Coronavirus Job Retention Scheme
The Government announced its ground breaking Coronavirus Job Retention Scheme on Friday 20 March 2020. The aim of the Job Retention Scheme is to reduce the amount of redundancies and avoid employees being laid off without pay. When no work is available for an employee the Job Retention Scheme will provide security of continuity of employment supported by a minimum level of their pay. What I know so far is outlined below and I will update this page as more details are announced.
The Job Retention Scheme is recommended for anyone that would have otherwise been laid off or made redundant due to the impact of coronavirus on the employer’s business.
It does not help with any situations where employees had agreed to reduce their hours, or to a pay cut but where they are still required to work. There is currently no option to do a mixture of reduced hours and furlough leave.
Summary of the Coranavirus Job Retention Scheme
The scheme is intended to avoid redundancies and protect jobs.
- All employers, large or small, in the UK who employ workers through the PAYE scheme are eligible to participate in the scheme.
- Once an employer engages in the scheme the Government will pay a chash grant of 80% of wage costs, up to a cap of £2,500 per month. The scheme will cover the cost of wages backdated to 1 march 2020.
- The workers covered by the scheme are those who have been “furloughed”. Workers must be told about, and in some circumstances consent to, this change of status (see below).
- There is no requirement for a business to be closed to access the scheme. Which means employers should be able to furlough some workers and not others.
- Employers will continue to retain furloughed workers and pay them at the reduced scheme rate, length of service and holiday entitlement will continue to accrue in the normal way.
- The scheme will be administered by HMRC and will initially be open for a period of 3 months, but will be extended if necessary.
- The HMRC portal isn’t live yet but they are aiming to have it ready for use by the end of April 2020.
Who Can Make A Claim Through The Coranavirus Job Retention Scheme?
Any UK organisation with employees can apply, including businesses, charities, recruitment agencies (agency workers paid through PAYE) and public authorities. You must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
Where a company is under the management of an administrator, the administrator will be able to access the Job Retention Scheme.
How the Coranavirus Job Retention Scheme Will Operate
- Certain workers will become “furloughed workers”. Furloughed workers must carry out no work for their employer.
- Workers must be told and agree to the change in status. I can advise you on how you do this and properly document it.
- The scheme is being administered by HMRC. Therefore employers must self certify that they have workers who have been furloughed, together with their earnings. As mentioned above a new online portal is being set up for this but it isn’t operational yet.
- Individuals will pay Income Tax and National Insurance on any payments received through the scheme.
- Employers will be able to apply for a grant to cover the Employers National Insurance contributions and minimum automatic enrolment pension contributions on paying the lower of 80% or regular wages or £2,500 per month.
- The 80% is applied to the higher of:
- the earnings in the same pay period in the previous year; or
- the average earning in the whole of the previous 12 months (or fewer if they have worked for less time than this, including a part month calculation if that were taken on in February 2020).
- Employees must receive at least 80% of wages, up to the cap of £2,500 per month. Employers can, if they wish, top up the wages with the additional 20% or pay the extra for those earning over £2,500 per month.
- The scheme is backdated to 1 March 2020 with a view to covering thos who have already been made redundant due to the Coronavirus outbreak. Employees made redundant on or after 1 March 2020 must be re-engaged by the employer and placed on furloughed leave to qualify for the grant.
- Workers who are furloughed to avoid redundancy could be made redundant immediately after the scheme ends. There is no requirement to bring the employee back to work after the period of furloughed leave. An employee who is made redundant during the periof of furloughed leave would will become eligible to a redundancy payment and then grant payments would cease.
- Workers remain employed/engaged during this period. Which means most normal terms and conditions apply such as holiday entitlement will continue to accrue.
- Workers who receive a lower income as a result of these changes may be eligible for support through the welfare system, including universal credit.
How Will The HMRC Online Portal Work?
HMRC will establish an online portal through which employers will be able to claim the grant and this is hoped to be available by the end of April 2020.
