Facts & FAQ - Job Retention Scheme: Furloughing Employees
Key Furloughing Facts from HMRC
What is it?
- It is a grant for employers to help pay employee wages, where furloughed
- This is a temporary scheme for 3 months but can be extended if needed
Which Businesses can claim?
- It is open to all UK employers who have created and started a PAYE payroll scheme on 19th March 2020
- Any UK organisation can claim it is not based on profits as some have suggested, but business must have a UK bank account
- Special rules apply to those public sector employers, who are funded primarily from public grant funding, mainly as they are expected to still be delivering a public service, however please do look at the guidance if this may impact your business
Which employees are eligible?
- To claim for an employee that you decide to furlough, they must have appeared on your PAYE reference and therefore your payroll as at 19th March 2020, but any type of contract is included i.e. full/part-time etc. Some will find this unfair, especially where people are transitioning between jobs, but at the moment this is the guidance
- The scheme also covers employees who were made redundant after 19th March 2020, as long as they are rehired by their employer
- Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 19th March 2020
- Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this, whilst employees who are shielding in line with public health guidance can be placed on furlough
- If the employee is on maternity leave and receiving maternity pay SMP or maternity allowance this will continue. However, if you top the statutory payment up this can be claimed back through the furlough scheme as long as both parties agree; this also applies to other statutory payments such as Statutory Adoption Pay
- Apprentices can be furloughed and can continue to train. However, while undertaking training the Apprenticeship Minimum Wage / NLW / NMW will apply in the same way that it would for an employee when working for you.
- 'Shielding Employees'. If an employee is shielding in line with public health guidance, or those who need to stay home with someone who is shielding, and they are unable to work from home, and you would otherwise have to make them redundant, then they can be furloughed.
- Employees who are unable to work as they have caring responsibilities resulting from Covid-19, such as needing to care for children, can also be furloughed.
- Individuals who are not necessarily employees in employment law terms but who are paid via PAYE may also be furloughed, including:
- Directors/Company Secretaries.
- Salaried members of LLP’s
- Agency workers including those employed by an umbrella company.
- “Limb (b) workers” – dependent contractors commonly referenced as gig workers.
Employee salaries and entitlements
- During the furlough period the employee’s wages will still be subject to the normal income tax and national insurance deductions etc
- If your employee reduces their hours, then they are still deemed to be working for you, so the scheme will not apply
- 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
- Employees that have been furloughed have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, rights against unfair dismissal and to redundancy payments
- The government has also announced changes to carrying over annual leave, allowing workers up to 2 years to take unused holiday, for more info click here
Making a claim
- Employees will have had to have been furloughed before any claim can be made
- The reclaim amount which will be repaid into employers’ bank accounts by Bacs, is likely to be in arrears and can be up to 80% of an employee’s regular wage plus on-costs. Therefore a maximum amount that can be claimed is £2,500 salary plus on-costs for employer’s National Insurance and the required minimum pension contributions. Employers will need to pay 80% of normal, regular salary without bonuses, commission etc. included or £2,500 whichever is lower. HMRC recognises more guidance will be needed on the calculation of the NI and pension contributions on the subsidised wages paid, so more on this to come;
- There are a couple of calculation methods for those on variable pay, either the same month’s earnings in the previous year, or average monthly earnings for the year (pro rata for less than a year)
- BIK and Salary Sacrifice Schemes will not form part of the amount you can claim. Importantly HMRC has agreed that COVID-19 is a life event allowing employees to opt out of a salary sacrifice arrangement but you will need to agree this with the employee and amend their employment contract.
- As a worker will have been furloughed National Minimum Wage and National Living Wage will not be relevant unless training is being undertaken whilst furloughed
- Once the scheme has been closed by the government, HMRC will continue to process remaining claims before terminating the scheme
- Payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.
- Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.
