The awaited detail of how the scheme will work has been released by the government. We set out the further appropriate detail to update our earlier newsletter on the subject.
When will the grants be available?
We expect the scheme to be up and running by the end of April. Hopefully this will coincide with the paying monthly salaries then.
How do you claim?
Employers will use a portal to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Employers can use this scheme at any time during the period.
If Bayliss Ware operate your payroll, just tell us who you want to furlough and when from and we will take care of the notification and claim processes.
Who can claim?
The scheme is open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020 and have a UK bank account.
Any UK organisation with employees can apply, including:
- recruitment agencies (agency workers paid through PAYE)
- public authorities
Employees you can claim for
Furloughed employees must have been on your PAYE payroll on 28 February 2020, and can be on any type of contract, including:
- full-time employees
- part-time employees
- employees on agency contracts
- employees on flexible or zero-hour contracts
The scheme also covers employees who were made redundant since 28 February 2020, if you rehire them.
Can employees do any work when on furlough?
Basically no. They cannot do anything to generate revenue or perform any services for the business.
Will the furloughed wage be subject to tax and NIC?
While on furlough, the employee’s wage will be subject to usual income tax and other deductions.
What if I put my staff on reduced hours?
If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed.
Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.
So, you need to make decisions on who to furlough, without discrimination and based on who you have work for or not within your business. You need to talk to them first and get their agreement to the furlough, particularly if you are only going to pay them the 80% you will get back from the government, as they effectively need to agree a change to their contract as far as pay is concerned. We suggest you then get them to indicate their agreement in writing, with email being an acceptable form of written communication.
You need to write to furloughed employees
To be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of the communication.
If your employee is on unpaid leave
Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.
If your employee is on Statutory Sick Pay
Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this. Employees who are shielding in line with public health guidance can be placed on furlough.
If your employee has more than one job
If your employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
If your employee does volunteer work or training
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 your organisation.
However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the National Minimum wage for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
If your employee is on maternity leave, contractual adoption pay, paternity pay or shared parental pay
Individuals who are on or plan to take Maternity Leave must take at least 2 weeks off work (4 weeks if they work in a factory or workshop) immediately following the birth of their baby. This is a health and safety requirement. In practice, most women start their Maternity Leave before they give birth.
If your employee is eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance.
Employees who qualify for SMP, will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is currently £148.68 a week, rising to £151.20 a week from April 2020.
If you offer enhanced (earnings related) contractual pay to women on Maternity Leave, this is included as wage costs that you can claim through the scheme.
The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.
Work out what you can claim
You will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage.
For both full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%.
Fees, commission and bonuses should not be included.
Can I pay my employees less than the 80% I will receive?
At a minimum, employers must pay their employee the lower of the 80% of their regular wage or £2,500 per month. An employer can also choose to top up and employee’s salary beyond this but is not obliged to under this scheme.
Employees whose pay varies
This refers to zero hours contracts and other variable hours staff.
If the employee has been employed for a full twelve months prior to the claim, you can claim for the higher of either:
- the same month’s earning from the previous year
- average monthly earnings from the 2019-20 tax year
If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
Employer National Insurance and Pension Contributions
All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees. But you can claim 80% of those too as part of the scheme.
National Living Wage/National Minimum Wage
Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working. Therefore, furloughed workers, who are not working , must be paid the lower 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW
What you’ll need to make a claim
To claim, you will need:
- your PAYE 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
You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
How often can I claim?
You can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until the 1 March if applicable.
This suggests that you can claim that employees were furloughed from the point you sent them home with no work from 1 March, but not if they were on sick leave at that time (SSP). As long as you get their subsequent agreement to furloughing following the above procedures.
What to do after you’ve claimed
Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to a UK bank account.
You should make your claim in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll.
What about directors of their own company?
If directors really have no work for themselves, they can be put on furlough also. Maybe if there are two or more directors, one could deal with what work is left and the others go on furlough. The 80% you could reclaim is only based on salary though and not dividends. As far as your salary is concerned, the same rules above apply.
27 March 2020