Coronavirus Job Retention Scheme: a cash grant that is designed to allow employers to retain staff who would otherwise be laid off.

At a glance

  • Employers may claim a grant of up to 80% of the salaries of employees plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage, provided they keep the worker employed who have been laid off during this crisis.
  • This is subject to a cap of £2,500 per month.
  • Only employees on the PAYE payroll as at 28 February 2020 can be furloughed.
  • Employers must designate affected employees as ‘furloughed workers' and notify the employees of this change. 
  • To qualify for this scheme workers should not undertake work while furloughed. 
  • Employers submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal .Claims can be made every three weeks.
  • HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.

What does the government mean by furloughing 

  • 'Furloughing' is an alternative to laying people off.
  • Employees are kept on the payroll instead of dismissing them as redundant or laying them off without pay.
  • It is relevant for employees who are not off sick or claiming other statutory employment benefits. Sick workers are instead eligible for government support under the Statutory Sick Pay (SSP) rules.

Who can be furloughed?

  • Any employee, apprentice or director.
  • Full time, part time or casual or zero hours workers.
  • Provided that they were engaged under an existing employment contract on 28 February 2020.

How does it work and how much can be claimed?

HMRC will reimburse:

  • Up to 80% of the wage costs of furloughed employees, subject to a cap of £2,500 per month per employee. 
  • Plus Employer National Insurance contributions and minimum automatic enrolment employer pension contributions.

What are wages?

Wages are your monthly earnings:

If wages are of a fixed annual amount this is the amount paid in the month to 29 February.

If the your employee's salary varies:

  • If they have been employed for a full year or more prior to the claim, you can claim the higher of:
    • their earnings for the same month in the previous year and
    • their average monthly earnings for 2019/20 tax year.
  • If they have been employed by you for less than a year, take their average monthly earnings since they started working for you.

Update: 4/4/202

The grant paid to your employer will be calculated based on your regular, contractual pay, such as wages, compulsory commission and past overtime.

The calculation will not include discretionary commission (including tips) payments or bonuses, non-cash payments or benefits in kind.

What about overtime?

It is paid. We queried this on 3 March 2020 and HMRC have been quick to update their guidance.

  • The grant paid by your employer is based on regular contractural pay including past overtime.

Practically speaking, this means that the amount paid is based on your contractural earnings as paid in February 2020, or if the calculation is based on variable pay, the mechanism will be the average of contractual earnings for 2019/20 paid up to 28 February 2020. It will not include discretionary amounts paid.

How to make a claim from HMRC

  • Payment is by a grant provided by HMRC to be paid by BACS directly into a UK bank account.
  • Claims should be made in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll. You should pay your furloughed employees through the payroll under RTI as normal but at the 80% adjusted amount unless you have agreed to top up their pay (see below).
  • This measure applies for three months from 1 March 2020 but may be extended. There is a minimum furlough period of 3 weeks.

What to pay?

As an employer you may need to renegotiate the employee's contract: the need to do this may well reflect your financial circumstances.

  • It is up to you whether you pay the 20% difference so that your employees receive their full pay.
  • Higher earners may be adversely affected.
  • The amount paid to a worker when furloughed is a decision for you as an employer and may be a matter of negotiation with your employees.

You must pay the employee all the grant received for their gross pay, no fees can be deducted from the grant money.

The employees you furlough must not work for you during the furlough period.

  • They remain your employees.
  • They may undertake training during the their furlough period.
  • It is not clear whether they are allowed to take temporary work elsewhere during the furlough period, but it may be that their employment contract currently forbids it. See below for how you might wish to deal with this.

Do not forget about employment law. This is for your protection as an employer (against claims by employees once this is all over) as well as the protection of your employees.

*We are unable to give employment law advice but have included some suggestions below which should help manage your risk here. If in doubt you must seek independent legal advice.

How to make a claim

The online portal for making claims is expected to be available by the end of April. Claims can only be made every 3 weeks but can be backdated to 1 March 2020.