Employers will need to provide the following information to HMRC:
- PAYE 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)
- bank account number and sort code
- contact name
- phone number
Employers will be able to submit a claim every 3 weeks and claims can be back-dated to 1 March 2020.
What Will HMRC Reimburse?
You will receive a grant from HMRC to cover 80% of a furloughed employee’s regular pay up to a cap of £2,500 per month plus the employer’s National Insurance contributions and minimum auto-enrolment employer pension contributions on the subsidised pay. Fees, commission and bonuses should not be included.
For salaried employees, the wages which can be claimed will be based on their normal salary. Commission and bonuses will not be included.
For employees whose pay varies, e.g. those on zero hour contracts, the wages which can be claimed will be based on the higher of their equivalent pay in the same month in the previous year or their average monthly pay over the 2018/19 tax year, whichever is higher.
If the employee has been employed for less than a year, the employer can claim for an average of their monthly earnings since they started work.
We are in unprecedented times and the government’s guidance is constantly being updated so it is therefore crucial that you keep up to date with the latest updates.
The £2,5000 Cap
There is currently no official guidance on how the cap will be calculated.
If 80% of salary is £2,500 per month the full salary would be £3,125 per month. This amounts to an annual salary of £37,500. However, as employment costs, such as employer’s National Insurance and pension contributions, will be included in the amount you can claim the annual salary will be lower than this.
National Minimum Wage
Individuals are only entitled to the National Living Wage (NLW), National Minimum Wage (NMW) or Apprentices Minimum Wage (AMW) for the hours they are working or treated as working under minimum wage rules.
This means that furloughed workers who are not working can be paid the lower of 80% of their pay or £2,500 even if, based on their usual working hours, this would be below their appropriate minimum wage. However, time spent training is treated as working time for the purposes of the minimum wage calculations and must be paid at the appropriate minimum wage, taking into account the increase in minimum wage rates from 1 April 2020.
When Will The Money Be Reimbursed?
This is the most pressing answer, and the question I am asked most frequently and unfortunately I still don’t know the answer. Last week the Chancellor said that the HMRC portal being built to support the scheme should be open before the end of April 2020. Even though the money will be backdated to 1 March 2020 that’s a long time to wait when you’re business is dormant.
If you cannot afford to pay wages due to furloughed staff whilst waiting for the grant visit the Government page: Covid 19 support for businesses for more details of support available to businesses during this time.
Can We Delay The Next Pay Day Until Money Has Been Reimbursed By HMRC?
There is currently no official guidance on this. I think it is unlikely that the scheme itself will prevent payments being delayed. There are potential risks with regard to breach of contract or deduction from wages claims but these could be dealt with through agreement with the employees who are affected.
The Government is providing small business grant funding to support small businesses that already pay little or no business rates because of small business rate releive (SBRR), rural rate relief and tapered relief. This will provide a one-off grant of £10,000 to eligible businesses to help meet their ongoing business costs.
What Happens After The Job Retention Scheme Ends?
The Government said the Job Retention Scheme will initially be open for a period of 3 months, but will be extended if necessary. But we can’t see it continuing indefinitely. When it does come to an end, it will be up to employers to decide whether employees can return to their duties. If they can’t, there is no obligation to retain the services of furloughed employees after the scheme ends but notice periods and statutory redundancy rights will continue to apply in the usual way.
If you are considering implementing redundancies please get in touch with me as I expect there will be a requirement to show why you are not operating this scheme and retaining employees.
Coronavirus Job Retention Scheme and Sick Leave
Employees who are ‘shielding’ in line with public health guidance can be placed on ‘furlough leave’. Employees who are currently on sick leave or are self-isolating in line with government advice are entitled to Statutory Sick Pay (SSP) but once the period of self isolation ends they can then be ‘furloughed’.
The government’s guidance is constantly being updated and I will review the content of these pages as more information becomes available.
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