- There are a number of data items that HMRC will require when making a claim via their portal. It isn’t yet clear what the portal might look like, or the format required for the data. It would be helpful if HMRC utilised the Government Gateway, so that as an agent we could submit data on behalf of our clients. We await further clarification on this. However, the data items required according to the guidance, here at Armstrong Watson, the payroll team will be working on making sure a workable solution is available, to provide this data either directly to the portal, or to provide it to the client – watch this space for more information directly to payroll clients;
If you would like to share guidance with your employees to help them understand this legislation, please ask them to visit: https://www.gov.uk/guidance/check-if-you-could-be-covered-by-the-coronavirus-job-retention-scheme
For the latest information on the Government Job Retention Scheme please click here
YOUR FAQ ANSWERED
- Precisely which employers does the JRS apply to? It applies to all employees.
- How exactly will the employer get the reimbursement? HMRC have set up a new portal which is now live, as from the 20th April 2020
- When is the on-line portal open to register identified employees and how do we report this Covid19 payment to HMRC... via FPS? HMRC's online portal is now live, please click here to make a claim.
Before you 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.
- Is this time limited? – ie only paid for 6 months? The scheme is for 12 weeks to 19 June 2020.
- Do you process through payroll as normal? You should make your claim using the amounts in your payroll - either shortly before or during running payroll. Claims can be backdated until the 1 March where employees have already been furloughed. 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.
- Do we have to furlough all of our employees or can it be done on an individual basis? It can be done on an individual basis, however, you need to be aware of employment law, particularly around discrimination.
- Could an employer use this route but still pay the employee an additional amount on top to act as a retainer? As the furloughed employer is not working to qualify, this would not be possible.
- Does it need to be paid back in the future by the company? No, it is a grant. The money is not a loan.
- Can we claim a grant for part-time employees? It is applicable to all employees, full and part time.
- Regards the reclaiming 80% of furlough employees’ wages. How will this work? What counts as 'wages' e.g. what about employer contributions? What evidence will be required? The ICAEW (Institute of Chartered Accountants in England and Wales) comments that they understand this figure to be the salary, plus pension and employers NIC.
- Is it OK for employers to back date the 80% March payment values in April payroll/tax year 2020/21 or does it all have to be completed on the March payroll tax year 2019/20? Furloughing applies from the date that you notify your employees that they are being furloughed, not the date that you make the payments. Our suggestion would be to notify your employees now that you intend to furlough, with the amount that you intend to pay. Clearly, as the guidance is not yet available, we might need to go back to our staff.
- The announcement of the Job Retention Scheme, talks about 80% of costs, so can we take it that means for lower paid staff, they will be helping with 80% of employer's NI and employer's pension contributions as well, up to a maximum of £2,500 per employee? Our understanding is that the scheme will pay up to 80% of the wage cost which we believe includes the salary, pension and employers NIC according to the ICAEW with a cap of £2,500.
- If a worker is furloughed, can they be brought back into work early? Example: Company X is operating at 60% capacity due to Covid-19 and furloughs 40% of staff. A week later company X then loses 10% of staff due to illness/self-isolation. Can 10% of staff be brought out of furlough to cover the gap whilst the ill/self-isolating 10% is on SSP? Any employees you place on furlough must be furloughed for a minimum period of 3 consecutive weeks. When they return to work, they must be taken off furlough. Employees can be furloughed multiple times, but each separate instance must be for a minimum period of 3 consecutive weeks.
- It says that a furloughed employee is not "working" for their employer, but what if that employee goes and gets temporary work elsewhere. A bit like SMP should there be a restriction to say you can't work for an employer that you were not already working for? If contractually allowed, your employees are permitted to work for another employer whilst you have placed them on furlough.
- For owner/Directors who are on the payroll, will they be treated as employees or self-employed? Directors can be furloughed, but the guidance does state that the decision to furlough a Director should be considered and documented as a formal decision of the company (board minutes) and the Director notified in writing. While the guidance acknowledges that a Director has statutory duties which are separate from their employment obligations, it does not give a great deal of additional information. It simply states that “they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company” which leaves a lot of scope for interpretation, and so I would say Directors should act with extreme caution if undertaking any activity for the business while furloughed. This will be particularly important for individuals within a PSC.