To make a claim you will need the following information:

  • ePAYE reference number
  • The number of employees being furloughed
  • The claim period (start and end date, the start date cannot be before 1 March 2020)
  • Amount claimed the minimum length of furloughing is 3 weeks)
  • Your bank account number and sort code
  • Your contact details

You must calculate the amount to claim, HMRC will not do it for you. HMRC have said that they will retain the right to retrospectively audit all aspects of your claims.

Tax Treatment of the Job Retention Grant

  • Payments received under the scheme must be included as income in the business’s calculation of its taxable profits for income tax and corporation tax purposes, in accordance with normal principles.
  • Employment costs may be deducted as normal when calculating taxable profits.

Steps to take when furloughing workers

  • Decide which employees are to be furloughed and designate them as such. If this is not all your employees, you should ensure you use a fair selection process*:
    • You could start with any employees who cannot work from home, if this is appropriate, or those who need to stay home to look after children.
    • Ask for volunteers.
    • You could adopt the same sort of process you would if making people redundant, using pooling and selection criteria.
  • Decide whether you will top up the amount being reimbursed by HMRC and if so by how much.
  • Decide whether you are furloughing employees for a fixed period e.g. the full three months or whether you need to keep it flexible. This means less certainty for everyone but allows you to call employees back if the situation changes and restrictions on working are lifted.
  • Decide whether you would agree to employees taking temporary work elsewhere during the furlough period. You may wish to only address this if asked by your employees.*
    • If their contract currently forbids this, you should advise them of your decision in writing.
    • If the contract does not forbid this it would seem, unless the government advises otherwise, that employees are free to do this.
  • Monitor your cashflow position to see if you have sufficient funds to pay your employees until the HMRC grant comes in, likely to be sometime before the end of April. If you do not, you may wish to consider a business interruption loan or deferring your VAT payment.
  • Check the employment contract for each employee you intend to furlough.
    • If you intend to top up their payments to maintain their normal pay you should not need the employees’ consent as you are not deviating from their contractual terms.
    • If you do not intend to top up their payments then you will need the employees’ consent unless their contract allows for you to reduce or stop their pay when there is no work for them to do. If in doubt you may wish to take legal advice.
  • Notify the designated employees that they are furloughed. Tell them whether you are topping up their wages or whether they will just get the 80% amount reimbursed by HMRC/£2,500 per month, whichever applies. It is advisable to do this in writing.
  • If required (see above) obtain consent from the employees, in writing, to be furloughed.
  • If you do have sufficient funds, make payments to your furloughed workers accordingly.
    • This should go through the payroll as normal with tax. Employee NICs should be deducted as normal. HMRC confirmed this on Twitter on 25 March 2020 and again in their guidance of 26 March 2020. 
  • It is not yet clear how the grant will work for employers who are unable to pay their furloughed workers until the grant comes in and whether they can delay wages payments until HMRC pay them.
  • Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. This is not yet available and we do not have details of what information will be required.

We assume that once information has been submitted you will receive your grant from HMRC. 

Directors of small companies

COVID-19: Company Directors & Shareholders: many small companies are run by just one or two directors and have no other employees.

What government financial support is available to director/shareholders during the Coronavirus crisis?

We have added our thoughts on this - this is not part of an official announcement

  • A director or company officer is an employee for PAYE purposes.
  • A director cannot claim the COVID-19 Grant for the Self Employed by virtue of holding the office of a director.
  • Although it may be possible for a company to furlough a director under the COVID-19 Job Retention Scheme there are potential issues for small companies to consider.

See COVID-19: Company Directors & Shareholders

Furlough v Redundancy?

What is the best course of action for an employer in dealing with staffing during the COVID-19 emergency?

If you want to retain your staff but cannot afford to pay them you can:

  • Furlough them.
  • Make them redundant and hope that they will be available if your business starts up again.

Furloughing as an option

Do you wish to retain your employee?

