COVID rules re: employees

HMRC has now released further guidance on the CJRS Scheme

The CJRS applies to designated affected employees on PAYE who are “furloughed” instead of being laid off and will be known as “furloughed workers”.

A furlough is a temporary leave of employees due to special needs of a company or employer, which may be due to economic conditions at the specific employer or in the economy as a whole.

The scheme will run from 1 March for at least 3 months.

Applications for CJRS will be through an HRMC online portal. The aim is that this will be completed by the end of April 2020.

Employers can use the portal to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Employers can use this scheme anytime during this period.

The definition of employee includes workers and agency workers provided they are subject to PAYE.

The scheme is open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020.

Furloughed employees must have been on your PAYE payroll on 28 February 2020, and can be on any type of contract, including full-time employees, part-time employees, employees on agency contracts and employees on flexible or zero-hour contracts.

The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.

Employees on unpaid leave cannot be furloughed.

To be eligible for the subsidy, when on furlough, an employee cannot undertake work for or on behalf of the organisation. This includes providing services or generating revenue. While on furlough, the employee’s wage will be subject to usual income tax and other deductions.

A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of your organisation.

Note that, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the National Living Wage/National Minimum Wage for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed.

Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme. There is no further comment from HMRC on this point. If an employee was hired but commenced work after 1 March, it is unclear if they will be allowed to be classed as a furloughed worker.

You do not need to place all your employees on furlough. However, those employees who you do place on furlough cannot undertake work for you.

Employers do not have to top-up “furloughed workers” pay by 20% of the salary costs, but they can do if they wish.

The CJRS will be a grant and not a loan. In the accounts of the employer, the grant is treated as income, and the wage costs as an expense.

There is no financial limit on what employers can claim.

Employees have to be furloughed for a minimum of 3 weeks.

Employers can re-employ people who have been dismissed by reason of redundancy since 1 March 2020 and then designate them as “furloughed workers”.

Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (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. The point being NLW/NMW rules only apply if you are working, furloughed workers are not allowed to work.

If your employee is on Maternity leave or will be on maternity leave the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance. If you offer enhanced (earnings related) contractual pay to women on Maternity Leave, this is included as wage costs that you can claim through the scheme.

If your employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.

If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either:

- the same month’s earning from the previous year

- average monthly earnings from the 2019-20 tax year

If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.

If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.

Review your business and decide if you need to furlough any employees. If you need some staff to remain you will have to make a fair selection process, you cannot be discriminatory. You may decide to keep your highest achievers for example.

Employers can “furlough” employees if they have a contractual lay off clause in their employment contracts. If not, they will need to comply with employment law.

Employers must comply with employment law when designating employees as “furloughed workers”. This means that employers will need to consult with employees and seek their consent unless there are special circumstances. We recommend this is documented. HMRC may wish to review correspondence.

Employers may need to seek legal advice if sufficient numbers of staff (20 or more) are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment. There are legal requirements that should be adhered to.

If you are in any doubt on the process or the application of these new measures, you should seek professional advice.

Employers should have a furlough agreement documenting all the terms of the furlough. The dates, the pay, the right to recall employees, the employees up to date contact details, how the furlough agreement may end, and holiday entitlement use during this period. We recommend the agreement states the employee must be contactable during this period. Most importantly, the agreement must state the employee agrees to accept less than contractual pay during this period.

You can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying those wages.

Note that holiday entitlement will continue to accrue while employees are “furloughed”.

Contractual benefits appear to continue while employees are “furloughed” unless otherwise agreed.

You must work out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim. This will be straight forward for fixed rate employees. For variable hour’s staff, this will require a calculation.

You should retain details of all calculations and correspondence with regard to employees being furloughed. This is a generous scheme offered by the Government. The Government has stated it reserves the right to audit any employer claiming under this scheme. In this time of national crisis, any employer cheating the system can expect severe consequences.

If you choose to provide top-up salary in addition to the grant, Employer National Insurance Contributions and automatic enrolment employer pension contribution on any additional top-up salary will not be funded through this scheme. Nor will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards)

To claim, you will need:

- your ePAYE reference number

- the number of employees being furloughed

- the claim period (start and end date)

- amount 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. Again we stress, 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 1 March if applicable.

Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to a UK bank account. You should make your claim in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll.

You must pay the employee all the grant you receive for their gross pay, less payroll taxes, no fees can be charged from the money that is granted.

When the government ends the scheme, you must make a decision, depending on your circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).

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

These are unprecedented times and we will let you know when we have further news or updates as they are announced.

Please contact us if you require any assistance with this process.

The material contained in this email is provided for general purposes only and does not constitute legal or other advice.