Coronavirus Job Retention Scheme
Coronavirus Job Retention Scheme
The Coronavirus Job Retention Scheme is changingThe Coronavirus Job Retention Scheme will close on 31 October 2020
Scheme closing to new entrants
The scheme will close to new entrants from 30 June. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full 3 week period prior to 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 3 week furlough period to be completed by 30 June. Employers will have until 31 July to make any claims in respect of the period to 30 June.
The Coronavirus Job Retention Scheme will close on 31 October 2020.
From 1 July, employers can bring furloughed employees back to work for any amount of time and any shift pattern, while still being able to claim CJRS grant for the hours not worked.
From 1 August 2020, the level of grant will be reduced each month.To be eligible for the grant employers must pay furloughed employees 80% of their wages, up to a cap of £2,500 per month for the time they are being furloughed.
The timetable for changes to the scheme is set out below. Wage caps are proportional to the hours an employee is furloughed. For example, an employee is entitled to 60% of the £2,500 cap if they are placed on furlough for 60% of their usual hours:
there are no changes to grant levels in June.
- for June and July, the government will pay 80% of wages up to a cap of £2,500 for the hours the employee is on furlough, as well as employer National Insurance Contributions (ER NICS) and pension contributions for the hours the employee is on furlough. Employers will have to pay employees for the hours they work
- for August, the government will pay 80% of wages up to a cap of £2,500 for the hours an employee is on furlough and employers will pay ER NICs and pension contributions for the hours the employee is on furlough
- for September, the government will pay 70% of wages up to a cap of £2,187.50 for the hours the employee is on furlough. Employers will pay ER NICs and pension contributions and top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500, for time they are furloughed
- for October, the government will pay 60% of wages up to a cap of £1,875 for the hours the employee is on furlough. Employers will pay ER NICs and pension contributions and top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500, for time they are furloughed
Employers will continue to able to choose to top up employee wages above the 80% total and £2,500 cap for the hours not worked at their own expense if they wish. Employers will have to pay their employees for the hours worked.
The table shows Government contribution, required employer contribution and amount employee receives where the employee is furloughed 100% of the time.
| July | August | September | October | |
|---|---|---|---|---|
| Government contribution: employer NICs and pension contributions | Yes | No | No | No |
| Government contribution: wages | 80% up to £2,500 | 80% up to £2,500 | 70% up to £2,187.50 | 60% up to £1,875 |
| Employer contribution: employer NICs and pension contributions | No | Yes | Yes | Yes |
| Employer contribution: wages | - | - | 10% up to £312.50 | 20% up to £625 |
| Employee receives | 80% up to £2,500 per month | 80% up to £2,500 per month | 80% up to £2,500 per month | 80% up to £2,500 per month |
The Coronavirus Job Retention Scheme
On 20 March 2020 the UK government announced the creation of the ‘Coronavirus Job Retention Scheme’ which is a package of measures designed to help employers retain staff during the coronavirus pandemic, even if they are forced to temporarily shut their businesses. Although the scheme was originally intended to close on 30 June 2020 the scheme has now been extended to 31 October 2020. Details on how the scheme will operate during teh extended period have yet to be published.
HMRC's
employer guidance
and
guidance for employees
have been further updated in line with some of the main queries they have received from stakeholders. The main changes are in the following areas:
- the more detailed information on scheme eligibility
- further information on how to calculate a claim
- clarification of what constitutes wages.
What is furloughing?
- 'Furloughing' is an alternative to laying people-off.
- Employees are kept on the payroll instead of dismissing them as redundant or laying them off without pay.
- It is relevant for employees who are not off sick. Sick workers are instead eligible for government support under the Statutory Sick Pay (SSP) rules.
- Who is eligible to be furloughed?
- Furloughing can apply to any of your employees, apprentices or directors, provided that they were engaged under an existing employment contract on 28 February 2020.
How does furloughing work?
HMRC will reimburse 80% of the wage costs of furloughed employees, subject to a cap of £2,500 per month per employee.
- Wage costs include contracted salary, employers' NICs and pensions costs.
- Payment is by a grant provided by HMRC via the RTI system
- This measure applies for three months from 1 March 2020 but may be extended.
- There are no details on further qualifying conditions.
- It is up to the employer whether they pay the 20% difference so that employees receive their full pay.
What to consider in furloughing employees:
- The amount paid to a worker when furloughed is a decision for you as an employer and may be a matter of negotiation with your employees.
- The employees you furlough must not work for you during the furlough period.
- They remain your employees.
- It is not clear whether they are allowed to take temporary work elsewhere during the furlough period, but it may be that their employment contract currently forbids it.
- Do not forget about employment law. This is for your protection as an employer (against claims by employees once this is all over) as well as the protection of your employees.
The furloughing process
1. Decide which employees are to be furloughed and designate them as such. If this is not all your employees, you should ensure you use a fair selection process. For example you could:
- Start with any employees who cannot work from home, if this is appropriate, or those who need to stay home to look after children.
- Ask for volunteers.
- You could adopt the same sort of process you would if making people redundant, using pooling and selection criteria.