Yes

Is your business, due to the effects of COVID-19:

  • Temporarily closed or shutting down by government restriction.
  • Unable to provide a safe workplace for your employees or safe travel to and from work.
  • Unable to offer home working for employees.

In other words, is it impossible for the employee to work for you at present or there is no other paid work currently available for them to do?

Yes

Are they employed by you under an employment contract i.e. a written or verbal contract?

Yes

Are they paid a regular wage in return for working regular hours?

Yes

You can furlough them, by keeping them on the payroll.

Casual workers

Is your worker casual or subject to a zero-hours contract?

Yes

Does your business have any ongoing obligation to offer them work?

No

Does the worker only work when they want to?

Yes, or generally they accept work when its offered.

You do not need to furlough them as you already have no obligation to provide work. You may want to use the furloughing process as a way of ensuring their future their loyalty. *

*More information is awaited from the government as it is unclear what rights casual workers have in this instance.

Redundancy

Employees

  • Employees will be entitled to statutory redundancy pay if they have been employed for two years or more.
  • Redundancy measures may also be dealt with by their employment contract.

Short-term and temporary lay-offs

You can claim statutory redundancy pay if you’re eligible and you’ve been temporarily laid off (without pay or less than half a week’s pay) for either:

  • More than four weeks in a row.
  • More than six non-consecutive weeks in a 13 week period.

Write to your employer telling them you intend to claim statutory redundancy pay. This must be done within four weeks of your last non-working day in the four or six week period.

See HMRC Redundancy Pay Your Rights

Casual workers 

Workers are not normally entitled to:

  • Statutory Redundancy pay or minimum notice periods if their employment ends.

See HMRC Employment Status Guidance for Workers 

 

Letter to employee

Instructions: you can use this as a template, cut and paste the text on to your own letterhead. There are Notes for completion below.

Letter start:

[Employer name if not on headed paper]

[Employer address]

[Date]

Dear [Employee name]

Due to the ongoing COVID-19 (Coronavirus) pandemic, we have identified you as a suitable employee [to be furloughed / agreed with you that you will be furloughed]* under the Government Job Retention scheme.

What this means is that you will not be required to work until further notice but will continue to be paid [as normal / and will receive 80% of your normal pay / you will receive pay of £2,500** per month.]*

Income tax and national insurance will be deducted from your pay as normal.

You will continue to be our employee during the furloughed period, however, you must not undertake any work for us during this period.

Your furlough period starts on [insert start date – this cannot be before 1 March 2020]. It will end on the earlier of:

  • The date we request you to return to work.
  • 31 May 2020 unless this date is extended by the government. We will notify you if this is the case.

We expect the period not to exceed three months. This may be extended if government restrictions mean that it is not possible for you to return to work. The government has set the minimum furlough period at 3 weeks.

[As already discussed we agree that you may other undertake paid temporary work/and unpaid voluntary work during your furloughed period]*

We will contact you when you are required to return to work.

[Please sign the attached form to confirm your agreement to being a furloughed employee and return to [name of appropriate person/address or email address] by [date]***.

Yours sincerely

[your name]

Letter end

 

Notes for completion - DELETE BEFORE SENDING

*Delete as appropriate.

 **Only use the £2,500 per month option where employee earnings are such that 80% of their normal gross pay is more than £2,500 per month. For example, someone earning £3,000 per month would be due £2,800 at 80% but this is reduced by the cap to £2,500.

You will not need your employee’s agreement to the furlough if:

  • They will continue to receive their full pay.
  • Their contract allows you to reduce their pay if there is no work for them.

***It is recommended that you set a deadline for responses.

 

Employee response form

A form for a furloughed employee to return to the employer

 

I [Employee name and works / employee number (if they have one)] consent to being a furloughed employee until such time as I am asked to return to work.

I understand that I remain an employee of [insert name of employer] and must continue to adhere to the terms of my employment other than by prior agreement with my employer.

……………………………………………

PRINT NAME

…………………………………………….

