The Coronavirus Job Retention Scheme will be a lifeline to businesses that have been hit by the coronavirus pandemic.
But there are lots of questions still to be answered.
So with all this in mind, we outline the scheme and what it means to help you if you have been affected by the Covid-19 outbreak.
What is the Coronavirus Job Retention Scheme?
The scheme designed to retain jobs by providing employers with help to pay wages for those members of staff who have been asked to stop working and who would have otherwise been made redundant.
HMRC will pay employers a grant worth 80% of the salary of workers who are furloughed and kept on payroll rather than laid off. This is up to £2,500 a month and is for 3 months initially.
Which businesses are eligible?
Any UK employer is eligible for the scheme, regardless of business size. This includes charities, recruitment agencies and non-profit organisations.
They must have a PAYE scheme in existence on or before 28 February 2020 and have a UK bank account.
Special rules apply to public sector employers as they are still expected to deliver a public service.
What about owner-managed companies and directors?
The guidance is still vague and the finer details have not yet been announced, but our understanding is:-
- If you are the owner of a business and pay yourself through a PAYE scheme you may be eligible
- You are the director of a limited company you are legally an employee. If you pay yourself via the PAYE payroll then you may also qualify, however it is only the salary aspect that will be relevant. Dividends will not be taken into account.
- You own a business, are not a limited company and do not have a PAYE scheme then you are classed as self-employed and the Self Employed Income Support Scheme will apply to you.
Currently to be eligible for the scheme you need to be furloughed and hence not do any work.
However, as a company director, you still need to perform your statutory duties. In this instance, you can be furloughed but this is the only work you can do.
As the scheme is so new HMRC have yet to clarify the situation and set out guidelines on being the director of a company and being furloughed at the same time.
What is furloughed?
Suddenly, the word furlough has become very well known. It has been used since the 1600s and is Dutch in origin, in fact, but what does it mean?
What it means in practice is to give a temporary leave of absence from work. Although it was not an expression that carried any meaning in UK employment law until now.
Furloughed staff are kept on the payroll rather than being laid off without pay or being made redundant.
Anyone who is furloughed must not work for the employer during the period but should return to their job afterwards unless redundancies follow.
It has now been announced that furloughed leave must be taken in minimum blocks of 3 weeks. This is to allow flexibility within the scheme as some staff may be asked to return to work to cover sickness and then maybe furloughed again.
How do employers access the scheme?
Employers should use the government’s online portal to apply. They are asked to provide details of the affected furloughed employees online and their earnings.
This scheme is not accessible yet and HMRC is urgently setting up this new system, which is expected to be ready before the end of April.
Which employees can be furloughed?
- Employees must agree to be furloughed and have been on the payroll on or before 28 February 2020
- It includes full-time staff, part-time staff, agency workers (if on payroll) and flexible/zero hours (if on payroll)
- Those on zero-hour contracts or casual workers that are not part of a PAYE system will not be eligible
- Employees who work for more than one employer can be furloughed by one employer and still work for the other, or be furloughed for each job
- For those who were made redundant after 28 February 2020, they can be rehired by their employer and be furloughed, although this is up to the discretion of the employer
- If an employee is on sick leave or self-isolating they should get Statutory Sick Pay (SSP) but can be furloughed after this
- Employees who are shielding in line with public health guidance or are looking after children can also be placed on furlough
- If they are were on unpaid leave before 28 February 2020 they cannot be furloughed, however, those placed on unpaid leave after this date can be
- You’re a worker is on reduced hours or reduced pay and still working then they will not be eligible
- You are already on statutory leave, such as maternity leave, the normal statutory payments still apply
Steps Employers Need to Take
- Check the employment contracts. If there is a layoff clause, follow that procedure
- Employers need to select those employees being furloughed fairly and abide by employment and equality laws
- Employees must be consulted before agreeing to being furloughed. Changes to an employee’s status are always subject to existing employment law
- If furloughing is not an option or not agreed then an employer can make redundancies but this must be done in line with employment law. Always seek the advice of an HR expert
- Employers must write to each employee confirming that they have been furloughed and the date the furlough commenced and keep records of this communication
- Work out which is the lower pay – 80% of an employee’s salary before tax or £2,500 per month
- If the lower is 80% then decide whether to pay them just 80% of their normal salary or supplement it (you are not obliged to)
- If the employee hasn’t been there 12 months or their earnings fluctuate then you can either use their average monthly earnings from the 2019-20 tax year or the same month’s earnings from the previous year
- Fees, commission, bonuses and dividends are not included in the grant
- Process this new monthly salary through PAYE as usual
- Pay staff their net wages as you would do normally. Their wage will still be subject to income tax and other deductions
- Pay HMRC the PAYE and national insurance contributions as usual
- Calculate the grant amount to claim from HMRC. This will be 80% of an employee’s usual wage costs plus employers’ national insurance contributions plus the minimum pension contributions for those that are auto-enrolled
- Claim the grant through a new separate portal that is currently being built by HMRC and is expected to be live by the end of April
- The grants will be paid from the date the employee was furloughed, backdated to 1st March 2020 if applicable, and will be paid directly into your bank account
- Review the situation every 3 weeks and decide if an employee is to remain furloughed, return to work or made redundant
- Keep in contact with employees during this time and advise them of any changes
Employees and furloughing
- Employees cannot do any work for that employer whilst on furlough
- However, employees who work for more than one employer can be furloughed by one employer and still work for the other
- Furloughed employees can do voluntary work or training, providing it does not provide services to or generate any income for the employer
- There may be an ability to lay-off workers depending on the wording of their employment contract but employers will be required to pay Statutory Guarantee Payments
- Lay-offs are a different legal concept under the Employment Rights Act 1996. They may enable some employers to impose a furlough period, however, this must already be stated in the employment contracts
- An employee does not have to accept furlough but the employer could then make them redundant
- The government has also just announced that unused holiday leave can now be carried forward and used within the next 2 years
Is the Coronavirus Job Retention Scheme a loan?
The payment is a grant, which means employers do not have to pay it back. The details at the moment are:
- HMRC will pay 80% of a furloughed workers’ wages, up to £2,500 a month
- It will run for 3 months, but maybe extended
- HMRC is setting up a new online portal for reimbursement, which should be ready before the end of April
- Pay will be from the date the employee was furloughed and can be backdated to 1st March 2020 if applicable
- Payments will be made every 3 weeks minimum as this is the shortest period a furlough can last.
Do I have to make up the rest?
Under the scheme, an employee is paid 80% of their salary up to £2,500 per month. Employers can choose to pay the other 20% but they are not required to do so.
Can I get another job whilst being furloughed?
It is unclear yet whether an employee can start a new paid job for another employer whilst being furloughed. We expect the government to confirm the rules soon.
As the days go by, there will be more clarity regarding the scheme. So please watch our social media streams or visit our website regularly. You can also contact us.