Job Retention Scheme – Furloughed Workers Update
Under the Coronavirus Job Retention Scheme, all employers in the UK will be able to access support to continue paying part of employees’ salaries who would otherwise have been laid off during the ongoing crisis.
Furloughed workers are employees whose employers cannot cover staff costs due to coronavirus, and as such they have been asked to stop working but have not been made redundant.
Such employers are will be able to access support to continue paying part of their staff’s wages, to avoid redundancies and so they can retain their teams.
To avoid fraud, there are expected to be cross-checks between the applications for grants against PAYE records for each employer.
Employers will be required to make one claim for the entire workforce, record how many workers are covered and will need to keep records.
How the scheme works
• The employer should discuss with affected employees and notify them (preferably in writing) that they have become ‘furloughed workers’. The employer needs to get agreement from the worker to do this, unless it’s covered by a ‘lay off’ clause in the employment contract.
• The employer can claim a grant of 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.
• The employer could choose to fund the difference between this payment and employee’s salary but does not have to.
• The employees remain on the payroll deducting tax and national insurance under the pay as you earn (PAYE) system.
• The furloughed workers should not undertake work for their employer while they are furloughed.
• The employer will need to submit information to HMRC about the employees that have been furloughed and their earnings. The submission will be through a new online portal which is expected to be available by the end of April (HMRC will set out further details on the information required).
• If an employee’s salary is reduced as a result of these changes, the employee may be eligible for support through the welfare system, including Universal Credit. • To be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of this communication.
• If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed (unless you have agreed revised terms).
• Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.
• The scheme covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.
• Employees on sick leave or self-isolating should get Statutory Sick Pay (from day 1 of going on sick leave) but can be furloughed after this.
• For employees on zero-hour contracts, the employer can use the monthly pay in February 2020 as a benchmark for each person’s pay when furloughed. If any employee did not work in that month, they should claim Universal Credit
• 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 months’ earnings from previous year or the average of their monthly earnings since they started work. • If employees have to stay at home to look after young children, the employer is likely to be allowed to claim compensation if they furlough these workers.
• The scheme is available to all employees including sole director / shareholder companies. However, only the regular salary element paid via payroll will be eligible for the scheme – dividends are not included. The monthly pay figure submitted in the February 2020 payroll will be used as the basis for the monthly furloughed eligible amount.
• A sole director of a limited company can be an employee for the purposes of the furlough, providing there is an employment relationship between the company and the individual. They may also need to evidence any distinction between the director’s role as an officeholder and that of the employee. Based on the current available guidance, it seems a sole director of a limited company can furlough themselves. Concerns have been expressed that this would effectively mean leaving no-one running the company. If the individual is an employee on the payroll of their own limited company, then they would be furloughed as an employee, not as a director. The director continues to run the affairs of the company, while the employee is furloughed.
• The basis for establishing the director’s employment status would be dependent on facts such as:
o Whether there is a genuine contract of employment between the director and the limited company
o Is there a ‘statement of written particulars’ issued, providing distinction between officeholder duties and those of an employee
o What the obligations of each party are in pursuance of the contract
The Coronavirus Job Retention Scheme will run for at least 3 months from 1 March 2020 but will be extended if necessary.
Where you are taking decisions that are not yet in legislation, research, seek guidance and document the approach taken. There will inevitably be a number of ‘reasonable excuse claims’.
HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.
It is expected that employers borrow or self-fund in the short term to provide the wage package.
If a business needs short term cash flow support, it may be
eligible for a Coronavirus Business Interruption Loan.