Coronavirus Job Retention Scheme

Published by Jennifer Williamson on 29 July 2020

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Last updated 29 July 2020

On 29 May 2020, HMRC issued updated guidance on the Coronavirus Job Retention Scheme first announced by the Chancellor, Rishi Sunak, on 20 March 2020.

The original announcement signposted support available to all employers as part of the Government’s measures to help businesses during the COVID-19 pandemic.

The scheme initially applied to the period 1 March 2020 to 31 May 2020, first extended to 30 June 2020 and has now been extended for a further 4 months until the end of October. From 1 July 2020, businesses have the flexibility to bring furloughed employees back part-time. This is a month earlier than previously announced to help support people back to work. Employers can decide the hours and shift patterns their employees will work on their return, so that they can decide the best approach for them – and will be responsible for paying their wages whilst in work with the grant being available for the cost of their furloughed hours.

From August 2020, the level of Government grant provided through the Job Retention Scheme will be slowly tapered to reflect that people will be returning to work and businesses will start paying a modest share.

  • June and July – the Government will continue to pay 80% of wages up to a cap of £2,500 and employers are not required to pay anything for the hours the employee doesn’t work.
  • August – the Government will pay 80% of wages up to a cap of £2,500 but employers will pay ER NICs and pension contributions for the hours the employee doesn’t work.
  • September – the Government will pay 70% of wages up to a cap of £2,187.50 for the hours the employee doesn’t work. Employers will pay ER NICs and pension contributions and 10% of wages to make up to 80% up to a cap of £2,500.
  • October – the Government will pay 60% of wages up to a cap of £1,875 for the hours the employee doesn’t work. Employers will pay ER NICs and pension contributions and 20% of wages to make up to 80% up to a cap of £2,500.

It is important to note that the cap will be proportional to the hours not worked and that from 1 July, for hours worked by furloughed employees, the employees will be paid by their employers and will be responsible for paying the tax and NICs due on those amounts.

To be eligible for the grant, employers must agree with their employee any new flexible furloughing arrangement and confirm that agreement in writing. Employers will need to report hours worked and the usual hours an employee would be expected to work in a claim period even when they are not paid on an hourly rate.

Further guidance on flexible furloughing and how employers should calculate claims was published on 12 June.

The HMRC portal to administer the scheme is live and can be accessed here.

Importantly there are now deadlines of when claims have to be made by and the claim periods cannot overlap calendar months. There are some signs too of increasing attention towards the eligibility of claims although generally, HMRC remains supportive to employers. It is critical employers follow the guidance as best they can and ensure they are eligible to claim.

Below we have summarised the guidance to answer the key questions that surrounded the original announcement.

1. Can furloughed members of staff work for their employer during the period of furlough? Can furloughed staff come back part-time?

Up until 30 June 2020, no, furloughed members of staff must not work for the employer during the period of furlough.

Until the end of June, if an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and their employer will have to continue paying the employee through the payroll and pay their salary.

New flexibility has been introduced to the scheme from July (a month earlier than expected) with furloughed workers able to return to work part-time. Businesses can decide the hours and shift patterns their employees will work on their return and will be responsible for paying their wages while in work.

2. Can employers backdate a claim for support to 1 March 2020?

Yes, but only if staff have been furloughed from that date. The scheme covers employees who were made redundant since 28 February 2020, provided they are rehired by their employer. An employer will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer.

Employees hired after 19 March 2020 cannot be furloughed or claimed for under this scheme.

The previous cut off date was 28 February 2020, however HMRC revised this on 15 April 2020 to make it 19 March 2020, the day before the scheme was announced.

3. Are there any restrictions on which employees the scheme is available for?

Yes, the scheme is only available for employees on the payroll on or before 19 March 2020 but 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

To enable the introduction of part-time furloughing, and support those already furloughed back to work, claims from July onwards will be restricted to employers currently using the scheme and previously furloughed employees. The scheme will close to new entrants on 30 June. This means that the final date by which an employer can furlough an employee for the first time will be 10 June, in order for the current three-week furlough period to be completed by 30 June.

4. Does an employer have to top up an employee’s salary?

No, at a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 gross per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.

From July 2020, employees will be able to return to work flexibly whilst still on furlough leave. Employers will be responsible for paying their wages and associated ER NICs and pension costs for the hours worked.

From August 2020, employers will be asked to pay a percentage towards the salaries of their furloughed staff for the hours the employee doesn’t work.

  • August – the Government will pay 80% of wages up to a cap of £2,500 but employers will pay ER NICs and pension contributions.
  • September – the Government will pay 70% of wages up to a cap of £2,187.50. Employers will pay ER NICs and pension contributions and 10% of wages to make up to 80%.
  • October – the Government will pay 60% of wages up to a cap of £1,875. Employers will pay ER NICs and pension contributions and 20% of wages to make up to 80%.

The cap will be proportional to the hours not worked.

5. How is the amount calculated for employees whose pay varies?

If the employee has been employed for a full twelve months prior to the claim, the employer 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, the employer can claim for an average of their monthly earnings since they started work.

Fees, commission and bonuses should not be included.

6. Does the cap of £2,500 apply pro-rata to part-time employees?

No, the employee’s actual wage is what is important here and their salary before tax, as of 19 March 2020 should be used to calculate the 80%.

7. What if an employee has more than one job?

If an 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.

8. Does the employer continue to be liable for Employer National Insurance and pension contributions?

Whilst all employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees, they can claim a grant from HMRC to cover the Employer National Insurance contributions and minimum automatic enrolment employer pension contributions associated with the grant amount.

If an employer chooses to top-up their employees’ salary in addition to the grant, employers 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.

The employers will be responsible for paying ER NICs and pension contributions associated with any hours worked by furloughed employees once this flexibility is introduced into the scheme in July 2020.

The employer will be required to pay ER NICs and pension contributions for furloughed employees from August 2020.

There are some useful examples of the costs to employers on the ICAEW website.

9. What about PAYE 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.

10. Do employment benefits continue during the period of furlough?

Yes, the rules for the grant will not displace the existing employment contract so we would expect the entitlement to holiday and sick pay to continue in line with employees’ contracts.

11. How will the payment from the scheme be treated in the hands of the employer?

The scheme pays a grant (not a loan) to the employer. Payments received by a business under the scheme must be included as income in the business’ calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.

Businesses can then deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.

12. How do I make a claim for a grant through the scheme?

The grant will be paid to the employer through a new online system which has been built for this purpose. The HMRC portal to administer the scheme is now live and can be accessed here.

The employer will pay the employee through payroll, and report payments to HMRC using the Real Time Information (RTI) system as usual.

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.

13. What about self-employed people, shareholder directors or salaried LLP members?

The scheme does not apply to self-employed people, separate measures were announced to support this group of people, please see our article here for more guidance.

HMRC have subsequently issued further guidance about the eligibility of this scheme to office holders (including company directors) and salaried members of LLPs.

Provided they are paid via PAYE, the grant can be claimed for these individuals. Please see our article here for more guidance.

Furloughing is a new legal concept for English law, so Directors and Managers should take care to use letters and supporting documents written and provided by employment lawyers. If you should need an introduction to suitable lawyers then please speak with your normal Kreston Reeves contact.

For further information, please speak with your usual Kreston Reeves contact or contact me here.

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