Soon after announcing the new Coronavirus self-employed income support scheme, the Government has now set out further guidance for Employers on the Job Retention Scheme (or ‘Furlough’ scheme to take its familiar name!)
The further guidance is helpful, in that it helps ensure compliance and gives a better practical understanding of how the grant funding will be accessed. Below is a simple Who, What and How summary.
WHO (can claim the funding?)
It’s broad! Any UK organisation with employees can apply, including businesses, charities, agency workers paid through PAYE and public authorities. Basically, any entity that has a PAYE payroll scheme on or before 28 February 2020 and has a UK bank account.
WHAT (can the grant funding be claimed for?)
Employers can make a claim for qualifying wage costs of qualifying employees through this scheme.
Qualifying wage costs is the lower of 80% of an employee’s regular wage or £2,500 per month (which must, as a minimum, have actually been paid by the Employer as well!), plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Typically this means a maximum qualifying amount of around £2,800 per qualifying employee. There are some funnies around the calculations of “regular wage” for different types of Employees, but where the monthly wage is regular, the wage as at 28th February 2020 is the benchmark figure to be taken. There are further calculation intricacies for those with variable wages. Fees, commission and bonuses should never be included.
Qualifying Employees are any “furloughed” employees that were on the organisation’s PAYE payroll on 28 February 2020 (including those made redundant or placed on unpaid leave, since 28 February 2020, if they are rehired and furloughed). Full-time, part-time, agency, flexible and zero-hour contracted employees all qualify. From the date of being furloughed, to remain eligible for the subsidy, qualifying employees must not work for the employer (even reduced hours). It is important that the furloughing process itself is properly documented and recorded (HMRC reserve the right to retrospectively Audit), as well as considered in the context of Employment Law and existing employment contracts. To qualify for the funding, the minimum period for which an Employee can be furloughed is 3 weeks.
HOW (is the funding accessed?)
Employers first need to discuss and agree changes to the relevant employment contracts to formalise the furloughed status of relevant employees. Details of those employees then need to be provided via a soon-to-be established HMRC Portal. The Portal will need to link back to the organisation’s PAYE scheme, so may best be administered by whoever is responsible for the payroll itself.
Claims are then calculated in accordance with actual payroll amounts at the point which payroll is run (or in advance of an imminent payroll) and submitted via the Portal. No more than one claim can be made every 3 weeks, but claims can cover the period as far back as 1 March 2020 if applicable. Once HMRC have received the claim and checked eligibility, payments will be made by BACS to a UK bank account.
The scheme will last a minimum of 3 months (from 1 March 2020). When the Government ends the scheme and funding is ceased, employees can return to their duties. If that is not possible, it may be necessary to consider termination of employment (redundancy). Neither will affect the funding eligibility. Once the scheme has been closed by the Government, HMRC will continue to process remaining claims before ending the scheme.
In terms of future reporting, the funding itself is treated as taxable income in the hands of the Employer, which is offset by the ongoing corresponding salary costs.
For any further information about the scheme, or related practicalities, feel free to get in touch with Lee Reynolds, email email@example.com or one our payroll team.