Hot off the Press: COVID-19 - Your workforce: a Q&A on claiming for wage costs through the Job Retention Scheme
On 26th March, HMRC issued guidance on claiming for wage costs through the Coronavirus Job Retention Scheme. We explore some answers to key questions and add some questions of our own.
Which employers are covered?
All UK employers who
- created and started a PAYE payroll scheme on or before 28 February 2020 and
- have a UK bank account.
RPC says: HMRC say this "is designed to support employers whose operations have been severely affected by coronavirus (COVID-19)." Is this merely a statement of overarching intent or will the scheme, once designed, include some sort of means testing?
Will it apply to companies in administration?
Yes. The administrator will be able to access the scheme.
When can employers access the scheme?
It is expected to be up and running from the end April.
What period will the scheme cover?
The 3 months from 1 March 2020 and it may be extended. Employers can access the scheme at any time during the period.
What payments will be covered?
80% of furloughed employees’ usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
Bonuses and commission are excluded. Be mindful that other benefits will remain payable, under usual contractual principles, unless you have agreed otherwise.
RPC says: How will you deal with any bonuses and commission? Fund them or seek to agree a variation to any applicable scheme/s?
And remember, tax and NI remain payable on all payments made in the usual way.
How is "usual monthly wage" calculated?
For full time and part time employees, use their actual salary (excluding bonus and commission) before tax as at 28 February.
For employees with variable pay, it depends when they joined:
- 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 earning from the previous year; or
- average monthly earnings from the 2019-20 tax year
- For more recent joiners, you can claim for an average of their monthly earnings since they started work
- For those who 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. Guidance on this to follow from HMRC.
Which staff are covered?
- They must have been on your payroll on 28 February 2020
- Those made redundant after 28 February if rehired are covered
- Covers any type of employment contract including zero hours and agency contracts (where not working).
RPC says: Your most recent joiners will not be covered.
The guidance refers only to employees. This is not defined but, presumably, it is intended to cover "employees" in the tax status sense (so that any casual workers who are not employees for tax – rather than employment status? - purposes will not be covered)? Clarity is needed but it may be that all those on payroll, for whom Employer's National Insurance is paid, would be covered.
Can a furloughed employee do some work for us while furloughed?
No. The scheme will only cover employees who are doing no work for or on behalf of the organisation. This expressly includes "providing services or generating revenue" for the organisation.
RPC says: The guidance does not say expressly whether employers can rotate employees off and onto furlough. However, our read is that this is likely to be permitted, provided each furlough period is a minimum of three weeks. HMRC's confirmation of the position would be welcomed.
Can employees work for another organisation (subject to usual rules of fidelity etc) and remain furloughed? Perhaps so. The guidance says that each job is treated separately, that an employee could be furloughed from each job and that the cap applies separately to each employer. It is not clear if this would allow working for group companies, under a separate /dual employment contract. It might.
Can a furloughed employee volunteer?
Yes. Volunteer work or training is allowed, as long as this does not provide services to or generate revenue for the organisation. Also, if you require furloughed employees to complete, eg online training, you must pay them "at least the NLW/NMW for the time spent training".
RPC asks: How will you calculate "time spent training"? Are apprentices "providing services to or generating revenue" and therefore not permitted to train on the job while furloughed?
How does an employer designate employees as furloughed?
This remains subject to usual employment laws, including discrimination legislation (particularly in terms of selection for furlough) and contract principles. The HMRC guidance reflects that agreement should be sought to change the contract. A written record of furlough notices should be retained.
What about employees on other types of statutory leave?
- Employees on unpaid leave can't be furloughed unless they were placed on unpaid leave after 28 February
- Employees who are self-isolating or on sick leave should receive statutory sick pay (and any company sick pay due). They can be furloughed afterwards
- Employees who are socially shielding (ie vulnerable groups) can be furloughed
- Maternity, paternity, adoption and shared parental leave: the usual principles apply in relation to statutory payments due. Any contractual enhancements to these payments can be recovered as a wage cost (subject to the cap) if the employee is furloughed.
RPC asks: Holiday will continue to accrue during furlough. But can employees be allowed/required to take holiday whilst furloughed? This is not dealt with in the guidance.
What do I have to pay to furloughed employees?
As a minimum, the lower of 80% of their regular wage or £2,500 a month.
Top ups beyond this will not be recoverable under the scheme.
RPC says: If you reduce any wage below 80% does this mean that person's wage becomes ineligible for the furlough scheme? It depends on what "regular wage" means here. Given the approach to calculation looks, for those whose pay doesn't vary, at their wage on 28 February it seems that any employees whose pay was reduced after 28 February may be ineligible for the scheme.
Be a little wary of the language "top up". It suggests that this is an optional payment. But there are of course potential contractual issues if such a reduction is imposed. We recommend taking advice on individual circumstances before implementing furlough.
How will payment be administered?
HMRC will pay a grant to employers via a BACS payment. It will issue guidance on how to calculate claims for NI and minimum automatic enrolment employer pension contributions.
RPC says: The word "grant", rather than "loan" (as had been previously mentioned by some), will be welcome clarification for business.
Is there a minimum period of furlough?
Yes, 3 weeks.
RPC says: Note, you can only submit one claim every 3 weeks.
What information will be needed to claim?
- ePAYE reference number
- number of employees being furloughed
- claim period (start and end date)
- amount claimed (per the minimum length of furloughing of 3 weeks)
- bank account number and sort code
- contact name
- phone number
- calculation of the amount you are claiming
RPC says: This information will be submitted to an HMRC portal, details of which are not yet available. HMRC will have a right to retrospectively audit claims.
Can the employer retain or divert any of the grant?
No. It must all be paid to the employee/s. No costs etc can be charged and deducted.
How will these payments be treated for tax purposes?
Payments received under the scheme are made to offset these deductible revenue costs. HMRC say they must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles. Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.
Do contact us if you need further clarification.