Understanding the Coronavirus Job Retention Scheme
Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis – the idea is to safeguard jobs, and is effectively a “halfway house” between staff working, and staff being made redundant. This is a temporary scheme in place for 3 months starting from 1 March 2020, but it may be extended if necessary and employers can use this scheme anytime during this period
- HMRC will reimburse 80% of furloughed workers wage costs (capped at £2,500 per month) plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
- The employer can choose to top the 80% up to full pay
- This applies to any employee on the payroll at 1 March 2020
- The reimbursement will be calculated using their February 2020 pay
- Payments will be available from end April (date not confirmed)
- Payments will be backdated to 1 March (although it seems unlikely that reimbursement will apply to periods of active work after that date)
- Employment rights continue whilst staff are furloughed and benefits such as holiday entitlement still accrue
To access the scheme, employers will need to designate relevant staff as furloughed workers. The employer needs to get agreement from the worker to do this, unless it’s covered by a clause in the employment contract. Any furlough agreements should be in writing as you may require evidence to access the benefits. It’s a good idea to include:
- the date furlough starts
- when it will be reviewed
- how to keep in contact during furlough
A worker will stay employed while they are furloughed, but it is important to note that employees designated as “furloughed” cannot work – if an employee is working for you in any capacity, even if just answering the telephone, then they are not “furloughed” and you will need to pay them as usual and cannot claim the rebate. You cannot ask your employee to do any work that makes money for your organisation or provides services for your organisation, although they can take part in volunteer work or training.
All UK businesses are eligible, although you must have:
- created and started a PAYE payroll scheme on or before 28 February 2020
- enrolled for PAYE online – this can take up to 10 days
- a UK bank account
Any entity with a UK payroll can apply, including businesses, charities, recruitment agencies and public authorities.
HOW MUCH TO CLAIM:
For full or part time employees on a salary, you can claim for the 80% of the employee’s salary, as of 28 February 2020, before tax (even for employee’s on National Minimum Wage) – up to a maximum of £2,500 – plus the minimum automatic enrolment employer pension contributions on the subsidised wage. You’ll still need to pay employer National Insurance and pension contributions on behalf of your furloughed employees, and you can claim for these too.
You can choose to top up your employee’s salary to 100%, but you do not have to.
If the employee’s wages vary through the year, then assuming they have been employed for 12 months or more, you can claim the highest of either the:
- same month’s earning from the previous year
- average monthly earnings for the 2019-2020 tax year
If the employee has been employed for less than 12 months, claim for 80% of their average monthly earnings since they started work.
If the employee only started in February 2020, work out a pro-rata for their earnings so far, and claim for 80%.
HOW TO APPLY:
HMRC are working urgently to set up the system for reimbursement – this is expected to be some kind of “reverse PAYE system” but existing systems are unfortunately not set up to facilitate payments to employers. Once the system is live – expected some time in late April – either you as the employer or your agent (accountant) will designate affected employees as ‘furloughed workers’ and submit information to HMRC about their earnings through the new portal. We will advise further details as soon as they become available.