme

*Update as at 27 March 2020

The below updates are as a result of additional information being provided by the Government on the furlough scheme which was published late evening on 26th March 2020.

• Employers can use a portal (still to be set up) to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, capped at £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. This point is important as we previously thought the £2,500 might be inclusive of ERs NI and pension contributions meaning employees would receive less.
• The £2,500 as 80% of salary would work out at an annual maximum salary of £30,000. Anyone earning more than this will not receive the full 80% of their salary and will instead be capped at the £2,500 unless their employer chooses to top up the furloughed earnings (but this is not compulsory).
• Employers can use this scheme anytime during the period up to 31 May 2020, unless the Government extends beyond this point.
• Any UK organisation with employees can apply, including:
  • businesses
  • charities
  • recruitment agencies (agency workers paid through PAYE)
  • public authorities
• The business must have started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
• Where a company is being taken under the management of an administrator, the administrator will be able to access the Job Retention Scheme.
• Furloughed employees must have been on the PAYE payroll on 28 February 2020, and can be on any type of contract, including:
  • full-time employees
  • part-time employees
  • employees on agency contracts
  • employees on flexible or zero-hour contracts
• The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.
• 3 weeks is the minimum length of time an employee can be furloughed for
• While on furlough, the employee’s wage will be subject to usual income tax and other deductions.
• This scheme is only for employees on agency contracts who are not working.
• When on furlough, an employee can not undertake work for or on behalf of the organisation, including providing services or generating revenue.
• If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and businesses will have to continue paying the employee through y payroll and pay their salary subject to the terms of the employment contract.
• Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.
• To be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of this communication.
• Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.
• All employees do not need to be placed on furlough to be eligible for subsidies.
• Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.
• Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this.
• Employees who are shielding in line with public health guidance can be placed on furlough.
• If an employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.

What you can claim

Employers need to make a claim for wage costs through the scheme.

They will receive a grant from HMRC to cover the lower of 80% 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, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.

HMRC will issue more guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, before the scheme becomes live.

Full time and part time employees

For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. 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 twelve months prior to the claim, then businesses can claim for the higher of either:

• the same month’s earning from the previous year
• average monthly earnings from the 2019-20 tax year

If the employee has been employed for less than a year, then the claim can be made for an average of their monthly earnings since they started work.

If the employee only started in February 2020, then a pro-rata should be used for their earnings so far to claim.

Whilst employers 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% of income above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards).

How to Claim

To claim, employers will need:

• PAYE reference number
• the number of employees being furloughed
• the claim period (start and end date)
• amount claimed (per the minimum length of furloughing of 3 weeks)
• bank account number and sort code
• contact name
• contact phone number

Once HMRC have received a valid claim they will pay it via BACS payment to a UK bank account.

Future Considerations

When the government ends the scheme, employers must make a decision, depending on circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).

HMRC will retain the right to retrospectively audit all aspects of any claim. It is therefore imperative that businesses ensure any claims are valid and that they follow the guidelines both legally and in terms of calculations and eligibility. Otherwise, we could see a situation where businesses have to repay grant monies received for invalid claims.

 

*Update as at 25 March 2020*

The below are further updates in relation to what we know on the Coronavirus Job Retention Scheme (“the Scheme”) following the Chancellor’s updates to Parliament and discussions between key stakeholders and HMRC and the Treasury.

• Furloughing will be possible for anyone who was on the payroll and subject to PAYE as of 29th February 2020, including both directors and casual workers, which means that paying casual workers under furlough arrangements is allowed.
• Many owner managed company director/shareholders pay small salaries and the balance of income as dividends. The scheme does not extend to dividends. Only the salary is relevant to the scheme. Directors will also have to be completely non-active so may fail this condition under The Scheme.
• There will be no provision to partially furlough staff. This means employees will need to be entirely non-active to qualify and reduced hours/job sharing options will not be possible.
• The Scheme relief can be backdated to the 1st March, but only from the point the employee completely stopped undertaking duties of the employment post 1st March. As employees are required to not be working, the Scheme will not apply to employees who have been put on reduced hours. For example, if an employee had a reduced workload because of Coronavirus from the 4th March, and then had no work from the 18th March, the Scheme could only be backdated to the 18th March.
• Zero-hour contracts – employers will be required to use an average of their hours worked to calculate the amount available under the Scheme. However, we still await clarification on what period of earnings will be used in this calculation. Something to consider here as well for the Government is seasonal workers who will have specific spikes in income, and many of which would be coming in the next few months.
• It was mentioned that national minimum wage (NMW) will not apply as the employee will not be allowed to work. As NMW is concerned with working time, no work means any payment will be outside the scope of NMW. Therefore it will be quite possible for the 80% payment to take the employee below NMW. As an aside to this point, the employee could be eligible for universal credit if they are in this position
• It is also confirmed that PAYE and NIC will continue to apply to the reduced income received by the furloughed employee, subject to the normal limits and thresholds.
• The grant paid under the Scheme will be 80% of the reference period wage, plus employers’ NIC and the legal minimum pension contributions under auto-enrolment, subject to the maximum of £2,500. In other words, those who are eligible to the 80% limit would not see the full £2,500 as salary because the other wage costs must be considered. 

