Coronavirus Job Retention Scheme

Background

In response to the Coronavirus, the Government is introducing a scheme to help minimise lay offs for employees who are unable to undertake their duties due to its effects. This is known as the Coronavirus Job Retention Scheme (CJRS).

Furloughed Employees

To access the CJRS, employers will be required to designate employees who are furloughed. Furloughed workers cover employees on the payroll who are unable to work temporarily due effects of the Coronavirus, for example office closures, reduced demand for products/services and Government directed closures.

Before the employees are furloughed, the agreement of the employee is required and the agreement should be in writing. If the company has a unionised workforce, this should be agreed with the union. The agreement should set out when the furloughed period will start, when it will be reviewed and how the employer and employee will keep in touch during this period. An employee is not entitled to take on other employment during the furloughed period and will remain an employee of the company.

Reimbursement

The Government has announced that HMRC will reimburse 80% of the furloughed employee's regular wages, up to a maximum of £2,500 per month, plus employer's NIC and statutory minimum employer's auto-enrolment contribution on that wage. This wages figure will be based on February 2020's payroll. The scheme will be backdated to 1 March 2020 and will be in operation until at least the end of October.

On 12 May 2020, Chancellor Rishi Sunak provided an update on the future of the scheme, announcing that it will be extended to the end of October. The current format of the scheme (government grant that covers 80% of furloughed employees wage costs) will remain in place until the end of July 2020. Thereafter, changes will be made requiring employers to contribute to the costs of the scheme from the start of August 2020. There are currently no details as to what percentage companies will be asked to pay. However, also from August 2020, furloughed employees will be able to return to work on a part-time basis whilst remaining eligible for the scheme.

The online application portal operated by HMRC has now been launched and can be accessed here - https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme . The first reimbursement payments are hoped to be made by the end of April.

Which Employers are Eligible

UK wide employers who operate a PAYE scheme will be eligible. This includes local authorities, charities and the public sector.

Employer Planning Points

  • The scheme is available to all employees on the business's payroll as at 19 March 2020.
  • The employer can claim 80% of an employee's regular wage, plus employer's NIC and statutory minimum auto-enrolment employer's pension contribution (3%).
  • The grant paid is the lower of 80% of wages costs or £2,500. For employee's earning over £2,500 per month, the grant claim for employer's NIC and pension contributions will be based on £2,500. Amounts above this will continue be borne by the employer.
  • It is a matter for employment law as to whether the salary requires to be topped up to 100%. Best practice would suggest that any salary variations are agreed in writing.
  • The employee will still have PAYE taxes deducted as usual.
  • Employees on part-time, flexible and zero hours contracts are covered by the scheme.
  • An employee does not have to accept a period of being furloughed. This may then lead to consideration of redundancies.
  • Employees who are sick and on statutory sick pay (SSP) should continue to receive this. If the employee becomes unwell or provides an isolation note, they should be moved to SSP. The scheme is not intended for short-term absences from work due to sickness, and there is a 3 week minimum furlough period.

Example

Employee below £2,500 gross salary per month: Company Limited employs Mr A on a salary of £27,000 per year, or £2,250 per month. Company Limited pays the auto-enrolment minimum of 3% towards the employee's pension scheme. The employer will continue to pay 100% of the employee's regular salary.

The grant available to Company Limited is the lower of:

  • 80% of £2,250 = £1,800, or
  • £2,500

Plus employer's NIC and minimum auto-enrolment contribution on this amount.

Therefore, the grant Company Limited can claim is £1,800, plus £211 employer's NIC, plus £54 pension contribution = £2,065.

Employee above £2,500 gross salary per month: Company Limited employs Mrs B on a salary of £48,000 per year, or £4,000 per month. Company Limited pays the auto-enrolment minimum of 3% towards the employee's pension scheme. The employer will continue to pay 100% of the employee's regular salary.

The grant available to Company Limited is the lower of:

  • 80% of £4,000 = £3,200, or
  • £2,500

Plus employer's NIC on the £2,500 (not on the total monthly salary) and auto-enrolment pension contribution of 3% of £2,500.

Therefore, Company Limited can claim £2,500, plus £245 employer's NIC, plus £75 pension contribution = £2,820.

As noted above, under the scheme the business is not obliged to top up the payments over £2,500 but this is a matter for employment law and variations should be agreed in writing.

National Living Wage

The National Living Wage is an entitlement based on the number of hours worked. As the employee will not be working during the furloughed period, if the 80% grant takes the wages paid to below this level this is not on contravention of the National Living Wage regulations. You should though agree this variation with the employee before paying only the grant amount.

Directors and LLP Members

Company directors and salaried members of LLPs (employees for tax purposes) can be furloughed. Company directors extends to personal service companies (PSC). During the furloughed period, they should not carry out commercial work but they can undertake limited duties to fulfil their statutory obligations.

Companies should document the furlough of directors in a board minute as well as agreeing the furlough with the director in writing.

The LLP should consider varying the partnership agreement for the furloughed period. The reference salary for a salaried member is their profit allocation and does not include performance related amounts.

Training

During the furloughed period, an employee can undertake training.

Contact Us

We are continually reviewing Government updates and releases on CJRS and its impact on our clients. Please get in touch with your usual contact by email for further advice and updates.