Job Retention Scheme: Furloughed Workers Guidance
The following is our understanding of the Job Retention Scheme and the definition of a furlough worker and how the scheme works.
It should not be relied on for advice at this stage but is intended to give an indication of how the scheme will work.
Why introduce the furlough policy?
The objective is to keep people at home in self-isolation to slow down the spread of the virus whilst enabling employers to retain staff who will come back to the employer and be ready to go back to work when the health crisis is over. The importance of keeping workers on the payroll means that those workers with key knowledge will go back to their place of work and kick start the economy when the time comes.
the rules of the Job retention scheme to receive the 80% salary package
Furloughed workers must not work for the employer during the period of furlough.
Furlough is backdated from 1 March 2020. It will last for at least 3 months and will be extended if necessary.
Note: While the scheme is backdated to the beginning of March as it is intended to support all those employed then, you will only be eligible to claim the grant once you have agreed with your staff they are happy to be furloughed and have stopped working. Some employers are creating a furlough agreement to formalise this process.
The furlough payment is available to employees on the payroll at 28 February 2020.
All UK businesses, irrelevant of their size or industry or sector, including charities and non-profits.
The Job Retention Scheme pays an employer a grant rather than a loan, to the employer. To be clear, an employer is not expected to pay the funding back to the government.
The employer will pay the employee through payroll, using the Real Time Information (RTI) system as usual. So RTI system reporting of payroll will continue as normal each month the scheme is in place.
How much can I claim per employee?
Maximum grant will be calculated per employee and is the lower of:
• 80% of ‘wages’.
The notes published so far says ‘wage for all employment costs up to a cap of £2,500 per month’.
It is our understanding that this includes employers' NIC and pension contributions.
Wages will be determined by reference to a defined period (yet to be announced).
• £2,500 per month.
The grant will be paid to the employer through a new online system which is being built by HMRC, which should be available at the latest at the end of April.
working example of how the job retention scheme will work
A Ltd employs Mr B at an annual salary of £24,000, which equates to £2,000 per month.
Mr B has opted out of auto enrolment.
Each month, Mr B currently receives net pay of £1,665 which is after deducting income tax of £191 and employees NIC of £144. On this salary, the employer pays employers' NIC of £174.
The available grant for the employer is the lower of:
(a) 80% of (£2,000 + £174), and
(b) £2,500
So a grant of £1,739 is paid out for employee Mr B to the employer, A ltd.
The cash required by A Ltd to furlough staff based on maintaining the existing salary is £435 per month, if they wish to top up the remaining 20& of salary that is not subsided by the Job Retention Scheme. A review of employment contracts is a good starting point and employment law help may be required. If the individual is still under contract, Mr B can expect to receive his salary in full unless the employment contract has been re-drafted.
Note:
If Mr A had not opted out of auto enrolment, A Ltd would also be making pension contributions on his behalf.
So the available grant is based on 80% of gross salary + Employers' NIC + employers pension contributions paid if applicable, subject to the monthly cap of £2,500.
Another example where a business has already closed
In the following example, the business has already closed as instructed by the government.
Worth noting here that we have had a number of enquiries who are in this position and we await clarification of the rules apply.
Mr & Mrs Fuller are the tenants of a pub. The pub is open all year round.
Mr & Mrs Fuller operate the pub through a limited company, Fuller Limited. Both are directors and both take a salary of £8,600 each and withdraw profits of £30,000 each in the form of dividends. They live above the pub and work long hours being in the pub every day.
Fuller Limited employs three permanent staff supplemented by extra seasonal staff in the Summer months and at Christmas.
The pub closed on 20 March as instructed by the Prime Minister and following the Chancellor’s announcement on 20 March, Fuller Limited has furloughed its staff other than Mr & Mrs Fuller who are still living above the pub and dealing with the company administration.
The contracts of employment of the other staff have been varied to permit furloughing and the three permanent staff members have agreed to accept a pay reduction to 80% of the previous level. The seasonal staff for this year have not yet been hired.
Our understanding is that Fuller Limited will be eligible to receive the government grant support under the Coronavirus Job Retention Scheme for the monthly wages of the 3 permanent staff members. No grant support is available to support the living costs of Mr & Mrs Fuller.
Mr & Mrs Fuller will need to look for alternative support while the pub remains closed.
