The job retention scheme was designed to protect jobs. Through the scheme, the government will provide a grant to cover up to £2,500 of your employees’ usual monthly wages. Most people are fairly aware of the scheme by now, so we will use this extended post to dig into the facts and the finer details.
Employers must have:
- A PAYE scheme which was created and started on or before 28th February 2020
- A UK bank account
- Enrolled for PAYE online. This point was newly announced and could catch employers off guard. It is expected that there will be significant delays in grant payments where employers are not registered for PAYE online. We advise all employers to ensure that they have this in place
- An employee must have been on your PAYE payroll on or before 28th February 2020
- Can be on any type of employment contract such as – full time, part time, flexible or zero hours. Agency contracts and foreign nationals are also eligible
- Employees that were made redundant or stopped working for you before the 28th February can be reemployed and placed on furlough
- Those on unpaid leave can only be furloughed if the period of unpaid leave started after the 28th February 2020
- If an employee cannot work as they have caring responsibilities – such as looking after children, are also eligible.
- For those with multiple jobs, each job is treated independently, and they can be furloughed at each job.
- Employees on fixed term contracts can also be furloughed.
- Employees that are shielding in line with government guidelines are also eligible.
- Employees on long term sick leave are eligible. Employees on short term sick leave cannot be furloughed but will instead can apply for Statuatory Sick Pay (SSP).
- All eligible employees and workers must not undertake any work for their employer. This includes telephone calls and emails.
Directors of Ltd Companies
One of the biggest grey areas has now been cleared up. Company directors can be furloughed. They will receive a grant to cover the salary element of their remuneration – but not for any dividends. A furloughed director must not undertake any work that they would normally do to generate revenue. They still have to fulfil their statutory duties as a director, such as arranging for the accounts to be filed. This also applies to those who are directors of their own personal service company.
Salaried Members of Limited Liability Partnerships (LLPs)
Members can be furloughed as long the decision is made in accordance with the LLP agreement. These terms may need to be amended to allow the furloughing of members. As above, the member should not do any work that would normally result in generating revenue.
- Those not on the PAYE payroll on or before the 28th February (with the exception of those who were made redundant or stopped working). This would mainly apply to new starters who joined in March 2020
- Employees that are still working, even if this is on a reduced hours or reduced pay basis
After identifying who can and cannot be furloughed, the next step would be to communicate this with employees and make any amendments to their employment contract (if necessary). The employer must confirm this in writing to their employee. A record of this communication must be kept for five years.
An employer can claim for 80% of your employees monthly pay up to a maximum of £2,500 and the relevant employer’s national insurance contributions and the employers pensions contributions on the furloughed pay. Pension contributions will be capped at a maximum of 3% which is in line with the automatic enrolment minimum.
An employer may top up their employees’ pay but they are not obliged to do so. Employers will not be reimbursed for any national insurance or pension contributions on any amount of topped up salary.
It should be noted that the furloughed pay calculation can take employees’ wages under the national minimum wage rate. This is allowable in all cases except where the employee is undergoing training hours. Such hours must be paid at the new national minimum wage rate which came into effect from 1st April.
The starting point of when the furloughed period begins is the employee’s last day of work. It should be noted that this not the day when you communicated the arrangement with them and or the day it was decided that they would be placed on furlough.
How to calculate furloughed pay
- For full or part time employees on a salary, take 80% of their gross salary as of 28th February 2020.
- If an employee pay varies and they have been employed for a minimum of 12 months apply the 80% to the higher of a) the same months earnings from the previous year and b) the average monthly earnings for the tax year 2019-20.
- If an employees pay varies and they not been employed for a minimum of 12 months then use their average monthly pay from when they started.
- For employees that started in February 2020, prorate their earnings so far and apply 80%
Wages, past overtime, fees and compulsory commission payments are classed as regular payments that you are obliged to pay your employees. Discretionary bonuses, tips, commission and non cash payments are not.
How to claim:
HMRC expect the online portal to be ready by the end of April 2020. In order to make a claim you will need:
- your employer PAYE reference number
- to be enrolled for PAYE online
- the number of employees being furloughed
- National Insurance Numbers for the employees you want to furlough
- Names of the employees you want to furlough
- Payroll/works number for the employees you want to furlough
- your 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 3 consecutive weeks)
- your bank account number and sort code
- your contact name
- your phone number
HMRC will not calculate the furloughed pay amounts for you. At Bramleys, we run the payroll process for all of our clients, so we have been calculating furloughed pay for clients as well as producing the relevant documentation for clients and their employees. We will also be submitting the claims via the portal to enable our clients to obtain reimbursements.
Once the claim has been submitted, it will be checked by HMRC. Once approved, payment will be made via BACS to the UK bank account mentioned in the employer’s eligibility criteria above.
You must not withhold any of the funds from your employees or enter into an agreement where the employee sacrifices some of their furloughed pay. You must not ask them to undertake any work for your organisation or any connected organisation.