Since the Coronavirus Job Retention Scheme (CJRS) was announced, we’ve received a number of enquiries from clients with questions about the mechanism and process involved. HMRC updated its guidance on the scheme on 12 May 2020 and have now extended the scheme until end of October.
Specifically, the scheme will run in its current form until the end of July and then changes, to allow more flexibility, will come in from the start of August. These changes include furloughed workers being able to return to work part-time with employers being asked to pay a percentage towards the salaries of their furloughed staff.The employer payments will supplement a reduced contribution from the government, but ensuring that staff continue to receive 80% of their salary, up to £2,500 a month.
More specific details and information around its implementation will be made available by the end of May.
The Treasury also issued a Direction to HMRC providing the legal framework for the CJRS, the changes are reflected in our summary below of the most common questions and responses based on information which is currently available.
Which employers are eligible?
All UK businesses can claim under the scheme if they:
- Created and registered a PAYE payroll scheme on or before 19 March 2020
- Have enrolled for PAYE online
- Have a UK bank account, and
- Have furloughed employees who were already employed and had been paid via RTI on or before 19 March 2020.
Eligible entities include businesses, charities, not-for-profit organisations, recruitment agencies, single director companies and public authorities. Administrators may also apply but only if there is a reasonable expectation that individuals will ultimately be rehired. It is not expected that many public sector organisations will furlough employees. Individuals who employ domestic workers (eg a nanny) can apply where the worker is formally furloughed.
If a business has taken on employees of a previous business transferred after 19 March 2020 they are eligible if either the TUPE or PAYE business succession rules apply to the change in ownership, regarding the employees concerned.
Finally, if a group of companies with multiple PAYE schemes transfer of all employees into a new consolidated PAYE scheme after 19 March 2020, the new scheme will be eligible to furlough those employees and claim the grants available under the CJRS.
What is a furloughed employee?
The concept of an employee furlough is new to the UK but in general terms it refers to when employers require their staff to take unpaid leave of absence. To be eligible for the subsidy, when on furlough, an employee cannot undertake work for or on behalf of the organisation. This includes providing services or generating revenue. While on furlough, the employee’s wage will be subject to usual income tax and other deductions.
The scheme also covers employees on agency contracts but only those who are not working.
If an employee is working, but on reduced hours, or for reduced pay, they are not ‘furloughed’ and will not be eligible. If an employee chooses to volunteer, for example to assist the NHS, this will not impact their status as a furloughed employee.
Employees that have been furloughed have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.
We would recommend that employment law advice is sought before issuing the relevant written communications/notifications to selected employees.
Which employees can be furloughed?
The scheme covers, full-time and part-time employees (including foreign nationals), apprentices and those on agency contracts or on flexible, fixed term or zero-hour contracts, including Limb (b) workers paid through PAYE. Office holders (including company directors) and salaried members of Limited Liability Partnerships (LLPs) can also be furloughed.
Employees that were on payroll as of 28 February 2020 and were made redundant or stopped working for the employer after that and prior to 19 March 2020 can also qualify for the scheme if the employer re-employs them and puts them on furlough. An employee who started unpaid leave after 28 February 2020 can be put on furlough instead, but an employee who went on unpaid leave on or before 28 February 2020 cannot be put on furlough until the date on which it was agreed they would return from unpaid leave.
There are special rules for those on sick pay, maternity/paternity/shared parental leave, and those who are volunteers or who undertake online training. Where employees are carers or need to look after children or are ‘shielding’ under government advice as a result of the COVID-19 crisis they can be furloughed.
Note that apprentices can be furloughed and continue to train during this time but employers must pay at least the appropriate minimum wage for the time they spend training.
I operate through my own personal service company but my work has dried up, can I furlough myself?
Yes, as a company director you can qualify as a furloughed employee. As with other employees you must carry out no profit generating work for the company while on furlough but can undertake company administrative tasks (such as filing tax returns and company accounts) as needed.
How much is covered?
HMRC will pay a grant to cover the lower of 80% of an employee’s regular wage as in their last pay period prior to 19 March 2020 or £2,500 per month, plus the associated employer NIC and a minimum 3% automatic enrolment employer pension contribution on that subsidised wage. Fees, tips, bonuses and discretionary commissions will not be included. However, for employees entitled to regular ‘compulsory’ commission payments, employers must include such payments in the basic wage calculation for the furlough claim. Employer Apprenticeship Levy payments and the costs of any benefits in kind are not covered.
