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COVID-19 Information Hub

Coronavirus Job Retention Scheme – Support for businesses

On 20 March 2020, the Chancellor announced a package of support for businesses affected by the Coronavirus (COVID-19) crisis, including grants available under the Coronavirus Job Retention Scheme.

Please read on for a summary of advice issued by the government and our supplementary commentary, analysis and guidance.

Updated 27/03/20

Government guidance:

Today (27 March), the government has released further detail on the scheme.  This announcement is quite comprehensive, so please take the time to read it here.

Kirk Rice commentary:

It’s good news that the government has released further clarity on this.  Some key points to pick out of the latest update:

  • The scheme is expected to be up and running by the end of April
  • Employers can claim for up to £,2500 of the usual monthly wage PLUS the associated Employer National Insurance contributions AND minimum automatic enrolment employer pension contributions
  • The wages of furloughed employees will be subject to Income Tax and National Insurance as usual; employees will also pay automatic enrolment pension contributions unless they have opted out
  • 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
  • Whilst employer national insurance can be claimed back; it is an employer’s responsibility to pay it during a period of furlough
  • An employer must have a PAYE payroll scheme already in existence on 28 February AND have a UK bank account
  • You can claim for employees on any type of contract including full-time, part-time, employees on agency contracts AND employees on flexible or zero-hour contracts
  • The scheme also covers employees who were made redundant since 28 February, if they are rehired by their employer
  • Employees hired after 28 February cannot be furloughed
  • There is no requirement to retain an employee in your employment for a period after the furlough ends. If they can’t return to their normal duties, it may be necessary to consider termination of their employment (redundancy) at that point
  • Payments can be backdated to 1 March 2020, but it is important to note that the worker should not perform any work for you, the employer, while on “furlough leave.” An employer cannot furlough an employee from say 1 April, and then make a claim from 1 March.
  • You can only submit one claim at least every three weeks, which is the minimum length an employee can be furloughed for
  • 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

There is also further clarity on how to calculate the amount to claim:

As noted above, the claim can be for up to £2,500 of the usual monthly wage PLUS the associated Employer National Insurance contributions AND minimum automatic enrolment employer pension contributions. Fees, commission and bonuses should NOT be included. The government has announced that it will be issuing further guidance on how to claim the NI and pension element later, it may be possible it is via a different method to the portal.

Employers can choose to top up salary, but this is not a requirement.

For full-time and part-time salaried employees, you should use the current annual salary divided by twelve and base your 80% calculation on that.  Fees, commission and bonuses should not be included.

For employees whose pay varies, the calculation is more complex:

  • The employee must have been employed for a full 12 months before the claim
  • An employer can base the claim on the higher of the same month’s earnings from the previous year or the average monthly earnings from the 19/20 tax year
  • If the employee has been employed for less than a year, the claim is based on an average of their monthly earnings since they started work

If employers are considering to furlough some or all of their employees, we suggest that employers are talking to their employees now to advise of your position; and to inform them that you may wish to utilise the scheme to furlough them. Please find a template letter to enable you to do this, here.

If, however, on reflection, you wish to push ahead and furlough employees without delay, then you can use this letter to do so.

Both letters seek to obtain the agreement of your employees to being furloughed, which you will need if your contracts do not contain a clause permitting you to place employees on “lay-off” or “short-time working” in the event of a temporary downturn in work. This point, however, should not present too much of an issue if you explain that regrettably, the alternative may be a period of lay-off (without pay) or compulsory redundancies.

It is not clear at this stage if the Job Retention Scheme could be used for the benefit of company directors as there appears to be a requirement for a contract of employment to be in place, and for no work whatsoever to be undertaken by a ‘furloughed’ employee, including any form of revenue-generating activities. Presumably, company directors will be doing what they can to generate business. There is also a requirement to operate a PAYE scheme in order to benefit so where a director merely takes dividends and does not pay themselves a salary; they would be unable to benefit from this scheme in any event. Directors are not mentioned in the government guidance on the scheme.

We’ll be updating this page for additional information as, and when it becomes available, so please do check back regularly for further information.

Kirk Rice LLP can support you to manage your team effectively at this time.  For more information, please get in touch with your client manager.

 

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