In its latest April bulletin, The Guild of Cleaners and Launderers has published a guide to the Coronavirus Job Retention Scheme, put together by the Guild’s accountants Lemans.
Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis. This scheme is available to all employers, there are no require- ments.
Qualifications and how to calculate the grant
To qualify for the furlough grant employees must have been on your payroll on 28 February 2020. Employees that are full time, part time, and on flexible/zero hours contracts qualify.
You do not have to place all your employees on furlough. The minimum length of time for being furloughed and qualifying for the grant is 3 weeks.
The Government will fund 80% of furloughed workers wage costs, up to a cap of £2,500 per month, plus the associated Employer NIC and minimum Employer Auto-Enrolment Pension con- tributions. For full time and part time employees, the employee’s actual salary before tax, as of 28 February 2020, should be used to calculate the 80%.
Fees, commission and bonuses should not be included in the calculation. Employers can use this grant scheme at any time during this period. It is the employer’s discretion whether to fund the difference of 20%.
The Government has confirmed that only 80% of employment costs will be funded via the grant scheme. Employer’s National Insurance Contributions and minimum employer Automatic Enrolment Pension Contribu- tions 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).
For variable/zero hours contracts, if the employee has been employed (or engaged in an employment business) for a full twelve months prior to the claim, you calculate normal pay as the higher of either:
The same month’s earnings from the previous year, or
The average earnings from the 2019/2020 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. Once you have worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer NIC and minimum employer pension contribution you are entitled to claim.
PAYE, NIC and pension contributions will continue to apply as normal on grant payments made to furloughed employees. The employees will, therefore, stay on payroll with 80% of gross salary, subject to the £2,500 per month maximum cap.
If an employee is working on reduced hours and reduced pay, they will not be eligible employees for this scheme, and the grant will not be available in respect of their wages. Employees who are on unpaid leave cannot be placed on furlough unless they placed on unpaid leave after 28 February due to Covid-19.
If after 28 February you have already made someone redundant due to coronavirus, the employer can decide to bring them back as a furloughed employee and the termination in effect can be reversed. Again, this is at the employer’s discretion, and not an employee decision.
Employees on sick leave or self-isolating should get SSP, and can be furloughed after this. Employees who are shielding in line with public health guidance can be placed on furlough.
The affected workers will need to be designated as ‘furloughed workers’, and will need to be notified in writing of this change to their employment status, in accordance with existing employment law. It is likely that most employees will agree to the terms. For those workers who do not agree, they will either have to take unpaid leave for an indeterminate period or employers are likely to have to go down the redundancy route. The employment status for furloughed employees will change, but their employment record remains continuous. The employer must decide whether to furlough employees, it is not an employee decision, although the employee needs to agree to it. When employers are making decisions who to place on furlough, equality and discrimination laws will apply in the usual way.
Being on furlough is a mandatory suspension from work, and furloughed employees are banned from doing any work on behalf of their employer. Also, they cannot accept or be paid for any work from another business, it is effectively like being on gardening leave. They can undertake voluntary work, for example for the NHS and other organisations supporting com- munities during this period. Employees can undertake training whilst on furlough as long as it does not provide services to or generate revenue for or on behalf of the employer. If workers are required to complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent on the required on-line training, even if this is more than the 80% of their wage being received on furlough under the grant scheme.
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
The HMRC portal for making claims is expected by the end of April 2020. Employers should discuss with their staff and make any changes to the employment contract by agreement as detailed above.
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 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)
- 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 retrospec- tively audit all aspects of your 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 if applicable.
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 have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dis- missal and to redundancy payments. They have continued employment service whilst on fur- lough.
Once the scheme has been closed by the government, HMRC will continue to process remaining claims before terminating the 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 prof- its 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.