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Salary support for businesses: the Coronavirus Job Retention Scheme

Salary support for businesses: the Coronavirus Job Retention Scheme

Salary support for businesses: the Coronavirus Job Retention Scheme

Furlough scheme grants to be slowly withdrawn from August 2020

On 20 March, Rishi Sunak announced the Coronavirus Job Retention Scheme (“JRS”). This allows businesses to apply for a reimbursement from HMRC to receive 80% of furloughed employees’ pay (up to a maximum monthly sum of £2,500) plus the associated employer's NICs, and minimum automatic employer pension contributions, to avoid large numbers of people being laid off or made redundant.  The JRS is going to run until 31 October.  

On 29 May, in order to support businesses sending employees back to work, the government announced three key changes to the JRS, as outlined immediately below:

Flexible furloughing

  • From 1 July, businesses have the flexibility to bring previously furloughed employees back to work part-time.  To 31 August, the government will continue to pay 80% of wages for any of their normal hours which they do not work.  
  • Businesses can decide the hours and shifts which employees will work on their return.  Businesses will be responsible for paying their wages in full whilst they are working.  
  • If employees are unable to return to work, or there is no work for them to do, they can remain on furlough and the JRS grant can be claimed for their full hours under the existing rules.
  • Further details on the grant calculation were provided by HMRC on 12 June and are available here.

 

Employer contributions

  • In June and July, the JRS will remain the same as before, with the government paying 80% of wages (up to a monthly cap of £2,500), along with employer’s National Insurance and pension contributions, for the hours which the employee does not work.
  • In August, employers will have to pay employer’s National Insurance and pension contributions, whilst the government continues to pay 80% of wages (up to £2,500 per month).
  • In September, the government grant will pay 70% of wages up to a cap of £2,187.50 per month.  Employers will have to pay 10% of wages to make up 80% of the total (up to a £2,500 cap), as well as employer’s National Insurance and pension contributions in full.
  • In October, the government grant will pay 60% of wages up to a cap of £1,875 per month.  Employers will have to pay 20% of wages to make up 80% of the total (up to a £2,500 cap), as well as employer’s National Insurance and pension contributions in full.

 

Closure of scheme

  • The JRS will close to new entrants from 30 June.  From this point onwards, businesses will only be able to furlough employees who have been furloughed for a full three-week period prior to 30 June.
  • Practically, this meant that the final date which businesses could furlough an employee for the first time was 10 June for the current three-week furlough period to be completed by 30 June.

 

A reminder about the key facts of the scheme

The government portal was open from 20 April (see link here), where businesses can apply for the JRS grant. We have summarised below the key facts about the scheme, which we hope will be useful for employers.

The original 80% announced by Rishi Sunak means 80% of a worker's normal gross salary - before deduction of taxes at source and for anything else such as pension contributions. Employers are then left to decide whether to fund any difference between the 80% of pay funded by the government and their normal salary. You can only claim for furloughed employees that were on your payroll on or before 19 March 2020.

To access the support, businesses will need to classify relevant workers, those that otherwise would have been laid off during this crisis, as ‘furloughed’. The minimum period an employee can be furloughed is three weeks. This is a change in employment status of each employee and therefore does remain subject to existing employment law.

An important factor is workers designated as furloughed should not undertake any work for the business (e.g. responding to emails or phone calls), as this will restrict the available grant.

Businesses should raise the possibility of workers being furloughed at the earliest possible opportunity to keep them informed throughout the process. We would encourage legal advice to be taken to ensure correct implementation. We can put you in contact with employment law specialists, if required.

The JRS is a reimbursement of costs after salary payments have been made from the business to employees, rather than a direct payment from the government to employees. Therefore, in the short term, payments to employees will still need to be made.

HMRC have advised that they require the following details to make a claim (note that this can be undertaken by your PAYE agent):

  • your ePAYE reference number
  • the number of employees being furloughed
  • each employee's National Insurance number 
  • the claim period (start and end date)
  • the full amount you're claiming for, including employer National Insurance contributions and employer minimum pension contributions
  • your bank account number and sort code
  • your contact name
  • your phone number

 

Where more than 100 employees are being furloughed, you will need to upload an Excel (or similar) file containing each employee's full name, National Insurance number, furlough start and end date, and the full amount claimed. 

Once you have claimed, you will receive a claim reference number. HMRC will then check that your claim is correct, and pay the claim amount by BACS into your bank account within six working days. 

For illustrative purposes, we have included below an example which the Institute of Chartered Accountants in England and Wales has produced:

X Ltd employs Mr A at an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto-enrolment.

Each month, Mr A currently receives net pay of £1,665 which is after deducting PAYE of £191 and employees NIC of £154. On this salary, the employer pays employer’s NIC of £177.

The available grant for the employer is the lower of:
(a) 80% of £2,000, and 

(b) £2,500

Plus employer's NIC on this amount,

So X Ltd claims a grant of £1,600 plus £122 = £1,722.

The net amount of cash required by X Ltd to furlough Mr A based on maintaining the existing salary is £2,000 + £177 - £1,722 = £455 per month. It is a matter for employment law whether the employer is actually required to pay this top up. Employees and employers can agree to a different arrangement during the furlough.

Employers looking to utilise the JRS are also encouraged to consider the other support already available, such as the Coronavirus Business Interruption Loan Scheme, which could help with any immediate cashflow problems by providing loans of up to £5 million, interest-free for the first 12 months, or the Bounce Back Loan Scheme for loans of up to £50K. We have summarised this and the other support available to businesses and individuals on our Covid-19 Hub. Please do get in touch with us if you'd like to talk through any of the support available to you or your business

Other considerations

  • There are special rules for those employees who are on maternity leave, adoption leave, paternity leave or shared paternity leave. 
  • Salaried Members of Limited Liability Partnerships (LLPs) may be eligible to be furloughed and receive support through this scheme.
  • There are special rules for how much you can claim for employees whose pay varies.
  • You cannot claim for any pension contributions that are above the mandatory employer contribution. You may need to speak to your pension provider about whether your scheme is affected.
  • If you provide taxable benefits in kind or operate a salary sacrifice scheme this may affect how much you can claim.

 

Statutory Sick Pay Rebate Scheme

From 26 May, it has been possible to find out if you can use the Coronavirus Statutory Sick Pay Rebate Scheme to claim back employees’ coronavirus-related Statutory Sick Pay (SSP).  The repayment will cover up to two weeks’ SSP starting from the first qualifying day of sickness.  HMRC’s page here allows businesses to make a claim.

Employees already made redundant

If redundancies had already been made, it was possible to reverse this and claim the JRS for the (ex-) employees concerned from 1 March 2020; you would have been eligible to re-employ them and put them on furlough, provided that this was done by 10 June.

Personal Service Companies (“PSCs”)

We understand that it is feasible for a director of an owner-managed business to claim under the JRS, as long as they do not do any work for the company, other than to enable the company to meet its statutory obligations such as filing accounts. 

Self-employed individuals

On 13 May, the government opened applications to help self-employed workers under the Self-Employment Income Support Scheme. Details of this are available here

We will continue to keep you updated in the coming days, weeks and months, as the government releases more detail of the support available for individuals and businesses.

Please get in touch with your usual contact if you'd like any assistance with the support available. Please continue to use the main telephone number, 01892 546546, or any of our usual channels, to communicate with our team. If the main line is busy, please do leave a message and we will get back to you.

Please note: The information above is based on our understanding and interpretation of the government's guidance as of 12pm on Friday 26 June 2020. Changes to government guidance on a daily basis may mean that this information is not accurate or complete beyond this time.