There is a lot of confusion around the Governments’ Job Retention Scheme which was put in place to help employees get through the lack of employment due to the Coronavirus. So, here is a guide to the benefits that employees and employers can access if they have been temporarily laid off during the Covid-19 crisis:
What is the Coronavirus Job Retention Scheme?
The Coronavirus Job Retention Scheme is a temporary scheme that allows you to claim 80% of your staff’s salaries back from the government if you have no work for them. The Scheme is open to all UK employers for at least three months starting from 1 March 2020.
Which Companies are entitled to the furlough scheme?
The scheme is open to all UK employers that had created and started a PAYE (pay as you earn) payroll scheme on or before 28th February 2020, and have a bank account. Any UK organisation with employees can apply, including:
- Businesses
- Charities
- Recruitment agencies (agency workers paid through PAYE)
- Public Authorities
- If a company is being taken under the management of an administrator, the administrator will be able to access the Job Retention Scheme
Which Employees are entitled to the scheme?
Furloughed employees must have been on a PAYE payroll on or before 28th 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 28th February 2020, if they are rehired by their employer.
How does the Coronavirus Job Retention Scheme work?
Employers will use an online portal to claim for 80% of furloughed (granted leave of absence) employees’ usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. HMRC expect the scheme to be up and running by the end of April 2020. To be eligible for the subsidy employers should write to their employees confirming that they have been furloughed, and they need keep a record of this communication.
How will the Coronavirus Job Retention Scheme be worked out?
Full time and part time employees:
For full time and part time salaried employees, the employee’s actual salary before tax, should be used to calculate the 80%. Fees, commission and/or bonuses will 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, you 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, you can claim for an average of their monthly earnings since they started work.
Employees who have just started:
If the employee only started in February 2020, use a pro-rata (a proportional) basis for their earnings so far to claim.
Are Employer National Insurance and Pension Contributions reclaimable?
Wages of furloughed employees will be subject to Income Tax and National Insurance as usual. Employees will also pay automatic enrolment contributions on qualifying earnings, unless they have chosen to opt-out or to cease saving into a workplace pension scheme. All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees. But the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying those wages are claimable on the 80% grant.
Do I pay 100% salary or 80% to the employee?
You can choose to provide a 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 will be £520 per month from 6th April 2020 onwards).
Points to note when considering putting your staff on the Coronavirus Job Retention Scheme:
- When on furlough, an employee can not undertake work for or on behalf of the organisation. This includes providing services or generating any kind of revenue
- If an employee is working but on reduced hours or reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed
- Employees hired after 28th February 2020 cannot be furloughed or claimed for in accordance with this scheme
- You do not need to place all your employees on furlough. However, those employees who you do place on furlough cannot undertake work for you
- Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28th February 2020
- Employees on sick leave or self-isolating should get Statutory Sick Pay (SSP) but can be furloughed after this
- Employees who are shielding in line with public health guidance can be placed on furlough
- If your 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
- A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of your organisation
What will I need when I 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 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.
How often do I Claim?
You can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until the 1 March 2020 if applicable. Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to your stated UK bank account.
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. You can choose to top up the employee’s salary, but you do not have to.
These are only the most crucial points of the Government scheme. If you wish to read the whole guidance from HMRC you can find it here: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme