CORONAVIRUS JOB RETENTION SCHEME
Government grants will reimburse 80% of salaries of PAYE employees who would have been laid off during this crisis. This is open to any employer who operates a PAYE payroll, it:
- includes workers who were on the payroll on 28 February 2020
- can be backdated to 1 March 2020 – provided that they were not working at this date. You cannot backdate to a point when the employee was actually working.
- will last at least 3 months, with extensions if necessary
- is subject to a cap of £2,500 to cover gross wages (plus employers NIC, plus pension contributions per month)
To claim, employers, must;
- designate affected employees as ‘furloughed workers’ and notify the employees of this change.
- submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (at the time of writing this portal is not yet available).
Please note that changing the status of employees remains subject to existing employment law, if you have concerns take HR advice. For clients who are part of our Tax Investigation Service Scheme, a HR advice line is included, Julie sent an email with the details of the scheme on 25 March 2020. Alternatively, if you would like a contact for HR advice outside of this please email us.
HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers. If cash flow is tight, you may benefit from other Coronavirus schemes, if eligible, such as Business Interruption Loan, Small Business Rates Relief Grant or VAT Deferral. We know the system is less than perfect and not all the answers have been provided by the government as yet.
***IMPORTANT***
Furloughed members of staff must not work for the employer during the period of furlough.
FAQ
How does this look practically?
The employer will pay the employee through payroll, and report payments to HMRC using the Real Time Information (RTI) system as usual.
Do I need to include a line for the 20% reduction?
If an employer wants to ‘top up’ the 80% then this is permitted under the scheme but is not mandatory.
Do I include bonuses etc?
No. Fees,
commission and bonuses should not be included.
The maximum grant will be calculated per employee and is the lower of:
• 80% of ‘an employee’s regular wage’ and.
• £2,500 per month.
Plus the associated employers’ National Insurance contributions (NIC) on
this amount and the minimum automatic enrolment employer pension contributions
on that wage.
Example; thinking about this as though paying the maximum it would look like
£2,500 +£245 (employers’ NIC) + £59 (auto- enrolled pension contribution) =
£2,804 of total possible grant that can be applied for per employee per month.
Can the employee do a little bit of work?
Nope. They are on gardening leave and CANNOT do anything for the company.
Do I have to pay them on time?
Yes. We understand that this may be tight for some, businesses should look to other Coronavirus schemes for support on cash flow.
What about seasonal workers who were due to start in March and beyond?
Sadly, they are not eligible for this scheme. Employees needed to be on your payroll at 28 Feb 2020
We pay ourselves as Directors annually and that amount has not been processed yet, what about us?
This is answer is twofold:
A furloughed employee must not undertake work for the company, if you are a Director it is your duty to administer the company and essentially, run it. We are looking into the possibilities for companies that have more than one director and the possibility of furloughing one Director. We are also seeking advice as to whether a Director can be furloughed and still carry out their statutory duty of running their company.
For those on an annual salary that is to be administered in March 2020 and that are not directors, our understanding is that you can claim 80% of the corresponding monthly rate of that annual salary. So, if you pay that employee £12,000 annually in March, you can claim 80% of £1,000 plus employers NIC and auto enrolment costs.
Some useful links:
Guidance from HMRC:
Guidance for employers on the Coronavirus Job Retention Scheme
Support for employees on whether they are covered by the Coronavirus Job Retention Scheme
Some simple examples
Example 1
X Ltd employs Mr A at an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto enrolment.
Each month, Mr A currently receives net pay of £1,655 which is after deducting PAYE of £154 and employees NIC of £154. On this salary, the employer pays employers’ NIC of £177.
The available grant for the employer is 80% of £2,000 plus employers’ NIC on this amount.
So X Ltd claims a grant of £1,600 (80% of £2,000) plus £177 = £1,777.
To maintain Mr A on his salary the net amount of cash required by X Ltd to furlough is (£2,000 + £177 – £1,777) = £400 per month.
Does X Ltd have to top up the difference? It is a matter for employment law whether the employer is actually required to pay this top up. Employees and employers can agree to a different arrangement during the furlough.
Example 2
X Ltd employs Mr B at an annual salary of £42,000, so £3,500 per month. Mr B has opted out of auto enrolment.
Each month, Mr B currently receives net pay of £2,675 which is after deducting PAYE of £492 and employees NIC of £333. On this salary, the employer pays employers’ NIC of £383.
The available grant for the employer is the lower of
(c) 80% of £3,500 = £2,800, and
(d) £2,500
So, in this case £2,500, plus employers NIC, £245, on this amount
So X Ltd claims a grant of £2,500 plus £245 = £2,745.
The net amount of cash required by X Ltd to furlough Mr A based on maintaining the existing salary is £3,500 + £383 – £2,745 = £1,138 per month.
It is again a matter for employment law whether the employer is actually required to pay this top up. Employees and employers can agree to a different arrangement during their furlough.