A lot of clients are asking about the 80% rebate from the government for Furloughed staff. The emergency legislation has been passed bringing the first round of measures into effect – you can find out more about these here
As more information becomes available, we shall be doing out best to communicate it to our clients.
What is the Coronavirus Job Retention Scheme?
The government announced support for employers, that will be anyone who is maintaining an active payroll scheme, in respect of paying employee wages whilst their businesses are shut down as the government have asked. This support covers 80% of the normal wage costs to an employer, with a cap of £2,500 per month per employee, plus the associated Employers national insurance and minimum auto enrolment employer pension contributions associated with that wage. The remaining 20% will need to be topped up by the employer, or the staff member put on reduced pay (more about that here).
The government has issued detailed guidance on the scheme available here
Who is Eligible?
All UK Employers, Limited companies, LLP, Partnerships, Sole-traders who employ people, and Charities, who had a PAYE scheme in place as of 28 February 2020. This includes recruitment agencies (with agency workers paid through PAYE), public authorities, and administrators undertaking the management of companies in administration.
Which employees can be claimed for
To make the claim, the employee must have been furloughed, and only claimed form the date that they are.
That employee must also be on the PAYE payroll on 19 March 2020. All types of contract apply, including:
- Full time and part time contracts;
- Agency contracts;
- Flexible and zero hour contracts.
The employee must not undertake work for the employer, including providing services that generate revenue. There is no half way house, your employee is either furloughed or active – the latter does not attract the subsidy.
Employees hired after 19 March 2020 cannot be furloughed.
You may furlough employees made redundant after 19 March 2020 if you rehire them.
Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 19 March 2020.
Employees currently receiving SSP cannot be furloughed until they come back to work – at which point they can be furloughed. Any employee isolating in line with government health guidance can be furloughed.
Employees with multiple jobs can be furloughed in each job, the cap applies to each employer.
Training/volunteer work/Maternity/paternity/adoption pay/shared parental pay
Employee training can still take place, such as online training, however they must be paid at least the national living wage or national minimum wage for doing so.
Volunteer work can be undertaken, as long as it doesn’t generate revenue for or provide service to the employer.
Maternity pay etc. is still payable under normal rules, however if there is enhanced contractual pay, you include this as part of the wage cost and claim.
What happens when an employee isn’t paid a regular amount?
Where an employee does not receive a standard amount each month, by way of flexible hours, then you use the average earnings of the employee on the following basis:
For employees who have been on the payroll for 12 months or more prior to the claim, the higher of:
- The same months earnings in the previous year; and
- The average earnings for the 2019-20 tax year.
- For employees employed for less than a year, you claim an average of their salary to the date of the claim
- For employees who started in February 2020, use their prorated earnings so far to claim.
You cannot include commissions, fees, or bonuses as part of flexible pay.
How do I furlough an employee?
Employees positions must be designated furloughed (meaning granted leave of absence), this term does not current appear in UK statutory law, but it is best to use it to ensure compliance with the scheme; Employees must be notified of their change of employment status, you should engage with employees as much as possible.
HM Government has made it clear that this constitutes a change of employment status covered by employment law (see what that means here). You should also be aware that if you are not going furlough all of your employees that the decision making process is subject to equality and discrimination laws. Though we cannot give legal advice, when deciding who to furlough – to manage risk – you could consider:
- Who can work productively from home;
- Asking for volunteers;
- Use the same process that you would for redundancies, such as pooling.
You must furlough an employee for a minimum of 3 weeks.
Employers obligations to furloughed employees
Your employee has been furloughed, notified and the agreements are all in place. You continue to pay your employee, the agreed amount (100%/80%) through your payroll – and pay the employment taxes in the usual way, through your payroll. This was confirmed by HMRC on Twitter on 25 March 2020.
You must keep your employees up to date in respect of returning to work – and your employee is expected to do so. When the furlough period ends, your employee will become an active employee again with normal obligations. There will not be an ability to claim for a transition period back to work, so it is vital that employees know they are required to return to work, potentially with shorter notice.
Your employees may have a clause in their contract that prevents them from taking secondary or temporary employment. You must decide whether you are going to enforce this, or whether you wish to include it in your agreement letter with the employee. If the employee does take temporary or secondary employment, this does not change your obligations in respect of the furlough, you must continue to pay based on the agreement. You may also have difficulty enforcing the clause.
Employees paid the national living wage/national living wage
If you have employees that you are going to furlough at 80%, who are paid the NLW/NMW, then it will be below the legal minimum, if they were working. As they are being furloughed, they are not working, so the government suggests that this issue does not apply.
The exception is if they are required to train (as above), you must pay the NLW/NMW, which will be subsidised.
How do I reclaim the 80%?
HMRC must be notified of the furloughed employees as well as details of their earnings – this will be done by a not yet live online portal; HMRC will reimburse 80% of the employment costs based on their February 2020 earnings, with a cap of £2,500 per employee; Employees remain employed, with their jobs on hold until it is time to return to work.
To make this claim, you will need:
- Your PAYE reference number;
- The number of employees being furloughed;
- The claim period (start and end date);
- Amount claimed (per the min length – 3 weeks of furloughing);
- Your bank account and sort code; and
- Contact name and phone number.
You will need to calculate the claim, which payroll providers are currently aiming to include in their products. HMRC have the right to audit all parts of the claim.
You will only be able to claim once at least every 3 weeks. The claim can be backdated to the 1st March 2020 if applicable.
Your claim must be based on actual payroll amounts, when you run the payroll or in advance of an imminent payroll.
All money received must be paid to the employee in respect of their pay, no fees can be charged to the employee.
You must be registered for PAYE online services, and have an accessible postal address for the PAYE scheme.
What does this mean for the employees/What is the employment issue?
The change of status from Employee to furloughed employee constitutes a change of employment status in accordance with UK employment law. In order to place employees’ positions in furlough, their employment contract will need to have layoff or short term employment clauses – which is rare. If you don’t have this clause, then you should, as a minimum, seek the employee’s agreement to the change of status – potentially by way of a meeting and a signed agreement – which could be part of your notification letter.
Reducing employee salaries to 80% (the government rebate amount)
The reduction of employees’ salary by 20% is a change of the terms and conditions of employment, this applies if you are not planning on topping up the 20%. You will need to follow the processes that come with varying an employee’s terms of employment. You should, as a minimum, seek the approval of the employee for this change. On the whole, and given the alternatives if an employee does not agree to the changes, it is likely that most employees will agree. Responsible employers are engaging with their employees, and seeking agreement before taking any action – as well as including employee agreement as part of their furloughing process. An example notification letter is available to clients on request. The above is given without responsibility, if you are unclear on employment law, or any of the above processes, then you must seek advice from an employment solicitor.
Directors of limited companies
There will always be bookkeeping, post and administrative duties that require the attention of a person. A director has a statutory duties which HMRC will allow to be performed by a furloughed director.
For companies with multiple directors, who have employment contracts – you may furlough individual directors depending on their duties.
You may be able to furlough yourself as a sole director – it is dependent on circumstance.
End of the scheme procedure
When the scheme ends, you must decide whether the employee can return to their duties. If the circumstances are as such that there is no job to return to, then you must consider termination of employment (redundancy). HMRC will process all claims made before the closure of the scheme, before terminating the scheme.
Accounting for the payments received
The payments received in will be a contribution towards the costs of the company, and therefore accounted for in the profit and loss account, as credits towards salaries, NI and pension.
We have a template furlough letter available for all clients to adopt. Please contact us if you would like a copy.
Our advice is given without responsibility. If you are unsure about any point, you must seek independent advice.