In response to the COVID-19 pandemic, the UK Government recently announced the launch of its ‘coronavirus job retention scheme’, pledging to cover 80% of the salaries of retained workers who would otherwise be laid off due to the crisis, up to the value of £2,500 per month.
The scheme allows businesses to provide a temporary leave of absence to employees whilst still keeping them employed and on the payroll, a situation otherwise known as ‘furlough’. As furloughed employees remain on the payroll, this is different to being laid off without pay or being made redundant. During their leave of absence, furloughed employees must not work for the employer, but usually return to their job as normal once the furlough period ends.
The Government’s scheme has been designed to support employers during this challenging time, providing contingency plans to ease cashflow problems for businesses (cutting overheads and meeting reduced demand) and protect employees from losing their jobs. As the COVID-19 is expected to be temporary, the scheme enables businesses to pause working for certain employees whilst still retaining them – a factor which will be vital in ensuring organisations are able to pick up where they left off when normal working resumes.
The scheme will cover the cost of wages backdated to 1 March 2020 and will be open before the end of April for at least 3 months. It’s worth noting that all UK employers are eligible to access the scheme (including businesses, charities, recruitment agencies with PAYE agency workers and public authorities) and there is no limit on the funding available – the Government will pay to support as many jobs as needed.
On 26 March, the Government issued detailed guidance on the new scheme, providing clarity for employers and answering many questions arising from the scheme’s initial details. The Government’s new guidance can be accessed here.
FAQs on employee furlough
1. Which employees can be furloughed?
All employees on the PAYE from 29 February who would otherwise be laid off due to the crisis, including:
– Full-time workers
– Part-time workers
– Agency contract workers (who are not working, not those who are still working on reduced hours)
– Those on a zero-hour contract or flexible working arrangement
– Employees eligible for furlough include all skill-sets, including apprentices
– Employees on sick leave or self-isolating are entitled to Statutory Sick Pay but can be furloughed after this
– Employees who are shielding in line with the Government’s health guidance can also be placed on furlough
– Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 29 February
– Employees with more than one employer can be furloughed for each company
– Employees can conduct volunteer work or training for you whilst on furlough, as long as it meets the Government’s guidelines
– There are various measures in place for employees on Maternity Leave – please review the Government’s guidance on this
– The 80% wage guarantee will not cover zero-hour contracts or casual workers, unless they work on the PAYE system
– The self-employed are not covered in this scheme however they could be eligible for the self-employed income support scheme (see our recent blog)
2. Can I be furloughed as a director of the business?
Yes, a director has two roles within a company – director duties and employee duties.
A director can continue to ‘run’ the business, completing only their statutory director duties and administrative tasks such as submitting VAT returns, providing they are not taking steps to make revenue or providing a service over the period where they are furloughed.
HMRC are yet to release full details of how the scheme will work, this will be of specific interest for those whose earnings are irregular, full details on how the grant will be calculated for these individuals have yet to be released.
As with the requirements to furlough any individual, directors must have been on the payroll on 29 February and any furlough pay can only be in relation to salary, not dividends.
3. I see that people cannot work on furlough, so it looks like an all or nothing measure – is that correct?
Yes it’s all or nothing. According to the guidance, employees must not undertake any work for their employers whilst furloughed. This will allow employers to claim a grant of up to 80% of the employee’s wage for all employment costs, up to a cap of £2,500 per month.
Employees should know that they will remain officially employed while furloughed. As an employer, you could choose to fund the difference between the Government’s 80% payment and the remaining salary, but you are not obliged to.
4. How do contracts affect this?
Employees must be consulted and agree to being furloughed, however as an employer, if you have a clause in the contract which allows you to either introduce lay off, or short time working, then you are permitted to issue furlough without written consent.
If you have no lay off clause in the contract, technically consent will be needed. However, if an employee refuses to consent to be sent home on furlough, then they risk being made redundant. The employer could make an employee redundant if they refuse provided they have been selected for it fairly.
5. When is the cut off to be eligible for the scheme?
The employee must have been on the payroll on 29 February. They can have been subsequently made redundant and then reinstated back onto the payroll on furlough.
6. How long will the scheme run for, and is it indefinite?
The Government website says “We intend for the Coronavirus Job Retention Scheme to run for at least 3 months from 1 March 2020, but will extend if necessary”.
How can I access the scheme?
Employers will receive the grant through a new online system which is currently being built. There are currently no details available of the application process or what this may entail.
Until this information is available, employees should be paid through the normal payroll methods, and the employer should report these payments to HMRC using the Real Time Information (RTI) system as usual.
How can I work out my claim / how much will I receive?
The maximum grant will be calculated by employers to cover the cost of wages for furloughed employees, equal to the lower of:
– 80% of ‘an employee’s regular wage’; or
– £2,500 per month
Please note that the 80% applies for employees on a fixed salary. For those on variable pay, if they have been employed for a full 12 months prior to the claim, you can claim for the higher of:
– The same month’s earnings from the previous year; or
– Average monthly earnings from the 2019-20 tax year
If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
HMRC have confirmed that employers can also claim to cover the associated Employers’ National Insurance contributions (NIC) and the minimum 3% auto-enrolment pension contributions on behalf of furloughed employees, as employers remain liable for the payment of these (unless the employee has opted out or has ceased saving into a workplace pension scheme).
No fees, commission and bonuses will be included in the grant.
As outlined earlier in this blog, employers can also choose to top up the additional 20% to provide the employee with their full salary, but are not obliged to under this scheme. Employers’ NIC and auto-enrolment pension contributions on any additional salary top-up will not be funded through this scheme, nor will any voluntary auto-enrolment contributions above the minimum mandatory employer contribution of 3% of income (above the lower limit of qualifying earnings – £512 per month until 5 April and £520 per month from 6 April onwards).
Wages of furloughed employees will be subject to income tax and National Insurance as normal. Employees will also continue to pay auto-enrolment contributions on qualifying earnings, unless they have chosen to opt-out or to cease saving into a workplace pension scheme.
The ICAEW have outlined some useful working examples of how this scheme would look in practice. Please follow this link to visit the ICAEW’s website and read their examples.
What do I need to do?
To prepare, employers need to:
– Fairly select employees and assign those affected as ‘furloughed workers,’ and notify them 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.
– Submit information to HMRC about the furloughed employees that have been identified and their earnings through a new online portal (HMRC will set out further details on the information required shortly).
Employers should also:
– Decide whether to pay 80% salary to those affected (as per the Government grant) or supplement the additional 20% on top of this.
– Gain the employees’ written consent unless contracts already include potential lay off provisions.
– Stop the employees from working altogether (whether they are working from home or still in the workplace). This may have to include pausing the study of any apprentices selected for furlough.
To submit a claim, employers 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 weeks)
– your bank account number and sort code
– your contact name
– your phone number
Employers can only submit one claim per 3 weeks, which is the minimum length an employee can be furloughed for. That being said, claims can be backdated to 1 March.
For more information or advice, please watch for updates on this site as more information becomes available or contact a member of our team on 01254 679131.
This information is correct as of 31 March 2020. This blog is for general guidance only. Recipients should not act upon any of the information provided without seeking specific professional advice tailored to your circumstances, requirements or needs. Please contact PM+M before making any decisions based on any matters relating to this blog.