The government published its Job Retention Scheme Guidance overnight on 26th March 2020. This has been eagerly awaited, to give us vital details on the Scheme announced less than a week ago. The full Guidance can be found here.
We are focusing this blog on the new information available in the Guidance. Please see our previous post for information already provided on the Scheme to date.
What is covered? This is the detail we have all be waiting for.
The Guidance states: 80% of the usual monthly wage costs, up to £2,500 a month, plus (my emphasis) the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. This gives a maximum cap of £2,500 +£245 (employers’ NIC) + £59 (auto- enrolled pension contribution) = £2,804 of total possible grant that can be applied for per employee per month.
These Employer NICs and pension contributions can be claimed separately and on top of the 80%/£2,500 cap. We did not expect employers would be able to recover these. This will be welcome news for employers.
How to calculate the wage: the table below explains how the wage is calculated. In each example the claim is capped at 80% of the monthly wage or £2,500.
| Salaried employees | The employee’s actual salary before tax as of 28 February 2020 |
| Pay that varies : employed for a full 12 months prior to the claim | The higher of either: (a) the same month’s earnings from the previous year (e.g. March 2019); or (b) the average monthly earnings from the 2019-2020 tax year |
| Pay that varies : employed for less than a year | An average of their monthly earnings since they started work |
| Pay that varies : started in February 2020 | A pro-rata of their earnings so far |
- National Minimum Wage (NMW): for some, the 80% wage figure will be below the NMW. As furloughed employees are not working, this is not a breach of the NMW rules. See below on mandatory training.
- Fees, commission and bonuses are not recoverable and should not be included when calculating the wage.
- Employers remain liable for Employer NICs and minimum employer pension contributions under automatic enrolment rules. You can claim a grant for these, but not in respect of any extra you pay on the mandatory schemes. As a reminder, the minimum mandatory employer pension contribution is 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).
Who can be furloughed?
| Type of employer | UK employers are only eligible where they had created and started a PAYE scheme by 28 February 2020. Administrators will also be able to furlough workers |
| Type of employee | Any employees (full-time or part time), on agency contracts and those on flexible/zero hours contracts. They must have been on PAYE at 28 February 2020 |
| Sick leave and self-isolating | Not while they remain on sick leave/are self-isolating and entitled to SSP. When they are fit to return to work, and so would otherwise cease to be paid SSP, they can be furloughed |
| Shielding | Yes |
| Unpaid leave | Yes, if they were placed on leave after 28 February |
| Made redundant since 28 February 2020 | Yes, provided their employer rehires them. |
| Two jobs | Yes, from each job or only one of them |
Who cannot be furloughed and what are the rules around working and volunteering?
Anyone doing any work, working reduced hours or working for reduced pay cannot be furloughed. Working is interpreted in the broadest sense. The employee must do no work, whether income generating or not.
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 their employer.
Where a furloughed employee is also a director, they can carry out their statutory duties. This will not amount to “work”.
The Guidance mentions an obligation to pay the NMW to furloughed employees where they are completing online training courses. This suggests that where there is mandatory training to be completed during a furlough period this can be completed. At this stage, we recommend only mandatory training is carried out during furlough.
The entire working force does not need to be furloughed. When selecting those to be furloughed, the usual equality and discrimination laws will apply. Employers should use objectively justifiable selection criteria where they are opting to furlough some employees and keep others working. Some may wish to consider rotating who is furloughed for the minimum period of three weeks.
Public sector:
- Public sector employees are unlikely to be furloughed, as they continue to provide essential public services and provide a response to the outbreak.
- The government has set out an “expectation” that furlough will not be used where employers already receive public funding for staff costs – where that funding is continuing as usual. This is going to be tricky to navigate for those organisations in the arts and similar sectors which are primarily publicly funded, but rely on other sources for income that are not currently available – such as audiences!
Mechanics:
| Minimum period | Employees must be furloughed for not less than three weeks Employers can only make a claim every three weeks |
| When to claim? | Claim at the point at which you run your payroll or in advance of an imminent payroll |
| Who calculates the claim? | Employers will need to calculate the amount being claimed. HMRC may retrospectively audit this |
| Payment | This will be by BACS payment to a UK bank account |
| When to access it? | At any time when it is operational |
| What information is required? | 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 |
| Timing | The government “expects” the Scheme to be up and running by the end of April |
Tax treatment
Payments received by a business under the Scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.
Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.
Scheme Ending
When the government ends the Scheme, employers must make a decision, depending on their circumstances, as to whether employees can return to their duties.
A reminder that the collective consultation rules will apply where an employer proposes to dismiss 20 or more employees by reason of redundancy in a 90 day period.
They may also apply where an employer proposes to terminate the employment of 20 or more employees in a 90 day period in other circumstances which aren’t redundancy – for example where an employer is trying to force through a furlough related contract change because employees won’t agree to the change.
Employers can also decide that employees should return to duties earlier than the Scheme end date. They should make this clear in their communications to employees.
Further information
As the Scheme becomes operational we know that many of you will have questions. We will continue to post blogs over the coming days and weeks to keep you up to date and bring you our recommendations from experience of advising on the Scheme. Please call your usual contact in the Dentons’ PRM team for advice.