 

*Update as at 23 March 2020*

In light of the economic impact COVID-19 is causing, on Friday 20 March 2020 the Government announced a Job Retention Scheme (“the Scheme”) alongside the package of other measures for businesses and the self-employed.

The full details of the Scheme are yet to be announced and caution should be exercised before any promises are made to workers about how this might work in practice. We expect to receive the Government’s guidance on the Scheme – and draft legislation to bring the Scheme into effect – in the coming days. Once this is available, employers will be able to make a more informed decision about how they implement the Scheme across their workforce and what procedures they will need to follow to ensure they meet the conditions of the Scheme and, of course, to receive the grants available under the Scheme as swiftly as possible.

We would also anticipate that ensuring grants are paid quickly will be the first step, but in time, proper review procedures will be in place to ensure help has been received fairly and in line with guidance – potentially through an extension to Employer Compliance reviews in the future – so it is vital that employers ensure that they only access the Scheme where they are entitled to it.

What do we know so far?

• The overall intention of the Scheme is intended to avoid redundancies and protect jobs by putting workers on furlough, rather than laying them off.
• ALL employers in the UK will be eligible to participate (small, medium or large, profit or not-for-profit) and there is no requirement for the business to be ‘closed’ due to COVID-19 to qualify.
• For an employee to be covered by the Scheme they must have been ‘furloughed’ and must not work for the business during this period.
• The Scheme is to cover all workers paid through PAYE (so not just employees), but it will not cover self-employed contractors.
• HMRC will be administering the Scheme and is in the process of setting up a new online portal to allow employers to submit information regarding furloughed workers.
• HMRC will only reimburse employers for 80% of wage costs – up to a caped value of £2,500 per month which is stated to be the median pay in the UK.
• The payments will be made as grants, and not a loan, in an attempt to minimise the ongoing financial affects caused by COVID-19.
• The Scheme is being backdated to 1 March 2020 and will run for at least 3 months until 31^st May 2020.
• There will be no limit to the amount of funding available from the Scheme per employer.
• Payment of grants will be made within weeks and hopefully by the end of April 2020.

Who is covered by the Scheme?

This is an area which we need more clarity on, but our understanding is that Government intends furloughing of workers in this current context to mean agreed leave of absence as an alternative to redundancy. That would, in effect, mean no work is done by the worker during the furlough period due to workplace closure or other economic impacts on their employer associated with the COVID-19 crisis.

This would be temporary in nature and once the barriers preventing the employer allowing the worker to work (such as a workplace being closed) and/or paying the worker (difficulties as a result of the economic impact meaning the employer cannot pay the worker) are removed, the worker will return to work and receive their pay as normal.

As workers cannot work for the employer during the furlough period, we would expect this will rule out workers who have agreed to work shorter hours and receive lower pay (i.e. the Scheme doesn’t look like it can be used to top up reduced hours/pay arrangements).

80% Top Up

Although the government is only providing 80% of the wage costs, the employer can choose to top-up the furloughed wage to 100%. However, this is not a statutory entitlement and will be subject to each employer’s discretion.

Furthermore, as the individuals are furloughed they remain employed/engaged during this period. As furloughed workers are not being dismissed or made redundant, there is therefore no entitlement to redundancy payments. In addition, we would expect that contractual restrictions in relation to working for other employers will also apply during the furloughed period.

Communication to Workers

Communicating this change to workers will give rise to legal considerations and risks, and so if at all possible, employers should wait until the guidance and draft legislation associated with the Scheme is produced so the details and conditions of the Scheme can be understood properly and actioned accordingly.

What we do know now is that employers have been advised by the Government “to designate affected employees as ‘furloughed workers,’ and notify your 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.”

Further Clarity needed

On the face of things, the Job Retention Scheme is a very positive step towards reducing the financial impact that COVID-19 is causing whilst protecting jobs.

However, at this stage, there are still some fundamental areas unclear:

• How the Scheme will interact with National Minimum Wage (NMW)
• How workers who are in receipt of Statutory Sick Pay (SSP) (for COVID-19 reasons or otherwise) will be affected
• Whether the scheme will effect an employee’s holiday accrual entitlement
• What ‘wage costs’ are, and whether variable elements such as bonus, commission or overtime are included
• Will the 80% covered be inclusive of class 1 secondary national insurance and/or pension contributions
• For workers on zero-hour contracts, how will their base wages will be calculated

Given the information above, how the Job Retention Scheme will work in practice and what it will actually cover is still to be determined. However, we will provide further updates as and when more information becomes available.

While we await the implementation of the Job Retention Scheme by HMRC, businesses may wish to look to the Business Interruption Loan Scheme to support cash flow in the meantime. Although this support is aimed towards small and medium-sized businesses, businesses can access the first 12 months of these loans interest free. 

This note is provided for your assistance in these unprecedented and ever-changing times. It does not constitute specific advice and it is provided on the basis that it does not create any duty of care or liability on our part.