The Coronavirus Job Retention Scheme has been set up to help employers cover the cost of wages for employees on temporary leave (furlough) because of the coronavirus.
Here we have outlined the key facts and advice for those considering furloughing their employees.
The scheme offers unlimited grants, covering 80% of an employee's salary, up to a total of £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
IMPORTANT UPDATE: The scheme has been extended and will now be open until 30 April 2021. To be eligible, employees must have been on the payroll on 30 October 2020.
To be eligible, employees will need to have been on your company payroll scheme on or before 30 October 2020. Previously, employees must have been designated as ‘furloughed’ and they could not undertake work for or on behalf of the organisation. This has since been made more flexible and employees can come back to work part-time, with the government continuing to pay 80% of wages for any of their normal hours they do not work
- The scheme is not limited to employees who you would have made redundant, but any employees you have had to furlough because of the coronavirus.
- You and your employees do not need to have benefited from the scheme before to claim for periods from 1 November.
- HMRC intends to publish details of employers who use the scheme for claim periods from December and employees will be able check if their employer has claimed for their wages through the scheme.
- Employees can start a new job when on furlough (subject to their employment contract).
- Employees can continue to train whilst furloughed.
- Employees can be on any type of contract.
- Employees on reduced hours or pay are not eligible for the scheme.
- Employees on furlough retain the right for statutory sick pay.
- Employees can take part in volunteer work, if it does not provide services to generate revenue for the organisation.
Company directors are eligible to be furloughed and can still carry out necessary duties to fulfil their statutory obligations. However, they must do no more than this and should not undertake any work or provide any services to generate revenue. Where company directors are furloughed, it must be noted in company records and communicated in writing to the directors concerned.
Employees must be notified of their furlough status in writing and a record kept for five years. When providing details in writing to employees, it is recommended you include:
- the date furlough starts
- how much the person will be paid
- when it will be reviewed
- how to keep in contact during furlough
Equality and discrimination laws will still apply. You therefore need to ensure you are not discriminating in offering furlough to some but not others.
Full or part time employees
Claim for 80% of the employee’s salary, as of 19 March 2020, before tax and up to a maximum of £2,500 per month. (If, based on previous guidance, you have calculated your claim based on the employee’s salary as at 28 February 2020, you can choose to use this calculation for your first claim).
Employee with varying pay
If an employee's pay varies and they have been employed for 12 months or more, you can claim the highest of either the same month's earning as the previous year or the average monthly earnings from the 2019/20 tax year. For those employed for less than a year, you can claim for 80% of their average monthly earnings since they started work. If the employee only started in February 2020, use a pro-rata for their earnings so far.
Past Overtime, Fees, Commission, Bonuses and non-cash payments
You can claim for any regular payments you are obliged to pay your employees. This includes wages, past overtime, fees and compulsory commission payments. However, discretionary bonuses are excluded (including tips) and commission payments and non-cash payments should be excluded.
Benefits in Kind and Salary Sacrifice Schemes
You should not claim for non-monetary benefits provided to employees, including taxable Benefits in Kind. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included in the reference salary.
Employer National Insurance and Pension Contributions
You will still need to pay employer National Insurance and pension contributions on behalf of your furloughed employees but can claim these back. If you are topping up your employee’s pay, you cannot claim back the additional National Insurance and pension contributions.
Holiday entitlement can vary on furlough, however employers cannot go below 5.6 weeks of leave, which the majority of workers are entitled to.
Generally, when an employee is furloughed, they can still take holiday but it must be paid at 100% of their normal pay for those days, even if the employer has furloughed them on 80% of normal pay. However the employer can still only claim 80% of the cost. This is also the case for bank holidays (where they are included in an employee's holiday entitlement under their contract). However, the employer may agree with the employee that they will have future time off in lieu, instead of normal pay for the bank holidays during a furlough period. This will avoid the employer topping up the pay to 100%, but will mean that the employee will have additional holidays to take once they return to work.
Automatic enrolment and pension contributions
Pension obligations remain unchanged, which means employers still need to upload the contribution schedules to their pension provider and pay the pension contributions in to the pension scheme. For further information, read the guidance on The Pension Regulator’s website.
HMRC has confirmed that where agent authority is in place with HMRC for PAYE matters, agents will be able to make the claim on behalf of their clients. If agents or payroll bureaus are ‘file only agents’ i.e. file payroll with no HMRC authority, they will not be able to make the claim.
To claim, the employer must calculate how much of an employee’s salary they wish to claim and the amount of Employer NICs and pension contributions they are entitled to.
To make a claim, employers will need to supply:
- employer PAYE reference number;
- the number of employees being furloughed and their names;
- National Insurance Numbers for the employees being furloughed;
- works/payroll number for the employees being furloughed;
- the Self-Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number
- the claim period – start and end date;
- amount claimed (per the minimum length of furloughing of three weeks);
- bank account number and sort code; and
- a contact name and phone number.
Before you make a claim, you need a Government Gateway (GG) ID and password. If you don't already have one, you can apply for one online.
You should make your claim using the amounts in your payroll - either shortly before or during running payroll. View our Coronavirus Job Retention Scheme Claim Form to see how you should be recording the data for your payroll.
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.
If you have fewer than 100 furloughed staff, you will need to input information directly into the system for each employee. For those with more than 100 furloughed staff, you can upload a file for each employee.
Please note, HMRC will have the right to audit all aspects of the claim, which means it is essential the above is done correctly.
Minimum furlough periods
Any employees placed on furlough must be furloughed for a minimum period of three 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 three consecutive weeks.
Monthly deadlines for claims
Claims for periods starting after 1 November 2020 must be submitted within 14 calendar days after the month they relate to.
The grant is a reimbursement to the employer therefore the employer will make the wage/salary payment to the furloughed worker and then be reimbursed by HMRC via BACs payment. HMRC has confirmed that claims will be paid within six working days.
We must stress that the Coronavirus Job Retention Scheme is separate from the payroll process. Payroll must still be operated in the normal way and PAYE and National Insurance accounted for as usual. This could mean a delay between paying the wages and getting the refund from HMRC.
HMRC is concerned that the scheme will be targeted by criminals. Therefore, they have implemented four protections to reduce abuse of the scheme.
- the scheme only applies to employees who were on the payroll at 19 March 2020;
- the employer must use authentication credentials when claiming through the portal;
- a whistleblowing hotline has been established where abuse of the furlough scheme can be reported; and
- HMRC can retrospectively audit the claims made.
Where abuse of the furlough scheme is detected, payments will be disallowed. HMRC has already been made aware of the following abuse occurring:
- Employees being asked to do work during the furlough period
- Swelling of the number of persons recorded as ‘employed’
- Inflated wages
HMRC has deemed it tax evasion and not avoidance for anyone misusing the scheme. Therefore, we are in no doubt that they will take a hard line with anyone abusing the system.
You must ensure that any employees you furlough do not undertake any work for the company. Also, businesses should not be extending the period they are claiming for back to 1 March if work has been completed by the employee in that time.
The government has extended the CJRS to March 2021, read our article here to find the latest update.
A new Job Support Scheme will be introduced once the extended CJRS ends. The scheme will run for six months and the government will contribute towards the wages of employees who are working fewer than normal hours due to decreased demand.
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