- There are currently waiting times of 1 ½ hours for HMRC. This is understandable. The application process needs to be made as easy as possible. Could Accountants be used more to assist with this and could we not verify applications for HMRC. Alternatively could the 80% salary grant not be made available via the payroll systems that are already in place?We will be working with HMRC to allow agents to submit returns for our clients. What is the level of optionality re the system – i.e. can employees be placed in furlough without their agreement? Is it unfair for an employer to make an employee redundant rather than place them into furlough? You have to consult with your employee and they need to agree to be furloughed, although it does depend on your contract of employment. The scheme is designed to allow employers to hold on to their staff rather than lay them off by providing a grant which allows employers to continue to pay their staff. I am at a loss to understand why a staff member would not accept this option if the alternative is to be laid off in the current climate.
- What happens if the employer wants to keep the employee working but cannot offer full time work (e.g. full time employee working 50% of normal time). Is this scheme an all or nothing arrangement? The scheme is not applicable in this situation. You will need to come to an agreement with the staff member to accept a lower level of income in return for a lower amount of work. However, given the scheme provides for 80%, I am not sure why an employee would sign up to anything less. Assuming it means the employee then does no further work for the company (in effect like they were redundant) - can this be clarified please. The scheme is intended to allow employers to retain employees they wish to retain rather than have to pay them off when there is no work for them to do as a result of the economic downturn as a result of the COVID-19 pandemic.
- What happens if post COVID crisis the company then doesn’t take the employee back on – is there any issue/repayment for the employer? When the government ends the scheme, you must make a decision, depending on your circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy). HMRC will process all claims made before the scheme ends.
- Can employees stop their pension contributions during the time they are furloughed and if they do stop them do employers still have to make contributions on their behalf? Potentially they can by either opting out or agreeing with the pension provider to take a pension holiday.
- How should we prepare before we make a claim? Please click here to see our sample spreadsheet and please make sure you register for an online account in case agents cannot do using the following link - https://www.gov.uk/paye-online/enrol
- Can the uploads be done weekly or is it monthly? You will only be able to upload your claim a maximum of once every 3 weeks as that is the minimum Furlough period to qualify.
- Can we include a performance bonus in the variable calculation? We also have a discretionary bonus which is not fixed? Discretionary amounts must not be included in the calculation for the amount you can reclaim.
- We are continuing to trade and we are fortunately busy, so we have no need to make redundancies. Can we still use the scheme to shield vulnerable employees (over 70's) who cannot work from home? Yes - Shielded individuals can be furloughed and you will be able to access the scheme. Equally if they are required to Shield due to a member of their family or are caring for dependents.
- Will there be a standard method of calculating a salary where furlough starts part way through the month? There will be situations where full salary is due for a number of days and then furlough for the rest of the month? This would be on a pro rata basis i.e 1 March - 13th March pro rated full salary and 14th to 31st March furloughed so 80% of salary.
- I have a member of staff going on maternity leave in May - will her SMP be based on her earnings in February and not on the 80% paid in April and May? SMP will be based on the normal average earnings period as per the SMP legislation.
- Do all furlough payments need to be made to employees before claiming them back from HMRC? Can these be delayed until the grant has been received? They must be paid prior to reclaiming.
Thank you to our clients, the ICAEW and the Employment Payroll Group for contributing to the questions above. We have had many more and will endeavour to answer them over the coming days as more information becomes available. For further information about the Job Retention Scheme please see our previous article here and visit https://www.businesssupport.gov.uk/coronavirus-job-retention.
Download Our Furlough Letter Template
Thanks to Stephen Elliot of the Endeavour Partnership for helping us put together this Furlough Template which you can download here.
Download Our Furlough Claim Record Template
Thanks to Andrew Jackson from UK200Group for providing this Furlough Claim Record Template which you can download here
Make a claim
HMRC's online portal is now live, please click here to make a claim.
For help and advice on your payroll or to discuss outsourcing, please contact us on 0808 144 5575 or email firstname.lastname@example.org
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