SIGN HERE

………………………………………………

DATE

Comments (27)

Rated 4 out of 5 based on 1 voters
This comment was minimized by the moderator on the site

Are you sure about the 20% being voluntary? The guidance at gov.uk (such as it is) says that the grant will be 80% of the wage cost of furloughed workers. I take that as 80% of any wages that you pay staff whilst they are furloughed (i.e. the...

Are you sure about the 20% being voluntary? The guidance at gov.uk (such as it is) says that the grant will be 80% of the wage cost of furloughed workers. I take that as 80% of any wages that you pay staff whilst they are furloughed (i.e. the employer stands 20% of the cost).
If normal employment law applies, any temporarily laid off staff are entitled to their normal wages unless otherwise agreed.
I'm advising clients to pay normal wages until further Government guidance is available but to tell staff that an adjustment may be made later. Any thoughts please?

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This comment was minimized by the moderator on the site

Does anyone know if the employee furlough scheme apply to company directors, eg one man band limited company directors whose work has suddenly been taken away from them?
Thank you

Guest
This comment was minimized by the moderator on the site

Thanks for asking this Helen, I'm keen to have this point clarified too!...can anyone help, please?

Guest
This comment was minimized by the moderator on the site

Is the new online portal up yet?

Guest
This comment was minimized by the moderator on the site

@Trevor - HMRC's current guidance, says that the employer can chose to fund the 20% but does not have to. HM Government Business support pages is more vague. We do not have the small print on this yet but based on the ICAEW's discussions with HM...

@Trevor - HMRC's current guidance, says that the employer can chose to fund the 20% but does not have to. HM Government Business support pages is more vague. We do not have the small print on this yet but based on the ICAEW's discussions with HM Treasury the measure is support payment of 80% of contractual salary. Contractual salary may be salary + ERs NICs + pension. It is up to employers to re-negotiate contracts if necessary - so you could for example, agree a lower basic pay with your employees whilst they are furloughed.

@Helen - The scheme does not extend to dividends and will apply if you have payrolled directors. A director could be furloughed if you have no work for them, again you need to renegotiate the terms of the contract.

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This comment was minimized by the moderator on the site

I am being asked for a template letter for furloughed staff, presume as a subscriber I can share this letter template with them?

Guest
This comment was minimized by the moderator on the site

Yes, please do share the letter. That's what its there for.

Guest
This comment was minimized by the moderator on the site

Wanting to know about the sole director / employee of a Limited Company status too

Guest
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This comment was minimized by the moderator on the site

How does this scheme work for an employee who has two part time jobs with different employers?

Guest
This comment was minimized by the moderator on the site

Its up to each employer to decide to furlough or not.

Guest
This comment was minimized by the moderator on the site

Can those directors on minimal wages give themselves a 'payrise' from 1 March to access an greater amount of grant? Can all directors (or sole directors) be furloughed - it seems odd to a have a limited company with no 'working' directors?

Guest
This comment was minimized by the moderator on the site

See our thoughts on the director's guide, linked in the tab above.

Guest
This comment was minimized by the moderator on the site

I too am really keen to understand what support is available, for say, a sole director / shareholder business where they make, say, small profits of £45,000 and they do an annual payroll of £8k / dividend the rest. They can no longer work. They...

I too am really keen to understand what support is available, for say, a sole director / shareholder business where they make, say, small profits of £45,000 and they do an annual payroll of £8k / dividend the rest. They can no longer work. They are not self employed for the self employed grant but presumably the government will not pay the employee job retention money either as technically it doesn't make sense to be able to lay off the only director in the company......is anyone else struggling with this??

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See the links to the Director's guide in the tab above.

Guest
This comment was minimized by the moderator on the site

HMRC has indicated that directors should claim under the job retention scheme - but as most are on nominal salaries this will not count for much.

Guest
This comment was minimized by the moderator on the site

See the Director's tab above, this gives our thoughts on this. We are updating our guides on a daily basis.

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