Furloughed employees and how to make a claim through the Coronavirus Job Retention Scheme
The Government has now released further details in respect of the Job Retention Scheme and the practicalities of making a claim. They have confirmed that:
The scheme is expected to be up and running by the end of April;
- Employers can use a portal to claim for 80% of furloughed employees’ usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrollment employer pension contributions on that wage;
- The scheme is open to all UK employers that had created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account;
- Employers can use this scheme anytime during the three months starting from 1 March 2020 however the minimum length of time that an employee may be furloughed is 3 weeks.
What can you claim?
Previous guidance advised employers that they could claim for “wage costs” through the scheme however it was unclear exactly what this covered. The Government has now confirmed that, in addition to the grant to cover the lower of 80% of an employee’s regular wage or £2,500 per month, employers can also claim for the associated Employer National Insurance contributions and minimum automatic enrollment employer pension contributions on that subsidised wage. The Government have also clarified that any fees, commission and bonuses should not be included in calculating an employee’s regular wage.
The practicalities of ‘furloughing’ employees:
In order to make a claim, employers will need the following information: 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), bank account number and sort code, contact name and phone number;
Employers need to calculate the amount they are claiming themselves and HMRC have said that they will retain the right to retrospectively audit all aspects of any claims made;
Employers can only submit one claim every 3 weeks, which is the minimum length an employee may be furloughed for. Claims can be backdated until the 1 March if applicable;
Once HMRC have accepted an employer’s ‘claim, they will pay the grant via BACS payment;
Employers should make claims in accordance with actual payroll amounts at the point at which payroll is run or in advance of an imminent payroll;
Employers must pay the employee all the grant they receive, no fees can be charged or deducted from the money that is granted;
Wages of furloughed employees will be subject to Income Tax and National Insurance as usual. Employees will also pay automatic pension enrolment contributions on qualifying earnings;
The Government has also confirmed that furloughed workers, who are not working, must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below National Living Wage (NLW)/National Minimum Wage (NMW).
Points to note:
It would appear that it is likely that employers will be claiming for payments which have already been made to their employees (subject to the usual deductions for tax and employee National Insurance contributions). Accordingly, it looks as though employers will be claiming for the net payment made to employees. This means that what employees will actually receive in their bank account will be less than the lower of 80% of their earnings or the cap of £2,500;
We presume that the Government has chosen a three-week period for making claims under the scheme in order to reduce the risk of fraud, however administratively this could become quite burdensome for employers;
The Government have said that they will issue more guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrollment employer pension contributions, before the scheme becomes live.
Who can you claim for?
- Furloughed employees must have been on an employer’s PAYE payroll on or before 28 February 2020. Employees hired after 28 February 2020 cannot be furloughed;
- The scheme covers full-time employees, part-time employees, employees on agency contracts and 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.
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%.
For 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, employers can claim for the higher of either the same month’s earning from the previous year or the average monthly earnings from the 2019-20 tax year. If the employee has been employed for less than a year, employers can claim for an average of an employee’s monthly earnings since they started work. If the employee only started in February 2020, employers should use a pro-rata of their earnings so far to claim.
The Government guidance also states the following:
- If your employee is on unpaid leave – Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February 2020.
- If your employee is on Statutory Sick Pay – 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 your employee has more than one job – Employee’s with more than one employer can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
- If your employee does volunteer work or training – 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 an employer’s business. However, if workers are required to complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
- If your employee is on maternity leave, contractual adoption pay, paternity pay or shared parental pay – If an employee is eligible for Statutory Maternity Pay or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance. If you offer enhanced contractual pay to women on Maternity Leave, this is included as wage costs that an employer can claim through the scheme. The same principles apply where an employee qualifies for contractual adoption, paternity or shared parental pay.
Topping up the employee’s earnings
It is open to an employer to top up an employee’s salary beyond the grant but they are not obliged to under the scheme. It is worth noting that if employers decide to do this, the following will not be funded through the scheme:
Employer National Insurance Contributions and automatic enrollment contribution on any additional top-up salary; or
Any voluntary automatic enrollment pension 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).
When the scheme ends
When the government ends the scheme, employers will have to decide, depending on their circumstances, whether employees can return to their duties. If not, it may be necessary to consider redundancies;
Once the scheme has been closed by the government, HMRC have confirmed that they will continue to process remaining claims before terminating the scheme.
Other Points to Note
To be eligible for the subsidy, when on furlough, an employee cannot undertake any work for or on behalf of an employer’s business. This includes providing services or generating revenue.
Employers should discuss with their staff and make any changes to their employment contract by agreement. To be eligible for the subsidy employers should write to their employees confirming that they have been furloughed and keep a record of this communication.
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.
Employees that have been furloughed have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.
In our experience, a key issue in respect of the above is regularly communicating with your employees and being open about the reason for the measures you are introducing.
As you will appreciate, whilst we have outlined options and some of the legal implications, this note does not constitute legal advice as each situation will be different and commercial considerations will no doubt dictate what you as a business ultimately decide to do.
Sherrards is here to support you should you need specific assistance.