Announced on 20 March 2020, the Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers for four months starting from 1 March 2020 up to the end of June 2020.
The scheme is expected to be open from Monday 20 April to support employers who have been severely affected by coronavirus outbreak.
Who can claim?
Any UK organisation with employees can apply to join the scheme, including businesses, charities, recruitment agencies, individuals employing nannies or domestic employees, and public authorities.
You must have had a PAYE scheme operating on or before 19 March 2020 and have a UK bank account.
How much can be claimed?
Employers will be able to use a new portal to claim for 80% of ‘furloughed employees’ usual monthly wage costs, up to £2,500 a month, plus the associated Employer NICs and minimum automatic enrolment employer pension contributions on that wage.
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.
What is a ‘furloughed’ employee?
The guidance describes a ‘furloughed worker’ as an employee who has been asked to take a temporary leave of absence by their employer but is required to be kept on the business payroll.
The employee must have been paid on your PAYE scheme on or before 19 March 2020 and were notified to HMRC on an RTI submission on or before 19 March 2020. For many employers, RTI submissions are made at the end of each month when the wage payments are made, so this will usually mean that the employee must have been on the PAYE scheme at the end of February 2020, unless you operate a weekly/fortnightly payroll scheme.
The employee can be full-time, part-time, an agency worker or on zero-hours contracts. The employee’s wage will remain subject to income tax and NIC as normal throughout this period.
The employee cannot undertake any work on behalf of the business whilst qualifying as a ‘furloughed worker’ but you do not need to place all your employees on furlough.
Employees can undertake volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of, the employer.
If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for the scheme.
Employees can be furloughed multiple times, i.e. they can be furloughed, brought back to work, then re-furloughed (subject to each furlough period being at least three weeks).
Employees who were made redundant on or after 28 February 2020 can be re-employed and furloughed.
If an employee has more than one employer, they can be furloughed by one and continue to work for the other, if this is permitted by their employment contract. Each job is separate, and the cap applies to each employer individually.
Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this.
Foreign nationals can be furloughed as long as they were employed by a UK employer.
How much to claim?
For full-time or part-time employees on an annual salary, Employers can claim for the 80% of the employee’s salary, for the last pay period prior to 19 March 2020 (for the majority of the cases, this will be the February 2020 pay), before tax, up to the £2,500 cap.
If an employee has been employed for more than 12 months and their salary varies each month, Employers can claim for the higher of the amount an employee earned in the same month last year, or an average of their monthly earnings from the last year, up to the £2,500 cap.
For employees who have been employed for less than a year, employers can claim for the average monthly earnings since work started. This is also the case if monthly pay varies due to the employee being on a zero-hour contract.
For employees who started in February 2020, earnings will be pro-rated for that month.
Employers can claim for any regular payments you are obliged to pay your employees. This includes wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments should be excluded.
If appropriate, worker’s wages should be reduced to 80% of their salary within your payroll before they are paid. This adjustment will not be made by HMRC.
Does this scheme apply to directors?
HMRC have now confirmed that company directors can be furloughed and they can still perform their statutory duties, but no other work for the company.
Most directors & shareholders of owner managed companies pay themselves a small salary and then take the majority of their income as dividends. Dividends are not included as part of the income within this scheme, so only the salary paid is relevant and would be subject to the 80% claim.
How can employees be furloughed?
In order to qualify for the scheme, Employers will need to identify any affected employees as ‘furloughed workers’ and inform the employee of this change in writing. Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.
While it is likely that employees will agree to be furloughed if the alternative is redundancy, their agreement must still be obtained. If employees refuse to be furloughed, then usual redundancy procedures must be followed.
Who cannot be a ‘furloughed’ employee?
Any employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.
What if employers do not have the funds to pay their employees during this period?
As the reimbursement scheme is not yet active, Employers may have to pay their staff each month whilst waiting for the future reclaim. However, due to the crisis, many employers may be struggling with cash flow and unable to pay.
If employers need extra short term cash flow support, they have been advised that they may be eligible for a Business Interruption Loan.
What you’ll need to make a claim?
In order to claim, Employers will need to have access to an online PAYE account, which can take up to 10 days to set up. If you don’t have one set up already, Employers can apply here: Set up an online HMRC PAYE account
To claim, you will need:
your ePAYE 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 consecutive weeks)
your bank account number and sort code
your contact name
your phone number
You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
HMRC will check your claim, and if you’re eligible, pay it to you by BACS to a UK bank account.
Is the grant taxable?
Any grant received by the employer under this scheme will be treated as taxable income for income tax or corporation tax purposes. Employers can claim a deduction for employment costs as usual when calculating their taxable profits for income tax or corporation tax.
Further details
When the government ends the scheme, Employers must then decide as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).
Further guidance and detail can be found at the HMRC website.