Update on the rules for the Coronavirus Job Retention Scheme
This has further been updated. You can read the update here
We have now received further information on the rules for The Coronavirus Job Retention Scheme and outline these below.
It is a temporary scheme open to all UK employers for at least four months starting from 1 March 2020 (it was originally announced as a three month scheme and was extended on 17 April 2020 to include a further month). The scheme went live for applications on 20 April 2020. The scheme is designed to support employers whose operations have been severely affected by coronavirus (COVID-19).
Employers can use a portal (currently being prepared) to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month. In addition to this, an employer can also claim the associated Employer National Insurance contributions as well as the minimum automatic enrolment employer pension contributions on that wage. The scheme can be used by employers anytime during this period.
All UK employers that had created and started a PAYE payroll scheme on 28 February 2020 can access the scheme.
Coronavirus Job Retention Scheme: Who can claim?
Any UK organisation with employees can apply, this included businesses, charities and recruitment agencies (where agency workers paid through PAYE)
To claim, you must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
What employees can you claim for?
Employees that are furloughed must have been on your PAYE payroll on 28 February 2020. They can be on any type of contract, including full-time and part-time employees, employees on agency contracts and employees on flexible or zero-hour contracts.
The scheme also covers those employees who had been made redundant since 28 February 2020, if they are rehired by their employer.
To be eligible for the subsidy, an employee cannot undertake work for or on behalf of the organisation when on a furlough. This includes providing services or generating revenue. During this period, the employee’s wage will be subject to usual income tax and other deductions.
For employees on agency contracts, the scheme is only for those who are not working.
- Employees that are working, but on reduced hours, or for reduced pay, will not be eligible for this scheme
In these circumstances, you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the agreed employment contract.
Employers should undertake discussions with their staff and make any necessary changes to employment contract by agreement. The appropriate legal advice should be taken before implementing any changes to employment contracts. Equality and discrimination laws apply in the usual way, when employers are making decisions in relation to the process, including deciding who to furlough.
Employers should write to employees confirming that they have been furloughed and keep a record of this communication, to be eligible to claim the subsidy.
An employer cannot claim under this scheme for a furloughed employee hired after 28 February 2020.
You do not need to place all employees on furlough. However, those employees who you do place on furlough cannot undertake any work for you.
- Employees on unpaid leave
These cannot be furloughed, unless they were placed on unpaid leave after 28 February.
- Employees on Statutory Sick Pay
Those employees self-isolating or on sick leave should get Statutory Sick Pay but can be furloughed after this. However, employees who are shielding in line with public health guidance can be furloughed.
- If an employee has more than one job
For employees with more than one employer – these can be furloughed for each job. Each job is treated as separate, with the cap applying individually, to each employer.
- Employees undertaking volunteer work or training
Employees furloughed can take part in volunteer work or training, provided it does not provide services to or generate revenue for, or on behalf of your organisation.
If employees are required to carry out tasks, such as complete online training courses whilst they are furloughed, they must be paid at least the NLW/NMW for this time (even if this is more than the 80% of their wage that will be subsidised).
- Employees on Maternity Leave, contractual adoption pay, paternity pay or shared parental pay
Individuals who plan to take Maternity Leave (or are already on maternity leave) must take at least two weeks off work (four weeks for those working in a factory or workshop) immediately following the birth of their baby. This is as a health and safety requirement. Generally, most women start Leave before the birth of their child.
For those employees eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, normal rules apply, with an entitlement to claim up to 39 weeks of statutory pay or allowance.
Employees qualifying for SMP will remain eligible for 90% of their average weekly earnings in the first 6 weeks, this is followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is currently £148.68 a week, rising to £151.20 a week from April 2020.
If an employer offers enhanced (earnings related) contractual pay to women on Maternity Leave, this is included as a wage cost that can be claimed through the scheme.
The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.
What can you claim?
A claim for wage costs needs to be made by employers through the scheme.
The grant will cover the lower of 80% of an employee’s regular wage or £2,500 per month. In addition to this, an employer will also receive the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Any bonuses, fees or commission should not be included.
Employers must pay their employee the lower of 80% of their regular wage or £2,500 per month as a minimum. In addition to this, an employer can choose to top up an employee’s salary beyond this but is not obliged to under this scheme.
Further guidance will be issued by HMRC on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, before the scheme becomes live.
- Full time and part time employees
For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Bonuses, fees or commission should not be included.
- Employees whose pay varies
Where an employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either the same month’s earning from the previous year or the average monthly earnings from the 2019-20 tax year
Where the employee has been employed for less than a year, a claim can be made for an average of their monthly earnings since they started employment.
If an employee only started in February 2020, you should use a pro-rata for their earnings to date, to claim.
Once how much of an employee’s salary you can claim for has been worked out, an employer must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions that you are entitled to claim under the scheme.
- Employer National Insurance and Pension Contributions
All employers remain liable for minimum automatic enrolment employer pension contributions and the associated Employer National Insurance contributions on behalf of employees that are furloughed.
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.
In addition to the grant, employers can choose to provide a top-up salary. Any Employer National Insurance Contributions and automatic enrolment contribution associated with the top up salary will not be funded by the scheme. Any 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 5th April and will be £520 per month from 6th April 2020 onwards) will also not be covered by the scheme.
- National Minimum Wage/National Minimum Wage
Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working. Furloughed workers who are not working, must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.
However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NMW/NLW for the time spent training. This is true even if this is more than the 80% of their wage that will be subsidised.
How to make a claim for the Coronavirus Job Retention Scheme
Firstly, employers should discuss with their employees and make any changes to the employment contract by agreement. Legal advice should be sought on the process. If enough staff numbers are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to the terms of employment.
Employers will need to calculate the amount they are claiming. HMRC will retain the right to retrospectively audit all aspects of a claim.
Only one claim can be submitted at least every 3 weeks, which is the minimum length an employee can be furloughed for. These can be backdated to 1 March if applicable.
What to do after you’ve claimed
Once HMRC have received a claim and the business is eligible for the grant, it will be paid via BACS payment into a UK bank account.
Claims should be made in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll.
An employee must be paid all the grant received for their gross pay. 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.
When the Government ends the scheme
When the government ends the scheme, a decision must be made, depending on your circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).
Employees that have been furloughed
Those employees furloughed have the same rights as they did previously (such as maternity and parental rights, Statutory Sick Pay entitlement, unfair dismissal and redundancy payments).
Once the government has closed the scheme, remaining claims will continue to be processed by HMRC before terminating the scheme.
Income tax and Employee National Insurance
Furloughed employees’ wages will be subject to Income Tax and National Insurance in the usual way. Automatic enrolment contributions on qualifying earnings, will also be paid by employees, unless they have chosen to opt-out or to cease saving into a workplace pension scheme.
Liability to pay Employer National Insurance contributions on wages paid, as well as automatic enrolment contributions on qualifying earnings will remain, unless an employee has opted out or has ceased saving into a workplace pension scheme.
Tax Treatment of the Coronavirus Job Retention Grant
Payments received under the scheme by a business are made to offset these deductible revenue costs. Therefore, these must be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.
Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.
Contact us for assistance
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