The coronavirus pandemic has led to many employers considering furloughing their employees. But what does this mean and what do employers have to do?
The economic uncertainty fuelled by the spread of coronavirus has meant that many employers have been faced with the difficult decision of what to do when either some roles are no longer required, or when there is little or no work for their employees within the organisation.
Typically, at times such as these, employers must choose between one of two options; laying off employees or making them redundant.
However, the plans proposed by the Chancellor, Rishi Sunak, under the Coronavirus Job Retention Scheme have been designed to support employers and minimise the number of job losses.
What is a furloughed employee?
A furloughed employee is someone who has been placed on leave from work without pay. The employer ordinarily determines the length of the suspension.
Typically, an employer will furlough employees as a means of cutting costs when they do not want to necessarily lay off staff or terminate their contract, but at that time lack the resources to continue paying them.
What is the Coronavirus Job Retention Scheme?
The Coronavirus Job Retention Scheme has been designed to support employers whose operations have been severely affected by the coronavirus crisis. The Scheme will allow employers to keep employees on the payroll and keep their contract of employment in place.
The Scheme, while temporary, is open to all UK employers for a period of at least eight months backdated to March 1st, 2020.
Up until the end of July, employers will be able to claim up to 80% of furloughed employees’ usual monthly wage costs, up to the value of £2,500 per month, as well as employer National Insurance contributions (NICs) and minimum automatic enrolment employer pension contributions on the wage.
From August, the Scheme will change and employers will have to begin contributing the employer NICs and pension contributions.
In September and October, employers will then be required to begin contributing to employee wages.
What are the latest updates to the Coronavirus Job Retention Scheme?
On the 29th of May, Rishi Sunak announced updates to the Coronavirus Job Retention Scheme.
These updates included:
- The last date for placing a new employee on furlough leave is 10th June, no new employees can be added to the scheme after this date. If an employee has previously been on a period of furlough before this date then can be furloughed again.
- The scheme has been extended until the 31st of October for those on furlough leave on the 10th of June.
- From the 1st of July, employees will be able to return to work part-time while being furloughed with employers covering the cost of the worked wages.
- From the 1st of August, HMRC will continue to pay employers 80% of their wages; however, employers will be responsible for covering the employer NICs and employer pension in full.
- From the 1st of September, HMRC will pay employers 70%; however, employers will be responsible for covering the employer NICs and employer pension in full and the additional 10% employee wage.
- From the 1st of October, HMRC will pay employers 60%; however, employers will be responsible for covering the employer NICs and employer pension in full and the additional 20% employee wage.
Further guidance on how to operate the new furlough scheme is being published by HMRC on June 12th, 2020.
When can a claim be made and what information is required?
The Scheme went live on the 20th of April. Employers can begin their claim via this link.
What information is required to make a furlough claim?
A Government Gateway (GG) ID and password – if an employer doesn't already have a GG account, then they can apply for one online, or by visiting GOV.UK and searching for 'HMRC services: sign in or register'.
Employers will also require their employees': Name, National Insurance (NI) number, claim period and claim amount and PAYE/employee number (optional).
If an employer is furloughing fewer than 100 staff, then they will need to input information directly for each employee.
If an employer is furloughing more than 100 staff, then they will need to upload a file with information for each employee. The system will be accept .xls, .xlsx, .csv, and .ods files.
What to do once a claim has been made?
Once a claim has been made, employers should keep a note or print out the claim reference number. Employers should also retain all records and calculations of the claims just in case HMRC need to get in touch.
Employers should also tell furloughed workers not to get in touch with HMRC directly as they will not be able to provide any information about individual claims.
Who can claim for the Coronavirus Job Retention Scheme?
Any organisation can claim the Coronavirus Job Retention Scheme, providing that they meet several essential criteria.
- Any organisation with employees can apply; this includes businesses, charities, recruitment agencies and public authorities.
- The organisation in question must have created and started a PAYE Payroll scheme either on or before March 19th, 2020 and must have a UK bank account.
The vast majority of public sector organisations are not expected to use the Scheme. This is because a lot of public sector organisations are continuing to provide essential public services or are contributing to the response of the coronavirus pandemic.
When a company is under the management of an administrator, the administrator will be allowed to access the Coronavirus Job Retention Scheme. However, an administrator is only expected to access the Scheme if there is a reasonable chance of rehiring workers in the future.
Which employees can be claimed for in the Coronavirus Job Retention Scheme?
An employee must have been on a company’s PAYE payroll on or before March 19th, 2020, and must have been notified to HMRC on an RTI submission on or before the same date.
Employers should hold discussions with their staff and should agree on any amendments to the employment contract. Equality and discrimination laws are applicable during the furloughing process.