2. Decide whether you will top up the amount being reimbursed by HMRC and if so by how much.
3. Decide whether you are furloughing employees for a fixed period e.g. the full three months or whether you need to keep it flexible. This means less certainty for everyone but allows you to call employees back if the situation changes and restrictions on working are lifted.
4. Decide whether you would agree to employees taking temporary work elsewhere during the furlough period. You may wish to only address this if asked by your employees.
- If their contract currently forbids this, you should advise them of your decision in writing.
- If the contract does not forbid this it would seem, unless the government advises otherwise, that employees are free to do this.
5. Monitor your cashflow position to see if you have sufficient funds to pay your employees until the HMRC grant comes in, likely to be sometime before the end of April. If you do not, you may wish to consider a business interruption loan or deferring your VAT payment.
6. Check the employment contract for each employee you intend to furlough.
- If you intend to top up their payments to maintain their normal pay you should not need the employees’ consent as you are not deviating from their contractual terms.
- If you do not intend to top up their payments then you will need the employees’ consent unless their contract allows for you to reduce or stop their pay when there is no work for them to do. If in doubt you may wish to take legal advice.
7. Notify the designated employees that they are furloughed. Tell them whether you are topping up their wages or whether they will just get the 80% amount reimbursed by HMRC/£2,500 per month, whichever applies. It is advisable to do this in writing.
8. If required (see above) obtain consent from the employees, in writing, to be furloughed.
9. If you do have sufficient funds, make payments to your furloughed workers accordingly.
10. It is not yet clear how the grant will work for employers who are unable to pay their furloughed workers until the grant comes in and whether they can delay wages payments until HMRC pay them.
11. Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. The portal is not yet available.
12. Hopefully, once information has been submitted you will receive your grant from HMRC. More detailed guidance on this is required from HMRC.
Furlough or Redundancy?
What is the best course of action for you as an employer in dealing with staffing levels during the Coronavirus closedown?
If you want to retain your staff but cannot afford to pay them you can:
- Furlough them.
- Make them redundant and hope that they will be available to re-employ when business starts up again.
If you can answer yeas to the following:
- You wish to retain your employee
- Due to the effects of Coronavirus your business is
Unable to provide a safe workplace for your employees or safe travel to and from work.
Unable to offer home working for employees.
It is impossible for the employee to work for you at present or there is no other paid work currently available for them to do.
- They are employed by you under an employment contract i.e. a written or verbal contract
- They are paid a regular wage in return for working regular hours
You can furlough them, by keeping them on the payroll.
What about casual workers:
Whether or not you need to furlough casual workers depends on the terms of the contract you have with them.
If you can answer yes to the following questions you do not need to furlough them as you already have no obligation to provide work.
- The worker casual or subject to a zero-hours contract.
- Your business does not have any ongoing obligation to offer them work.
- The worker only works when they want to.
Although in these circumstances you do not need to furlough them you may want to use the furloughing process as a way of ensuring their future loyalty.
Further guidance is awaited from the government as it is unclear what rights casual workers have in this instance.
What is the £2,500 maximum grant based on?
As the £2,500 limit to the monthly grant appears to cover all employment costs, it is unclear how benefits in kind, and in particular those being payrolled, will be reflected in the calculation.
Base for 80% calculation
Full time and part time employees
For full-time and part-time employees, the base for the 80% calculation is the employee's actual salary as of 28 February 2020.
For employees whose pay varies
HMRC guidance advises the following:
"If the 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 earnings from the previous year; or
• average monthly earnings for the year.
"If the employee has been employed for less than a year, claim for an average of their monthly earnings since they started work.
"If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.”
"Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim."
How will it work in practice?
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.
Fees, commission and bonuses should not be included.
This gives a maximum cap of £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.
Guidance from HMRC:
Illustration 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 £191 and employees NIC of £154. On this salary, the employer pays employers' NIC of £177.
The available grant for the employer is the lower of
- 80% of £2,000, and
- £2,500
Plus employers' NIC on this amount
So X Ltd claims a grant of £1,600 plus £177 = £1,777.
The net amount of cash required by X Ltd to furlough Mr A based on maintaining the existing salary is £2,000 + £177 - £1,777 = £400 per month.
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.
Illustration 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
- 80% of £3,500 = £2,800, and
- £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 agreed to a different arrangement during their furlough.
Notes to illustration based on an extended understanding of how the scheme will work
- If Mr A had not opted out of auto enrolment, X Ltd would also be making pension contributions on his behalf.
- We understand that the rules for the scheme are being designed with underlying reference to employment law. If the individual is still under contract, Mr A can expect to receive his salary in full. The grant paid to X Ltd should not be taken as the new maximum cost of employment to the employer unless the contract has been redrafted.
- Subject to the employment contract and any amendment, the salary which the employer actually pays the employee during the furlough period may be different to the pay in the reference period and upon which the grant figure is based. However, the employer must pay at least the amount of the grant.
Disclaimer
The foregoing does not constitute legal advice and employers should seek advice on their specific circumstances from their HR or legal advisers before undertaking any measures involving changes to employment contracts.