The Government has now published further information about the operation of the Job Retention Scheme (JRS). Whilst further information will no doubt be forthcoming over the following days this helpfully goes some way to providing the detail which was awaited following the Chancellor’s headline announcement last week. It also provides clarity in some of the key areas where there was uncertainty over how the JRS would operate.
The key announcements may be summarised as follows:
- The scheme will be open to all UK employers for at least three months starting from 1 March 2020. It is intended to be up and running by the end of April to support employers whose operations have been severely impacted by COVID-19.
- Employers will be able to use a portal to claim for 80% of furloughed employees usual monthly wage costs.
- We now have confirmation of the calculation basis; up to £2,500 per month, plus the associated employer NIC and minimum automatic enrolment employer pension contributions on that wage. This is a welcome point of clarification.
- Employers can use this scheme anytime during this three-month period.
- The scheme is open to any UK employer that had a PAYE scheme operational on 28 February 2020. The employer must operate a UK bank account.
- Where a business is taken under the management of an administrator, the administrator will be able to access the JRS.
- We are aware that the CBI were advised by the Treasury that owner managed businesses are included in the Job Retention Scheme based on their PAYE earnings but not their dividends. They are entitled to continue running their businesses in terms of performing their statutory duties as officeholders but must not be raising any revenue by performing other work, this is also included but, not in detail, in the self-employed guidance.
What is the employer able to claim?
- The employer will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated employer NIC and minimum automatic enrolment employer pensions contribution on the subsidised wage. More information is going to be published on this calculation basis before launch.
- Fees, commission and bonuses are excluded.
What must the employer pay?
- The employee must be paid at least the lower of 80% of their regular wage or £2,500 per month.
- The employer may choose to top up the employee’s wage further but is not obliged to. If the employer does so the additional employer NIC and automatic enrolment contribution will not be funded through the JRS.
Some clarity around the pay reference period
- For salaried employees the actual salary before tax as at 28 February 2020, excluding fees, commission and bonuses is to be used to calculate the 80%.
- For employees with variable pay who have worked for the business for a full 12 months the grant claim will be the higher of the same month’s earnings from the previous year or average monthly earnings from the 2019/2020 tax year
- For a variable pay employee who has worked for less than a year the claim is based on the average of their monthly earnings since commencement.
Which employees may a claim be made for?
- Furloughed employees must have been on the employer’s payroll on 28 February 2020. Employees hired after 28 February cannot be included in the JRS.
- They may be on any type of contract, including full and part-time employees, employees on agency contracts, and employees on flexible or zero hours contracts. Inclusion of this last category helpfully clarifies the position for this type of worker.
- The scheme will also cover employees who have been made redundant since 28 February if they are re-hired. This again is a helpful easement for employers who needed to act before the JRS was introduced by the Chancellor and is welcome.
What about subsidy eligibility?
- The employee may not work at all for or on behalf of the business when on furlough.
- An employer does not need to place all of its employees on furlough.
- The employee’s wages in the furlough period will remain subject to payroll income tax and NIC deductions
- For employees on agency contracts it will only apply if they are not working. It will not apply if they are working but on reduced hours or you are paying at a reduced rate.
Notifying the employee
- The employer should write to the furloughed employee to confirm that they have been furloughed and keep a record of the communication notice.
- The employer will need to consider the employment law aspects of furloughing with an employment law specialist.
- The guidance does not deal with employees returning from furlough to work and being replaced by a newly furloughed employee. This would seem to imply such use of the scheme is not intended or anticipated. Further clarification on this may be forthcoming as the scheme starts.
Particular categories of employee
- If an employee is on unpaid leave he cannot be furloughed unless the leave period commenced after 28 February.
- If an employee is on sick leave or self-isolating, he should get statutory sick pay. Whilst he cannot be furloughed in that period he can be after.
- Where an employee is shielding in line with public health guidelines he can be furloughed.
- Where an individual has more than one job with more than one employer, he can be furloughed for each and the cap applies to each employer separately. The guidance does not specifically exclude this where the separate employments are with, for example, two companies in the same group.
Is there anything a furloughed employee can do?
- Yes, he may do volunteer work or training with the proviso that he does not provide services to the employer or generate revenue for the business. These services are therefore not able to be provided to or for the employer.
- There may however be ongoing requirements the furloughed employee must fulfil; an online training requirement for example. Where this is the case, they must be separately paid for the training time and at least at the national minimum/living wage. This is a requirement even if this is more than the 80% of their wage which will be covered by the grant.
- Employees who are on or plan to take maternity leave may be furloughed.
What is the process for making a claim under JRS?
- The employer will be required to calculate the amount claimed. HMRC have stated that they will have the right to retrospectively audit claims. We would expect this to be after the scheme has been closed.
- In terms of the mechanics an employer will need to confirm PAYE reference, bank and contact details, the start and end date of the claim, the number of employees furloughed, and the amount claimed.
- It appears therefore at this stage that the information required is fairly minimal, presumably in order not to delay the grant payment process. However, this does emphasise the need for an accurate calculation bearing in mind the possibility of a retrospective review.
- If your employer chooses to place you on furlough, you will need to remain on furlough for a minimum of 3 weeks. However, your employer can place you on furlough more than once, and one period can follow straight after an existing furlough period, while the scheme is open. The scheme will be open for at least 3 months.
- Once the claim has been approved the employer will be paid by BACS to be included in the employee’s gross pay.
Employees seconded to the UK
- At present, the position around the potential furloughing of employees seconded to the UK from overseas is unclear. As the individuals will typically remain employees of their home country employer it may be the case that they are not entitled to be furloughed in the UK as their employment contract is not with the UK employer. Instead, they may be able to rely on whatever measures have been put in place in their home country to compensate for loss of earnings during the pandemic.
- The issue should be clearer for those individuals who undertake an international transfer that includes taking up employment with the UK employer as there is a UK contract of employment in place. Employees in those circumstances should qualify for furloughing.
- Whilst this should only impact a small number of employers, we would hope to have some clarity from HMRC around this point as and when more information is published.
If you would like to discuss how this Scheme could apply to you or have other queries about how you can make the right decisions for the future of your business and your income, please get in touch with your usual Campbell Dallas contact.
The information in this update should not be regarded as financial advice. This is based on our understanding on 30 March 2020. Laws and tax rules may change in the future.