Salary support for businesses: the Coronavirus Job Retention Scheme
Salary support for businesses: the Coronavirus Job Retention Scheme
Furlough scheme extended by four months to 31 October 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.
On 12 May, the government announced that it is extending the JRS by four months, from 30 June to 31 October. Further, from the start of August, furloughed workers will be able to return to work part-time, with employers being asked to pay a percentage towards the salaries of their furloughed staff. The employer payments will substitute the contribution which the government is currently making, ensuring that staff continue to receive 80% of their salary (still up to £2,500 per month). More details about the implementation of the amended scheme will be made available by the government at the end of May, and we will continue to keep this article updated with these.
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 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 (previously, this date was 28 February 2020, but the government extended this on 17 April to capture an extra 200,000 people who will qualify).
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
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
- 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.
Employees already made redundant
If redundancies have already been made, it is possible to reverse this and claim the JRS for the (ex-) employees concerned from 1 March 2020. The JRS should be discussed with the individual. They can agree to continue being an employee and the business can take advantage of this government grant for 80% of their salary up to £2,500, or the individual can decide whether they would rather proceed with the redundancy process.
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.
On 13 May, the government opened applications to help self-employed workers under the Self-Employment Income Support Scheme. Details of this are available on our Covid-19 Hub.
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 4pm on Thursday 14 May 2020. Changes to government guidance on a daily basis may mean that this information is not accurate or complete beyond this time.