The Coronavirus Job Retention Scheme (CJRS) is a complex support package that was first announced on 20 March. Helping to support businesses throughout this difficult time, the scheme offers to subsidise 80% of furloughed employees’ wages during the national lockdown.
James Simmonds, partner at UHY Hacker Young’s Nottingham office, tells us everything we need to know about furlough leave and the implications of the government grant.
What is it and who is covered?
Essentially, the CJRS is a government grant. The idea is to reimburse employers for 80% of a furloughed worker’s wages or salary – capped at £2,500 per month, plus the associated employment costs of an employer’s National Insurance (NI) and employer pension contributions. Until the end of July, employers can choose to top up the remainder, but they are not required to do so.
The government has recently announced the extension of the furlough scheme until the end of October 2020 and, from the start of August, furloughed workers will be able to return to work part-time. From this point onwards, employers will be responsible for paying a percentage towards the salaries of furloughed staff members. These payments from the employer will substitute the contribution the government is currently making so employees can continue to receive 80% of their salary.
Full time, part time, employees on agency contracts, and employees on flexible or zero hours contracts are all eligible. This also includes salaried company directors, directors of personal service companies and salaried partners of LLPs.
What is a furloughed worker?
Furloughed workers are employees that remain on the payroll but are temporarily not working during the coronavirus outbreak. While they are furloughed, these workers cannot do any work for the company or be contacted about work. They can volunteer and take another job – but only if their contact allows them to.
If you are placing workers on furlough leave, employers will need HR specialists to carefully notify employees of this change in their employment status.
You do not have to place all your workers on furlough. If there is still work to do, you can continue to employ some members of staff and pay their wages while still furloughing others.
Who is eligible for the scheme?
All UK businesses are eligible – small or large, charitable or non-profit.
You can furlough staff for a minimum of three weeks, but you must operate a UK PAYE scheme prior to 19 March 2020 and have a UK bank account.
Only employees who were on your PAYE payroll on or before 19 March 2020 can be furloughed. This means that the employee must have been notified to HMRC through an RTI submission notifying payment in respect of that employee on or before that date.
Is it a loan?
No. It is a grant to employers, and you will need to pay the worker and process PAYE, NI contributions and employer costs as normal. You will then make a claim for reimbursement up to the maximum amount.
You can only furlough for a minimum of three weeks at a time and submit one claim every three weeks. Claims can be backdated to 1 March and were initially open for three months, however this was recently extended to the end of October.
What information do I need to make a claim?
To make a claim, make sure you have the PAYE reference, the number of employees being furloughed along with their full names, NI numbers and payroll numbers, how long you will be claiming for and the amount claimed.
You will also need your self-assessment unique taxpayer reference, corporation tax unique tax reference or company registration number, along with your bank account and sort code, your contact name and your phone number.
How do I calculate the amount I need to claim?
You should use the regular payments you’re obliged to make when calculating what 80% of your employees’ wages are. This should include regular wages, piece rate payments, and non-discretionary overtime, fees or commission payments.
You shouldn’t include payments made at the discretion of the employer or a client (such as tips, bonuses or commission payments), non-cash payments or non-monetary benefits – such as ac company car or salary sacrifice schemes – that reduce an employees’ taxable pay.
HMRC has launched a calculator that can help when it comes to working out how much you need to claim per employee.
Can I claim if I have reduced my employees’ hours or pay but they are still working?
No, you cannot claim furlough pay and still have the worker engaged in work for you. If they agree to a reduced wage to carry on working, you will be responsible for paying that reduced wage and cannot claim it back. You cannot reduce a worker’s pay and hours without their agreement or a contractual right to do so.
What is the interaction with PAYE and NI?
Furloughed wages will be subject to PAYE and NI deductions as usual. Employees will also pay pension on qualifying earnings, if applicable. Employers will be liable for Employers NI and Employers Pension unless the employee has opted out.
Some employers may be eligible for the Employment Allowance. In the 2019 to 2020 tax year, the allowance was £3,000 and was available to all employers. From 6 April 2020, the Employment Allowance is £4,000 but is only available to employers whose Employer Secondary NI contributions liability in the previous year was under £100,000.
Employers can use the Employment Allowance to reduce their employer National Insurance contributions bill until the allowance is exhausted or the end of the tax year – whichever comes first. This allowance must be used first before any claim for Employers NI can be made through the CJRS.
What if an employee is off sick?
Employees who are sick or who are self-isolating should still get Statutory Sick Pay (SSP) and then they can be furloughed once their sick leave ends.
Furloughed employees also retain their statutory rights, including their right to SSP. This means that furloughed employees who become ill must be paid at least SSP. It is up to employers to decide whether to move these employees onto SSP or to keep them on furlough, at their furloughed rate.
What about employees on or returning from maternity, adoption, paternity or shared parental leave?
The employee can be furloughed up to the point they would have gone on maternity leave and then they are entitled to maternity/adoption/paternity/shared parental pay and leave as normal. You can also furlough employees returning to work from leave and claim through the scheme (based on their salary rather than the pay they received while on leave).
Article contributed by James Simmonds, partner at UHY Hacker Young’s Nottingham office