Furloughed employees should be written to by their employers to confirm that they have been furloughed. Employers should also keep a record of all communications.
Employee’s on any type of contract can be furloughed, including:
👉 Full-time employees
👉 Part-time employees
👉 Employees on agency contracts
👉 Employees on flexible or zero-hour contracts
Employees who were made redundant after February 28th, 2020, can be furloughed if their employer rehired them and reported them on an FPS on or before March 19th, 2020.
To be eligible for the subsidy up to June 30th, 2020, furloughed employees must not undertake any work on behalf of their employer nor can employees be furloughed for part of their working week. While on furlough, the affected employees’ wages will be subject to the same income tax and deductions as per usual.
However, from the beginning of July, any businesses using the Scheme will be able to bring previously furloughed employees back to work on a part-time basis. The Government will continue to pay 80% of wages for any normal hours they do not work.
Are individuals who are not employees eligible for the Coronavirus Job Retention Scheme?
Anyone who is paid by PAYE is eligible for the Scheme. This includes office holders (including company directors), salaried members of Limited Liability Partnerships (LLP), agency workers (including those employed by umbrella companies) and limb workers.
Paid by PAYE but not employees - who is eligible?
1. Office holders (including company directors)
2. Salaried members of Limited Liability Partnerships (LLP)
3. Agency workers (including those employed by umbrella companies)
4. Limb workers
1. Office holders and the Coronavirus Job Retention Scheme
Office holders can be furloughed and receive support through the Scheme. The furlough, and any ongoing payment during furlough, will need to be agreed between the office holder and the party who operates PAYE on the income they receive from the holding office.
As office holders, salaried company directors are eligible to be furloughed and receive support.
Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that these directors should be furloughed.
Where one or more individual directors’ furlough is decided by the board, then this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.
2. Salaried members of LLP and the Coronavirus Job Retention Scheme
Members of LLPs who are considered employees for tax purposes - i.e. salaried members - under the Income Tax Act 2005, are eligible to be furloughed and receive support for the Scheme.
The rights and duties of a member of an LLP are outlined in the LLP agreement and in the absence of an agreement, default provisions in the LLP Act 2000, are based upon the company and partnership law.
An agreement of this type may include a separate agreement between the LLP and an individual member setting out the terms applicable to that member's relationship with the LLP.
To furlough a member, the terms of the LLP agreement may need to be varied by a formal decision of the LLP.
3. Agency workers and the Coronavirus Job Retention Scheme
Agency workers who are paid through PAYE are eligible to be furloughed. This includes those who are employed by umbrella companies.
Furlough should be agreed between the agency, who will act as the deemed employers and the worker. It is recommended that the discussions surrounding the furlough arrangement include the end client.
As with employees, agency workers should perform no work for or on behalf of the agency that has furloughed them while they are furloughed. This includes the agency's clients.
Where an agency supplies clients with workers who are employed by an umbrella company that operates the PAYE, the umbrella company and the worker will have to agree on the terms of the furlough.
4. Limb workers and the Coronavirus Job Retention Scheme
Limb workers who are paid through PAYE can be furloughed.
Those who pay tax on their trading profits through Income Tax Self-Assessment may instead be eligible for the Self-Employed Incomes Support Scheme (SEISS).
👉 Can an employee be furloughed if they start employment after the 19th of March?
No! Employees who started employment and were reported on an FPS on or before March 19th are eligible to be furloughed. If an employee starts before this date but has not been reported to HMRC by the 19th, then they will not be able to be furloughed under the Coronavirus Job Retention Scheme.
👉 How long can someone be furloughed for?
An employee can be furloughed for a minimum of three consecutive weeks.
👉 How long does the furloughed period last for?
The Coronavirus Job Retention Scheme runs for a period of eight months, from March 1st until October 31st.
👉 Can an employee be furloughed multiple times?
An employee can be furloughed multiple times, providing that each furlough period meets the minimum requirement of three consecutive weeks.
👉 Can an employee on unpaid leave be furloughed?
Employees can be furloughed if they were placed on unpaid leave after February 28th, 2020. If they were placed on unpaid leave before that date, then they will be unable to be furloughed.
👉 Can an employee receiving Statutory Sick Pay (SSP) be furloughed?
Employees who are on sick leave or are self-isolating in line with public health guidance are eligible to receive SSP, providing they meet the right criteria; however, they can be furloughed if they would have been ordinarily furloughed when their sickness absence ended. They must not receive sick pay whilst furloughed.
👉 Can an employee who is "shielding" in line with public health guidelines be furloughed?
