Note: There is an update to the guidance available for the self-employed at - LINK HERE
There is a lot of talk, and a lot of confusion about the Coronavirus Job Retention Scheme (CJRS) so we thought it would be useful to share our understanding. Hopefully, you will find this information useful.
The full documentation from the government can be found here -
Firstly, it is important to remember we are not employment lawyers nor HR specialists and you should always seek formal legal advice before taking any action.
Under the new Coronavirus Job Retention Scheme, government grants will cover 80% of the salary of PAYE employees who would otherwise have been laid off during this crisis – this is called being “furloughed”. The scheme, open to any employer in the country, will cover the cost of wages backdated to the date furlough began subject to the criteria below and will be open by the end of April [Update - the portal will now open on 20th April 2020 - see XXX for more details]. It will continue for at least three months and can include workers who were in employment on 28 February 2020 [Update - this has now been changed to 19th March 2020 - see XXX for more details]. These can be full time, part-time, employees on agency contracts and employees who are on zero-hour or flexible hour contracts.
The employees must have been on the PAYE payroll on 28th February 2020. These can be full time, part-time, employees on agency contracts and employees who are on zero-hour or flexible hour contracts.
Which employees won’t be eligible for the 80% ‘salary’?
What constitutes ‘salary’ for the 80% test?
We re-iterate that this is our understanding of the new rules and that we are not a legal or HR team so you should always seek the help from a specialised legal or HR team for the avoidance of any doubt in any of the new rules and how they apply to you.
While HMRC is working urgently to set up the system for reimbursement, we understand existing systems are not set up to facilitate payments to employers. Businesses that need short-term cash flow support, may benefit from the VAT payment deferral announced and may also be eligible to apply for a Coronavirus Business Interruption Loan. Please contact the team on 0115 998 9167 if you would like to discuss your options in more detail.
Frequently Asked Questions…
What does “furloughed” mean?
Furloughed means allowing someone to be absent from work for a period of time. It is like “gardening leave”.
Are the government going to pay my employees for me?
There seems to be a common misconception that the government will subsidise 80% of your team costs while they work for you. Not so – it’s only for people who you would normally make redundant in any other situation. They are in effect on “garden leave” and should not be doing any work during the “furloughed” period.
Surely they can do some odd jobs for me whilst they are off…?
Absolutely not. Once you are on furlough you will not be able to work for your employer, but you can undertake training or volunteer subject to public health guidance, as long as you’re not:
If workers are required to for example, complete training courses whilst they are furloughed, then they must be paid at least the National Living Wage (NLW)/National Minimum Wage (NMW) for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
Can they go part-time and benefit from this?
No. You’d be best making some of your staff full time and put others on garden leave.
Anyone on your payroll as at 28 February 2020.
What happens if they started in February 2020?
If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
How do you work out what they get 80% of?
For full time and part-time salaried employees, the employee’s actual salary before tax, as of 28 February 2020 should be used to calculate the 80%. Fees, commission and bonuses should not be included.
What about variable (including Zero hours)
If you’ve been employed (or engaged by an employment business in the case of agency workers) for a full year, employers will claim for the higher of either:-
If you’ve been employed for less than a year, employers will claim for an average of your monthly earnings since you started work. The same arrangements apply if your monthly pay varies, such as if you are on a zero-hour contract.
Bonuses, commissions and fees are not included as part of your monthly earnings.
Does the NMW (National Minimum Wage) apply?
Individuals are only entitled to the NLW/NMW for the hours they are working. Therefore, furloughed workers, who are not working, must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
Can I still pay full wages?
An employer can choose to top up to 100%, but does not have to (subject to employment law and renegotiating any contractual entitlements).
Can employees go in and out of Furlough?
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.
Can I be furloughed for a short period of time, e.g. a week or a couple of days, and then re-employed?
A worker must be furloughed for a minimum of 3 weeks for their employer to be eligible to claim under this scheme.
How will this work for those on zero-hour/flexible contracts/agency workers?
See above - “How do you work out what they get 80% of?”
How will it work in practice?
We understand that the employer will pay the contractually agreed amounts as required by the employment contract in the usual way. Until the portal has been set up full facts are not known at this time? Employers will claim the grant through a new separate portal currently being built by HMRC due to be completed by the end of April.
What will I need to make a claim?
Employers should provide an employee with a “Furlough Leave Agreement” which should include dates (starting and ending) and amounts to be paid plus other legal information. Employers may need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.
To claim, we believe you will need:
You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
You can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until the 01 March 2020, if applicable.
Are the grants taxable?
Yes, but the wage costs are tax-deductible, so will be tax neutral.
Can we alter February’s payroll to bump the figure up?
No, this is fraud!!!
Can directors benefit from this?
This is still a grey area but we believe that as long as they fulfil the criteria and follow the furlough process for an employee then the answer should be YES. The grey area is that the guidance says while on furlough an employee is not allowed to “provide services to” the company – we hope that common sense will prevail regarding a director's statutory duties. If it is possible for you to furlough a director, they will only receive 80% of salary, not dividends. Please see our “Directors Payroll Furlough” document for more in-depth information regarding this.
M.A.D. Accountants are based in West Bridgford, Nottingham, and are specialists in tax and accountancy assistance for businesses and individuals. We're here to make a difference to your business and your life with no-nonsense, jargon-free advice and help.
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