Salary support for businesses: the Coronavirus Job Retention Scheme
Salary support for businesses: the Coronavirus Job Retention Scheme
For the first time in our history, the government is going to step in and help pay people’s wages.
Last Friday, Rishi Sunak announced the Coronavirus Job Retention Scheme (“JRS”). This will allow businesses to apply for a reimbursement from HMRC to receive 80% of furloughed employees’ pay (up to a maximum monthly sum of £2,500), in an attempt to avoid large numbers of people being laid off or made redundant.
The JRS allows the support to be backdated to 1 March 2020 and is currently set to run until the end of May, with scope for extension in the event that it is needed beyond then.
While the guidance provided by the government is limited so far, we have digested what information is available, and put this into a guide which we hope will be useful for employers.
In order to access the support, businesses will need to classify relevant workers, those that otherwise would have been laid off during this crisis, as ‘furloughed’. 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 may restrict the available reimbursements.
The government is in the process of setting up a portal through which businesses will be able to submit details of furloughed workers. At the minimum, businesses are likely to need to provide the following for each furloughed worker: name; address; National Insurance number; the date each worker became furloughed; and details of their basic earnings. We would encourage businesses to begin to collate this information as soon as possible, if they consider they will or may require use of the JRS.
In practice, we expect the 80% announced by Rishi Sunak to mean 80% of a worker’s normal gross salary – before deduction of taxes at source and for anything else such as pensions (although this might be complicated in situations where employees make pension contributions by way of salary sacrifice). Currently, it is not clear whether the payment made to furloughed workers will be treated as taxable employment income, and consequently subject to the normal employment taxes. We expect clarification from the government this week.
Employers are then left to decide whether to fund any difference between the 80% of pay funded by the government and their normal net income, or whether employees will only receive the 80% that is funded. This may be a point for negotiation between employers and employees.
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. The latest government indications suggest the site through which businesses will submit details of furloughed workers and apply for reimbursement will not be available until the end of April. Consequently, businesses are unlikely to receive reimbursements until the start of May. After this, we expect that the reimbursement dates will eventually be lined up to end-of-month pay dates to avoid any cashflow strain on businesses.
As we await further government advice, we have outlined steps that businesses should consider taking in the meantime. We will update this as and when further details are provided by the government.
Steps to take
1. Businesses should identify employees who could be furloughed, and create a document with details of their names, addresses, National Insurance numbers, basic and average pay over the last tax year, and the date from which they are to be furloughed.
2. Identify any employees where the £2,500 limit would apply.
3. Notify employees that the business wishes to furlough them and consult with them. It is important that employees understand the legal ramifications of being furloughed. Businesses should keep employees as informed as possible and provide them with details of net income while they are furloughed, so that employees can plan accordingly if their income is reduced.
4. Review the current remuneration plans for employees that must remain in employment; for example, would these workers be willing to reduce hours for reduced pay, or take more of their pay as performance-related? Any contractual changes need to be considered in line with existing employment law.
5. Once the list has been finalised, a separate pay element for the furloughed workers should be set up to separate and clearly show the amounts to be reclaimed.
6. Prepare a list of employees and pay rates for submission.
7. Register and log-on to the new HMRC portal (once available).
8. Submit required information to HMRC (once possible).
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.
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. We have summarised the other support available to businesses and individuals here. Please do get in touch with us if you’d like to talk through any of the support available to you or your business.
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 £144. On this salary, the employer pays employer’s NIC of £174.
The available grant for the employer is the lower of:
(a) 80% of (£2,000 + £174), and
So, this means a grant of £1,739.
The cash required by X Ltd to furlough based on maintaining the existing salary is £435 per month. It is a matter for employment law whether the employer is required to pay this top up. Discussions with employees may have agreed that the employee has agreed to a different arrangement during their furlough.
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 expect that the JRS may not easily apply to PSCs on the basis that anyone on the payroll in a PSC is likely to be a director. Given the director is responsible for the day-to-day running of a company, it is unlikely that they will be unable to completely cease working for the company.
At the time of going to press, there is no income support available for the five million self-employed taxpayers in the UK, other than Universal Credit available at the equivalent of Statutory Sick Pay (£94.25 per week). However, we understand that the government is currently working on a support package, and we expect to receive news of this by Friday 27 March.
We will continue to keep you updated in the coming days, weeks and months, as the government releases more detail on the JRS and the support available for the self-employed.
PS… Further to our e-mail last week, all of our team is now following the government advice and working from home and our main office is now closed. The remote working technology is operating remarkably well, with many people adapting quickly to having online meetings.
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 that the information above is based on our understanding and interpretation of the government's guidance as of 5pm on Wednesday 25 March 2020. Changes to government guidance on a daily basis may mean that this information is not accurate or complete beyond this time.