This Guide has been prepared by the Enterprise Nation.
To help employers deal with the impact of coronavirus the government has launched a scheme providing grants to cover 80% of employees’ salary that would otherwise have been laid off. More official guidance has been released and we’ve summarised it below.
This guide is a summary of the government’s official guidance for the Coronavirus Job Retention Scheme. We recommend you also read the full details here.
The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers including charities and non-profits for at least three months starting from 1 March 2020. The scheme is due to be up and running by the end of April.
Employers can 80% of the usual monthly wage costs of furloughed employees (employees on a leave of absence) up to £2,500 a month plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
The scheme is open to all UK employers that had an active PAYE payroll scheme on 28 February 2020.
How to furlough employees
Furloughing means keeping them on payroll but placing them on a leave of abscene during which they do not work for your business.
ACAS and HMRC offer the following guidance on how to furlough employees:
The employer needs to get agreement from the worker to do this, unless it’s covered by a clause in the employment contract.
Employers may need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.
The employer can decide who to designate as a furloughed worker. If an employee disagrees with their employer’s decision they’ll need to talk to their employer and try to come to an agreement.
Any furlough agreements should be in writing. It’s a good idea to include:
- the date furlough starts
- when it will be reviewed
- how to keep in contact during furlough
Employees can be furloughed for a minimum of three weeks.
Furloughed employees keep the same employment rights including Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and redundancy payments.
Employees you can claim for
Furloughed employees must have been on your PAYE payroll on 28 February 2020, and can be on any type of contract. They include:
- full-time employees
- part-time employees
- employees on agency contracts
- employees on flexible or zero-hour contracts
- employees who were made redundant since 28 February 2020 if they are rehired
To be eligible for the grant, furloughed employees cannot work for or on behalf of the organisation or business including providing services or generating revenue. While on furlough, the employee’s wage will be subject to usual income tax and other deductions.
This scheme is only for employees on agency contracts who are not working.
If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and employers have to continue paying the employee through payroll and pay their salary subject to the terms of the employment contract you agreed.
Workers recruited after 28 February 2020 cannot be furloughed or claimed for.
Employees on unpaid leave
If you placed your employees on unpaid leave after 28 February 2020 to deal with the impact of COVID-19, they can be furloughed and be eligible for the scheme. If they were put on unpaid leave before 28 February 2020, they are not eligible for the scheme.
Directors of limited companies
Directors of limited companies can use the scheme to access a grant for themselves if they had a salary through PAYE on or before 28 February 2020. Dividends are not covered by the scheme.
This includes sole directors of limited companies who are the sole employee.
Directors must stop working for their business during the period of furlough. They can perform their statutory duties.
We are waiting for more detailed guidance on this from the government and will update this post when we get it.
If the scheme doesn’t apply, the government has encouraged directors to look at other support such as the Coronavirus Business Interruption Loan Scheme.
How to make a claim
When the scheme launches, you’ll need the following to make a 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 need to calculate the amount you are claiming. HMRC may retrospectively audit all aspects of your claim.
Employees’ actual salary before tax as of 28 February should be used to calculate the 80%.
You can only submit one claim at least every three weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until 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 a UK bank account.
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 and 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.
What you can claim
You will receive a grant to cover 80% of an employee’s regular wage or £2,500 per month, whichever is lower, 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.
At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month. You can choose to top up an employee’s salary but you are not obliged to do so.
Employer National Insurance and Pension Contributions
All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.
You can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying those wages.
You can choose to provide 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 voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5 April and will be £520 per month from 6 April 2020 onwards).
Income tax and Employee National Insurance
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.
When the scheme ends
When the government ends the scheme, employers must make a decision as to whether employees can return to work. If not, it may be necessary to consider redundancy.
This guide is a summary of the government’s official guidance for the Coronavirus Job Retention Scheme. We recommend you also read the full details here.
Enterprise Nation is monitoring progress of the Coronavirus Job Retention Scheme and will provide updates. You can follow the latest on all support in this post and on our coronavirus business advice hub.
