The government published guidance late last night on the operation of the Job Retention Scheme. We have had many enquiries in relation to this matter and hopefully the following information will answer the majority of these queries.
Recap of the Basics
Employers can claim 80% of furloughed worker’s usual wage costs up to £2,500 per month from 1 March 2020 for a three-month period.
National Insurance and Pension Contributions
This scheme will cover employers national insurance costs and the cost of minimum automatic enrolment employer pension contributions on top of the 80% subsidy for employees’ wages.
It will not cover the employers national insurance of pension contributions associated with any top-up of the wage that the employer decides to make, nor will it cover pension contributions above the minimum amount.
Income tax and Employees National Insurance treatment for the Employee
The subsidy received by each employee will be subject, in the usual way, to a deduction of PAYE tax and employee’s National Insurance. Employees will also pay their contributions under automatic enrolment schemes unless they have chosen to opt out.
Payroll will need to be run in the usual way.
Income tax/ Corporation tax treatment of the Job Retention Scheme Grants for the Employer
The grants received will be treated as taxable income of the business and employment costs can be deducted as normal in calculating profits.
Who is eligible – Employers
All UK employers are eligible, including:
• Recruitment agencies
• Public authorities
Provided the employer had a payroll scheme established before 28 February 2020.
Who is eligible – Employees
Eligible employees have to have been on the payroll at 28 February 2020.
They can have any type of contract including:
• Full time employment
• Part time employment
• Employees on agency contracts
• Employees on zero hours contracts
The scheme will also cover those made redundant since 28 February 2020.
To be eligible the employee cannot undertake work, provide services or generate revenue during their furloughed period.
If an employee is working on a reduced-hours basis they will not be eligible for this support
If an employee is undertaking training courses online during their furlough they must be remunerated at least at the level of the National Living Wage/ National Minimum Wage for the time spent training, even if this is more than 80% of their wage that will be subsidised.
Interaction with other Benefits
Statutory Sick Pay (SSP)
If your employee is on sick leave or self-isolating they should get SSP (and a refund in respect of SSP for up to two weeks per employee can be obtained from HMRC). Once the period of sick leave has ended the employee can be furloughed.
Employees who are ‘shielding’ in line with government advice can be furloughed.
Maternity leave, Paternity Leave, Adoption pay or Shared Parental Pay
The normal eligibility rules apply in relation to these benefits, and the employees entitlements will remain the same during their period of leave. These payments can be reclaimed, to a great extent, from HMRC under normal rules, and this remains the same under the Job Retention Scheme. If you offer enhanced contractual pay to employees on leave this can be included as wage costs that you can claim through the scheme.
Directors (owner/managers) of Ltd Companies
It was confirmed yesterday by the government that the scheme will include Directors of Ltd companies if they are employed by their limited companies and were on the payroll prior to 28 February 2020. Directors commonly choose a minimal salary, topped up by dividends due to the tax advantages associated with this arrangement, however there will be no subsidy in relation to dividends received under this scheme.
For the scheme to apply to a Director they must not undertake any work for the company, nor be generating any revenue. This is likely to be very difficult to prove or adhere to in practice.
Employee on unpaid leave
Employees on unpaid leave cannot be furloughed unless they were placed on unpaid leave after 28 February.
Employees with other PAYE income
If an employee of yours has another job which they are still able to attend and for which they are still being paid, they can still be eligible as a furloughed employee in your payroll if they meet all the relevant criteria.
Employees who are volunteering
Furloughed employees can engage in volunteering and remain eligible for the subsidy, provided they are not participating in any service to your business.
Employees whose pay varies
If an employee has been employed for a full 12 month period you can claim the higher of:
• The same month’s earnings from the previous year
• Average monthly earnings from the 19/20 year
If an employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
If an employee only started in February 2020, use a pro-rata for their earnings so far to claim.
National Living Wage/ National Minimum Wage
Individuals are only entitled to NLW/NMW for hours that they are working. The NLW/NMW rules will therefore not apply to furloughed workers, meaning that their receipts, based on their usual hours of working may be below this level.
How to Calculate the Subsidy and How to Claim
You will receive a grant 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.
Claims will be made via an online Government Portal (currently in construction) and you will need the following information in order to claim:
• 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
You will also need to calculate the amount you are claiming. JRW will be able to perform this calculation on your behalf should you require it.
You should make your claim in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll.
You must pay the employee all the grant you receive for their gross pay, no fees can be charged from the money that is granted.
The grant will be paid by BACS direct to your business account once the claim has been processed.
HMRC have the right to retrospectively scrutinise any claim.
Employment Law Issues
It should be noted that the Job Retention Scheme is subordinate to all other Employment Law in existence. This means that any variation in the contract you have with your employee needs to be formally agreed with them.
It also means that SSP entitlement, maternity rights, other parental rights, redundancy rights and rights against unfair dismissal continue to apply. Variations to a contract with an employee should be carefully considered and the appropriate legal advice sought where necessary.