Employees who are unable to work because they are respecting public health guidelines can be furloughed.
👉 Can employees with "caring responsibilities" be furloughed?
Employees who are unable to work due to caring responsibilities as a result of coronavirus can be furloughed.
👉 Those who are on fixed-term contracts, can they be furloughed?
Employees on fixed-term contracts can be furloughed. Their contracts can be renewed or extended during the furlough period without breaking the terms of the Scheme. However, when a fixed-term employee's contract comes to an end, and the contract hasn't been extended or renewed, then the employer will no longer be able to claim a grant for them.
👉 How much notice does an employee need prior to being furloughed?
There is no set notice period to give employees who are going to be furloughed.
👉 Can an employee with more than one job be furloughed?
An employee who has more than one employer can be furloughed for each job they hold. As each job is separate, the cap applies to each employer individually.
👉 Can an employee undertake another job when furloughed?
An employee can work for a different company while furloughed, providing that their original employment contract doesn't prohibit it.
👉 What happens if an employee does volunteer work during their furloughed period?
Volunteer work can be done by employees during the furloughed period, subject to the fact that it does not provide a service or generate revenue for the business that has furloughed them.
👉 What happens if an employee does training during their furloughed period?
Training can be done subject to the fact that it does not provide a service or generate revenue for the business. However, if a company requires their employee(s) to complete online training courses whilst they are furloughed, they will need to be paid at least the National Minimum Wage (NMW) or National Living Wage (NLW) rate for this time even if this exceeds the 80% reclaimed amount.
👉 What is the situation if an employee is on Maternity, Paternity or Adoption Leave?
Any individual who is already on or plans to take maternity, paternity or adoption leave cannot be furloughed. In this case, the standard maternity leave regulations would apply.
While employees are unable to furlough an employee who is on a period of statutory leave, anything they pay them above the statutory entitlement - i.e. occupational or contractual parental pay schemes - can be reclaimed in the same way as those employees on furlough leave.
👉 Do furloughed employees still accrue holiday during this period?
Yes. Furloughed employees retain the same employment and contractual rights during this period.
👉 Can company directors and shareholders be furloughed?
Directors who pay themselves through their payroll will be eligible for the Job Retention Scheme. It is unlikely that they will qualify for the Self Employment Income Support Scheme in addition to this.
👉 How much can employers claim?
Payments that employees are required to receive - e.g. wages, past overtime, fees and compulsory commission payments are included. However, any discretionary bonuses (including tips) and commission payments and non-cash payments should be excluded.
Up until the end of August, employers will receive a grant from HMRC to cover 80% of an employee’s regular wage or £2,500 per month, whichever is lower. They will also be covered for the associated Employer NICs and minimum automatic enrolment employer pension contributions on the subsidised wage.
An employer can choose to top up an employee’s salary beyond the minimum; however, they are not required to do so. Employer NICs and automatic enrolment contribution on any additional top-up salary will not be funded through the Coronavirus Job Retention Scheme.
From September, the amount that employers can claim will change. The Government will pay 70% of wages up to a cap of £2,187.50 for the hours the employee does not work. – employers will pay 10% of wages to make up 80% of the total up to a cap of £2,500.
In October, the Government will pay 60% of wages up to a cap of £1,875 for the hours the employee does not work – employers will pay 20% of wages to make up 80% of the total up to a cap of £2,500.
👉 How are the salaries of full and part-time employees calculated?
Employers should use the gross salary of both full and part-time employees, as of March 19th, 2020, to calculate 80%.
If an employer calculated a claim based on the previous guidance (February 28th, 2020), and the claim differs from the salary in the last pay period prior to March 19th, 2020, then the employer can choose to use the calculation from the initial claim.
👉 Can an employer claim 80% capped at £2,500 of gross salary, plus employers NICs and pension costs?
Up until the end of August, employers will receive 80% of the gross salary capped at £2,500, but HMRC will no longer fund the employer NICs and pension.
From the beginning of September, the amount employers receive changes slightly.
The Government will pay 70% of wages up to a cap of £2,187.50 for the hours the employee does not work – employers will pay full ER NICs, full pension contributions and 10% of wages to make up 80% of the total up to a cap of £2,500.
There's another small adjustment in October, the Government will pay 60% of wages up to a cap of £1,875 for the hours the employee does not work – employers will pay full ER NICs, full pension contributions and 20% of wages to make up 80% of the total up to a cap of £2,500.
👉 How can an employer calculate the salary of an employee whose pay varies, such as zero-hour workers?
If the employee has been employed for a full year prior to the claim, then the employer can claim for either the same month’s earnings from the previous year; or the average monthly earnings from the 2019/20 tax year, whichever is higher.
