80% of wages - furlough (Coronavirus)
80% of wages for employees
With regards to the ‘furlough’ (claiming 80% of staff salaries back). The government has given the go ahead but HMRC did not have any system in place prior to the announcement and they are working around the clock to get it in place – please expect teething problems too, this is brand new to all of us.
Once it is in place, I will explore the criteria and contact people with regards to what they want to do. This is being introduced so that employment continues and so that you do not have to lay off staff.
The cap for the 80% rule is £2,500.00 anyone who earns above this each months will only be able to claim £2,500.00.
If staff are working from home they are entitled to their full wages.
Key points include:
Furloughed workers should not undertake any work for the company, including answering calls or emails
Job Retention Service (JRS) should not interrupt an employees’ continuity of service
Annual leave will continue to accrue
No PAYE tax/ or national insurance contributions are due
The grant is a reimbursement by HMRC so businesses may face cash flow issues
Changing the status of employees remains subject to existing employment law and may be subject to negotiation
The Job Retention Scheme is a huge incentive for companies to keep employees on payroll. To access the support companies need to classify employees as a furloughed worker, which means they should not undertake any work for the company while furloughed, including answering calls or emails. In exchange employers can claim a grant of up to 80% of each employee’s wage for all employment costs, up to a cap of £2,500 per month.
The employee remains employed and their employer can choose to fund the difference between this payment and their usual salary, but it’s not compulsory.
Assuming notice hasn’t yet been served on ‘at risk’ employees, and even if it has, employers should discuss the JRS with them as part of any consultation process and agree to either carry on with the redundancy process, or agree to use the JRS as an alternative. Should the business decide, at a later point, that redundancies are still necessary, they should take legal advice at that stage on the associated risks.
We don’t yet know whether employees will be restricted from taking on other/new work while receiving a salary under the scheme, but government advice is being updated on a daily basis. It’s likely that the JRS will not interrupt an employees’ continuity of service. Likewise, annual leave will continue to accrue while staff remain employed.
The grant is a reimbursement by HMRC of salary costs paid to furloughed workers, so businesses may face cash flow issues in paying these workers.
A number of options may be open to businesses, including the Government’s Coronavirus Business Interruption Loan.
JRS is intended to run for at least three months from 1 March 2020, but it will be extended if necessary. The JRS will cover the cost of wages backdated to 1 March 2020 and will be open before the end of April. It is open for workers who were in employment on 28 February.
Eligibility and accessing the JRS
All UK businesses are eligible as long as they:
Designate affected employees as ‘furloughed workers’
Notify those employees of this change – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation
Submit information to HMRC about the employees that have been furloughed and their earnings. This will be through a new online portal – HMRC will set out further details on the information required.
How businesses should prepare
Set up the payroll with a furloughed pay element to identify the amounts for reclaim
Calculate furloughed pay based on the 12 weeks up to the end of February. Use regular basic pay but not overtime or bonuses. Please note: This is our estimate of the likely period for assessment – details still to be confirmed by the Government.
For employees off sick during that 12 weeks, base furloughed pay on the amounts excluding sick pay
Assume this is still pay and that PAYE tax and NIC deductions will be due, albeit that payments to HMRC are likely to be deferred
This is a grant that reimburses the business, so cash flow could still be an issue. Unfortantely a bank facility or loan may be required to fund these payments prior to reimbursement.
Practical step by step process
Identify those employees ‘at risk’ and earmarked for lay-off
Analyse pay from the last 12 weeks up to the end of February (estimated timeframe, government still to confirm)
Establish base pay that qualifies for 80% furloughed grant
Identify employees where £2,500 cap will apply
Calculate additional pay required to get to ‘normal’ pay
Model options to manage any top up outside of the grant
Identify employees required to remain in employment
Model options to flex remuneration for those employees not furloughed, including establishing new ‘base’ pay in line with national minimum wage and employment related loans
Commence communication with all affected employees including estimates of proposed payments
Implement changes to payroll and pay elements
Prepare application to HMRC
Register and log-on to new HMRC portal (timing To Be Confirmed)
Submit required information to HMRC
Receive reimbursement via new system