In order to protect jobs in the long term, the government introduced the scheme in March which allows employers to claim a grant of 80% of an employee’s wages costs up to a limit of £2,500 per month up to 31 August 2020. For September and October, whilst the employee will still receive 80%, the employer will only be able to claim 70% and 60% respectively from the government. This grant is available on the basis that the job is preserved when ‘normal business’ is resumed. The Chancellor announced on 29 May 2020 some of the details in relation to the extension of the scheme until October 2020, including the option of part time furloughing from 1 July.
To use the scheme, you will need to designate affected employees as ‘furloughed workers,’ and notify your employees of this change on or before 10 June 2020. This is a change in their terms of employment; therefore, taking advice as to the process from your HR advisors is recommended.
Although furloughed workers is not a term used previously in the UK, it is a term used in the US and it means that you are effectively laying employees off. You can do that if you have the right to do so under the contract or, if not, with the agreement of the employees. Clearly when faced with the alternative of being made redundant or taking unpaid leave, this new scheme will make it much easier to obtain that agreement. Employers must confirm in writing to their employees that they have been furloughed. THE LAST DATE FOR AN EMPLOYEE (WHO HAS NOT ALREADY BEEN FURLOUGHED) TO BE FURLOUGHED FROM WAS 10 JUNE 2020.
There is nothing to stop you paying more than the grant to your employees if you are willing to bear the additional cost. The government clarified on 14 May that employees can take their holidays during the furlough period, but employers would have to top up the furlough pay to full pay. Please see the guidance or take advice from an employment law specialist to ensure that this is dealt with correctly.
The scheme applies to any entity (including domestic payroll schemes) for employees who were reported to HMRC on a payroll submission (known as a RTI submission) on or before 19 March 2020.
The grant is available for all types of employees including:
- Full time employees
- Part time employees
- Company Directors
- Employees on agency contracts
- Employees on flexible or zero hours contracts
- Employees who made redundant between 1st and 19th March 2020, if you rehire them.
A key element is that the furloughed employee CANNOT undertake any work for or on behalf of the organisation, (except for training, please see the detailed guidance for more information) but please see below in respect of directors and office holders. From 1 July 2020 employees will be able to undertake work for you under the flexible furlough scheme, this will mean that you pay them for the hours they work and make a furlough claim for the hours they do not work, but are contracted for. There are special rules for working out the usual hours for employees whose hours vary, for further details see the HMRC guidance
AMOUNTS YOU CAN CLAIM
The amount you can claim will be based on the employee’s salary as at the last payroll submission on or before 19 March 2020 (this does not include discretionary bonuses, tips or commission), if an employee is on variable pay or normally receives fees, overtime or compulsory commission payments then if the employee has been employed for a full twelve months prior to the claim, you can claim for the higher of either:
- the same periods earnings from the previous year
- average periods 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 earnings since they started work.
If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
In addition, to the wages up to 31 July 2020 you are also able to claim for the associated employers National Insurance and pension contributions; however, the claim for pension contributions is limited to 3% of the wages above £520 per month (from 6 April 2020) or £512 per month (up to 5 April 2020).
As the calculation of the amount you can pay and claim are complex, HMRC have released detailed guidance on how to calculate the amounts payable, please see the government guidance for the full details on the scheme and how to calculate the furlough pay.
HMRC have produced a calculator to help you calculate the amount you can claim – see Coronavirus Job Retention Scheme calculator
Directors or Office Holders
There was uncertainty as to the position of director/office holders being eligible under the scheme; however, the position is now included in the updated guidance issued on 17 April 2020. This now states the following:
“As office holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed. Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.
Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.
This also applies to salaried individuals who are directors of their own personal service company (PSC).”
On the basis of the above directors can now be furloughed, but this needs to be agreed at a board meeting and once agreed directors can only carry out the statutory duties. Therefore, for example if you continue to deal with enquiries or are managing employees etc., then you will not be able to furlough your employment.
A key point to remember is that you can only claim for 80% of your PAYE salary based on the last submission to HMRC prior to 20 March 2020 and as the majority of director/shareholders were paying themselves £720 per month, then any claim will be restricted to this level as dividends are not included.
The portal opened on 20th April and in order to make a claim, click here and you will need the following information to make the claim:
- to be registered for PAYE online or if you have a payroll agent, they can submit the claim for you
- your employer PAYE reference number
- the number of employees being furloughed
- National Insurance Numbers for the employees you want to furlough
- Names of the employees you want to furlough
- Payroll/works number for the employees you want to furlough (optional)
- your Self-Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number
- the claim period (start and end date)
- amount claimed (per the minimum length of furloughing of 3 consecutive weeks)
- your UK bank account number and sort code
- your contact name
- your phone number
You will have to calculate the amount to claim; however, HMRC will retain the right to retrospectively review and audit the claim. The claim can be made based on the amounts in your payroll and should be made either shortly before or after running your payroll. This is not necessarily the payment date, as you can calculate your payroll and submit a claim for up to 14 days in advance in order to allow you to receive the grant prior to paying the wages if necessary. HMRC will process and pay the claim within 6 days of submission, provided they do not raise any issues with the claim.
From 1st July, all claims must not span two calendar months, if your pay period spans two calendar months you must submit two separate claims.
If you use a payroll provider and they are authorised to deal with your payroll affairs with HMRC, they will be able to make a claim on your behalf. IF YOU PREPARE THE PAYROLL YOURSELF OR WISH TO SUBMIT THE CLAIM YOURSELF YOU MUST BE REGISTERED FOR PAYE ONLINE; therefore, if you are not registered you must register first at https://www.gov.uk/paye-online/enrol