COVID-19: Job Retention Scheme - Fact sheet for clients

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COVID-19: Job Retention Scheme - Fact sheet for clients

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The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers for at least three months starting from 1 March 2020. The scheme is expected to be up and running by the end of April 2020. It is designed to support employers whose operations have been severely affected by coronavirus (COVID-19).

Employers can use a portal to claim for 80% of furloughed employees’ (employees on a leave of absence) 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. Employers can use this scheme anytime during this period.

 

The scheme is open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020.

 

Eligibility

 

Any UK organisation with employees are eligible and can apply, including:

  • businesses
  • charities
  • recruitment agencies (agency workers paid through PAYE)
  • public authorities

 

Employers must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.

 

How to access the scheme

 

You will need to:

 

  • designate affected employees as ‘furloughed workers’ and notify your employees of this change - changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation
  • submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required)

 

HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.  If your business needs short term cash flow support, you may be eligible for a Coronavirus Business Interruption Loan.

 

Employees you can claim for

 

Furloughed employees must have been on your PAYE payroll on 28 February 2020, and can be on any type of contract, including:

 

  • full-time employees
  • part-time employees
  • employees on agency contracts
  • employees on flexible or zero-hour contracts

 

The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.

 

To be eligible for the subsidy, when on furlough, an employee can not 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.

 

This scheme is only for employees on agency contracts who are not working.

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.

 

Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.

 

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.

 

Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.

 

You do not need to place all your employees on furlough. However, those employees who you do place on furlough cannot undertake work for you.

 

Work out what you can claim

 

Employers need to make a claim for wage costs through this scheme.

 

At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.

 

More guidance will be issued on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, before the scheme becomes live.

 

Full time and part time employees

 

For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.

 

Employees whose pay varies

 

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
  • average monthly earnings from the 2019-20 tax year

 

If the employee has been employed for less than a year, you can 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.

 

Employer National Insurance and Pension Contributions

 

All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.

 

You can claim a grant from HMRC to cover wages for a furloughed employee, equal to 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.

 

You can choose to provide top-up salary in addition to the grant. Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded through this scheme. Nor will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards).

 

National Living Wage/National Minimum Wage

 

Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working.

 

Therefore, furloughed workers, who are not working, must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.

 

However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

 

What you’ll need to make a claim

 

Employers should discuss with their staff and make any changes to the employment contract by agreement. Employers may need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.

 

To claim, you will need:

 

  • your ePAYE reference number
  • the number of employees being furloughed
  • the claim period (start and end date)
  • amount claimed (per the minimum length of furloughing of 3 weeks)
  • your bank account number and sort code
  • your contact name
  • your phone number

 

You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.

 

Claim

 

You can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until the 1 March 2020 if applicable.

 

What to do after you’ve claimed

 

Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to a UK bank account.

 

You should make your claim in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll.

 

You must pay the employee all the grant you receive for their gross pay, no fees can be charged from the money that is granted. You can choose to top up the employee’s salary, but you do not have to.

 

When the government ends the scheme

 

When the government ends the scheme, you must make a decision, depending on your circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).

 

Employees that have been furloughed

 

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.

Once the scheme has been closed by the government, HMRC will continue to process remaining claims before terminating the scheme.

 

Income tax and Employee National Insurance

 

Wages of furloughed employees will be subject to Income Tax and National Insurance as usual. Employees will also pay automatic enrolment contributions on qualifying earnings, unless they have chosen to opt-out or to cease saving into a workplace pension scheme.

 

Employers will be liable to pay Employer National Insurance contributions on wages paid, as well as automatic enrolment contributions on qualifying earnings unless an employee has opted out or has ceased saving into a workplace pension scheme.

 

Tax Treatment of the Coronavirus Job Retention Grant

 

Payments received by a business under the scheme are made to offset these deductible revenue costs. 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.

 

 To discuss the above or any Employment Law issues please contact Laura McMaster.

The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. PDT Solicitors LLP accepts no responsibility for the content of any third party website to which this webpage refers.

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