Coronavirus Job Retention Scheme

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 -

https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

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.

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]. These can be full time, part-time, employees on agency contracts and employees who are on zero-hour or flexible hour contracts.

Which employees are eligible for the 80% salary?

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’?

Employees still working.
Employees working but on reduced hours.
Employees working on reduced pay.
An employee hired after 28th February 2020. However, you re-employee people you laid off as a result of the crisis and then furlough the if you so wish.
Employees on long term statutory sick pay.
Employees on unpaid leave entered into prior to 28th February.

What constitutes ‘salary’ for the 80% test?

Firstly it is important to note that the furloughed employee must get 80% of their deemed salary up to the maximum limit of £2,500 per month. The employer cannot set off the employers NI and employer’s auto-enrolment pension contribution against that 80% figure as was first thought. However, the employer will be able to claim separately for those costs in addition to the 80% ‘salary’. I attach a revised example of a Furlough Agreement taking account of that change. I would remind people to seek independent employment law advice.

For full time and part-time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.
Where the employees pay varies (zero-hours or variable hours workers) and has been employed for a full 12 months, the employer can claim the higher of:
- The same month’s earnings from the previous year or
- The average monthly earnings of the 2019/20 tax year. If employed only partway through the 2019/20 tax year you can average that period instead. If the employee has been taken on partway through February then the employer uses a pro-rata of their earnings so far to make the claim.

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 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:

Making money for your employer.
Providing services to your employer.

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.

Who qualifies?
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:-

The amount you earned in the same month last year.
An average of your monthly earnings from the last year.

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:

Your ePAYE reference number.
The number of employees being furloughed.
The claim period (start and end date).
The amount being claimed (per the minimum length of furloughing of 3 weeks).
Your bank account number and sort code.
Your contact name.
Your phone number.

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.