If, based on previous HMRC guidance, an employer calculated a claim based on the employee’s salary as at 28 February 2020 (and this differs from their salary in their last pay period prior to 19 March 2020) they can choose to still use this calculation for their first claim.
Personal service companies paying their director in both salary and dividends will only be able to claim a grant for the salary element for the furloughed director.
An employer may choose to top up an employee’s salary beyond this but is not obliged to under the scheme. HMRC has indicated that it will issue more guidance on how employers should calculate their claims for employer NIC and minimum automatic enrolment employer pension contributions before the scheme becomes live.
Whilst furloughed employees are not working, they are not subject to the usual National Minimum Wage (NMW) regulations. However, there are some anomalies to this such as in relation to online training – see below.
Note that grants may not be used to substitute redundancy payments.
What is the minimum furlough period?
There is a minimum furlough period of 3 consecutive weeks and whilst employees may be furloughed multiple times, each separate instance must be for a minimum period of 3 consecutive weeks. When an employee returns to work they must be taken off furlough
We offer benefits in kind through a salary sacrifice arrangement, how are they treated?
Benefits in kind are not part of basic salary for the furloughed wages calculation. Similarly, it is the contractual pay (after salary sacrifice) that is used for the furloughed wages calculation, for example, where pension contributions are made through salary sacrifice.
HMRC have stated that all of the grant received to cover an employee’s furloughed pay must be paid to them in the form of money. No part of the grant may be netted off to pay for the provision of benefits or a salary sacrifice scheme.
However, HMRC says that it regards COVID-19 as a ‘lifestyle event’ so it would be possible to amend or revoke salary sacrifice arrangements going forward if the relevant contractual arrangements are updated accordingly when an employee is put on furlough (appropriate employment law advice should be taken).
How will it be paid?
Employers will need to make a claim via an online HMRC portal which has gone live as of 20th April. The HMRC guidance provides detail on the information an employer will need to be able to make a claim. Note that employers can only make one claim in any three week period which is the minimum time an employee may be furloughed for.
Once HMRC has processed the employer’s claim it will make payment by BACs into their nominated UK bank account. Employers must pay the employees all of the grant they received for their gross pay. No fees may be charged from the money which is granted.
If an employer uses an agent who is authorised to act for their PAYE purposes, the agent will be able to make the claim on the employer’s behalf. However, if the employer uses a file-only agent, they will not be able to provide this service, but they will be able to provide the employer with the information needed to make the claim.
Is the payment taxable?
Yes, both on the employee and the employer. When furloughed employees are paid through RTI, the employer must make the usual PAYE, NIC and automatic enrolment deductions.
Employers must treat the grant as taxable income for corporation/income tax purposes but can deduct employment costs as normal when calculating their taxable profits.
Note that individual households who have furloughed domestic staff (e.g. nannies) are not taxable on grants received under the scheme. However, the domestic staff are subject to PAYE/NIC on their wages as normal.
What period does the scheme cover?
Initially the scheme was to run from 1 March for a three month period. The scheme (as at 12 May) will now continue until the end of October. Specifically, in its current form until the end of July and then changes, to allow more flexibility, will come in from the start of August. More specific details and information around its implementation will be made available by the end of May.
Can I just not pay my PAYE liabilities due in March and April and claim under the Job Retention Scheme?
No, unless you have a specific agreement with HMRC, interest and penalties will still apply if you do not pay your PAYE/NIC on time.
What if instead of furloughing employees we pay them reduced wages and/or cut their hours during the crisis instead?
You should take legal advice on any arrangement to reduce employees’ contractual hours or wages. Please also bear in mind that employers must continue to pay at least the minimum wage per hour to employees who continue to work and HMRC will continue to take enforcement action against those that do not. A claim for CJRS may not be made in respect of these workers.
What about training, can furloughed employees take part in training without breaching the rules?
Yes, any furloughed worker can take part in remote/online training (the government is encouraging it to maintain skills). For example, a furloughed apprentice may need to continue their study course online. This training must not however generate revenue for the business or (an associated business) or should not involve the provision of services to the business. However, all workers that undertake training will still need to be paid at least the appropriate NMW for the hours that they spend training. Therefore, for some employees, employers may need to top up furloughed pay for the period/s in which they undertake training.
For further information on the support available for employers, please get in touch with your usual BDO contact.