In response to widespread business disruption as a result of the coronavirus crisis, on Friday 20 March the Chancellor announced a new Job Retention Scheme whereby 80% of wages of workers who would otherwise be laid off or made redundant will be funded by the government.
Below are some frequently-asked-questions about the scheme.
How does it work?
The idea is that you designate employees who would otherwise be made redundant or laid off as ‘furloughed workers’ instead, and claim back some of their salary from the government so you can continue to pay them.
Which staff are eligible?
Workers on your PAYE scheme are eligible, which include full time, part time, and zero hours staff.
You can only put staff on furlough who were on your PAYE scheme as at 28 February 2020. If they started work after that date, you cannot claim in respect of their pay if you choose to put them on unpaid leave or terminate their employment due to lack of work.
The scheme is designed to be used to retain workers who would otherwise have lost their jobs as a result of a lack of work because of the coronavirus outbreak. If staff cannot work due to other reasons, such as their children’s school being closed, they should be allowed to take unpaid leave or annual leave.
Exclusions
If an employee is working, but on reduced hours, or for reduced pay, they are not eligible.
Anyone on unpaid leave before 28 February is excluded.
Anyone on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this. Employees “shielding” in line with public health guidance can be placed on furlough
What funds can I claim back?
You will be able to claim back 80% of monthly wage costs, or a maximum of £2,500 if this is less, plus Employer’s NI contributions and pension auto-enrolment contributions.
The scheme will be backdated to 1 March and is scheduled to run for at least 3 months. Employers can use this scheme anytime during this period.
It covers ‘usual monthly wage costs’ (which excludes commission, fees or bonuses) up to £2,500 PLUS employer NICs and the minimum automatic employer pension contributions on that wage (which is 3%). The £2,500 cap is just the gross wage, and the NICS and pension can be claimed on top, but not on any topped up amount. There is no obligation to top up. It is subject to employee NICs and income tax.
You should not include bonuses, commission or other fees in your calculations, only basic salary.
You will not be able to claim for pension contributions over the minimum auto-enrolment rate if you usually make additional voluntary contributions.
What about the other 20% of salary – do I need to pay this?
You don’t have to, although you can if you wish.
What if my worker has variable pay?
If they have been employed for at least a year prior to when you make the claim, you can either use the same month’s earnings from the previous year, or their average monthly earnings from the last tax year, whichever is higher. If they’ve not been employed that long, you can use their average since they started work.
If I only pay 80% this will put my workers below minimum wage, does this matter?
No, this is fine, because National Minimum/Living Wage requirements only relate to hours actually worked. Your furloughed workers will not be doing any work so minimum wage doesn’t apply.
Is the furloughed amount taxable?
Yes, the wages received during the furlough period are subject to tax and National Insurance as normal, and to auto-enrolment pension contributions.
How much can I claim?
For those with more than 12 months’ service, and within the cap, you can claim the higher of either a) the same month’s earning from the previous year and b) average monthly earnings from the 2019-2020 tax year. For those with less than 12 months’ service you claim the average of monthly earnings since they started work. For those who started in February 2020, use a pro-rata for earnings so far to claim
In each case HMRC work out the employer NIC and minimum automatic employer pension contributions you are entitled to claim.
How long do I furlough the workers for?
It covers those who have been made redundant after 28 February, if they are later rehired.
The minimum furlough period is 3 weeks, and you can submit one claim at least every 3 weeks. You can backdate to 1 March.
It must be for at least three weeks, so you can’t put them on furlough one week and then bring them back into work the following week.
The employee must not be working at all. If they work for even an hour (presumably during their entire three week furlough period), they are not eligible. However, they are able to undertake training and do volunteer work, provided they do not provide services to or make any money for their employer.
On the specific issue of rotation:
There is nothing in the guidance which prohibits rotating furlough leave among employees, provided each employee is off for a period of at least three weeks
Do I have to furlough everyone?
No, many businesses will need to keep some staff working so you can furlough some and not others.
I already made some people redundant, can I put them back on the payroll and furlough them?
Yes you can, as long as they were on your payroll on 28 February.
Any training that has to be done during furlough must be paid for those hours at the NLW/NMW, even if more than the furloughed sum
Maternity Leave
Those on maternity or other parental leave stay on relevant statutory schemes, but enhanced contractual pay to women on maternity, adoption, paternity or shared parental leave can be claimed through the furlough scheme.
How do I receive payment?
Payment will be by BACS from HMRC. At the end of the scheme claims will continue to be processed.
The date the scheme will open has not been published, nor date of first payment but this is anticipated to be 22 April
Accrual of holiday
Accrual of holiday during the furlough period is not clear, but furlough does not displace existing employment contracts
There is no mention of any conditionality or proof being required of anything.
The position on fixed term contracts that would have terminated during this period is not clear.