If the employee has been employed for less than a year, then the employer can claim for an average of their monthly earnings since they first started working for their organisation.
👉 How can Employer NICs and pension contributions be worked out?
All employers will continue to remain liable for associated Employer NICs and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.
Employers are unable to claim for any additional NICs or pension contributions they make because they chose to top up the employee's salary, nor can they claim for any pension contributions they make that are above the mandatory employer contribution.
👉 How will salary sacrifice be impacted by furlough payments?
The reference salary should not include the cost of non-monetary benefits provided to employees. This includes taxable Benefits in Kind.
The reference salary used in the furlough calculation should be the base pay less benefits provided through salary sacrifice schemes, including pension contributions.
Where the employer provides benefits to furloughed employees, this should be in addition to the wages that must be paid under the terms of the Coronavirus Job Retention Scheme.
Typically, an employee is not allowed to switch freely out of a salary sacrifice scheme, unless there is considered to be a "life event".
HMRC is of the opinion that the coronavirus pandemic constitutes a life event that could warrant amendments to salary sacrifice arrangements.
👉 What about those who earn the NLW or NMW?
Those who are on the NLW or NMW are only entitled to this amount for the hours they work. Consequently, furloughed employees must be paid 80% of their salary or £2,500 based on their usual working hours, even if this falls below the NLW or NMW.
👉Are the Apprenticeship Levy and Student Loans affected?
The Apprenticeship Levy and student loans should continue to be paid as usual as the grants from the Coronavirus Job Retention Scheme do not cover these.
👉 Can an employer make multiple claims for the same employee?
An employer can only submit one claim per employee every three weeks; this is because this is the minimum amount of time an employee can be furloughed.
During the eight-month period between March 1st and October 31st, an employer can make multiple claims for the same employee, providing they meet the minimum furlough period.
👉 What is required to make a claim?
- An ePAYE reference number
- The number of employees being furloughed
- The claim period (start and end date)
- The amount claimed (per the minimum length of furloughing of three consecutive weeks)
- A bank account number and sort code
- A contact name
- A phone number
An employer will need to calculate the amount they are claiming and HMRC will retain the right to audit all aspects of the claim retrospectively.
👉 How does employment allowance impact employer NIC reclaims?
Employers who are still eligible to receive the £4,000 employment allowance should offset this against any employer NIC before making a claim to HMRC.
👉 What will happen after a claim has been made?
Once HMRC has received a claim, and if the claim is successful, they will pay it via BACS payment to a UK bank account.
All claims should be made in accordance with a business’s actual payroll amounts at the point at which payroll is either run or in advance of an imminent payroll. The employee must receive all of the grant, and no fees can be charged from the money that is granted.
👉 What happens when the Government ends the Coronavirus Job Retention Scheme?
Once the Coronavirus Job Retention Scheme has come to an end, employers must decide whether furloughed employees can return to their jobs. If the employer determines that they no longer wish to continue with a furloughed employee or furloughed employees, then they may consider termination of employment. In this instance, a formal process such as redundancy will need to be followed.
👉 What happens with Income Tax, Employee NICs & Student Loans?
The wages of furloughed employees will be subject to Income Tax, NI and student loans, as is normal. Employees will also continue to pay their usual pension contributions as per their pension scheme rules unless they have chosen to opt-out of saving into a workplace pension scheme.
Employers will also be liable to pay Employer NICs on wages paid, as well as continuing to contribute to the employees' pensions as per the pension scheme rules unless an employee has opted out of their workplace pension scheme.
👉 How is the grant associated with the Coronavirus Job Retention Scheme treated for tax purposes?
Any payments received by a business under the Scheme are made to offset the deductible revenue costs. Therefore, they must be included as income in the business’s calculations of its taxable profits for Income Tax and Corporation Tax. This is consistent with the regular procedure.
However, businesses can deduct employment costs as normal when looking to calculate taxable profits of the purpose of Income Tax and Corporation Tax.
👉 What happens if an employer overclaims?
If an employer has overclaimed through the Coronavirus Job Retention Scheme, then they can either:
- Correct it in their next claim.
- Make a payment to HMRC, but only if they're not making any further claims.
An employer will require a 14 or 15 digit payment reference number that begins with X and they will need to contact HMRC to get their payment reference number.
Find out more about how to pay Coronavirus Job Retention Scheme grants back here.
👉 Can a claim be a deleted?
If an employer makes a claim but then wishes to delete it, then they are now able to do so providing that they do within 72 hours of submitting. This change has been designed to support employers and facilitate the claim making process.
Previously, if employers made an overclaim, then they would have to account for this in their next claim. If they weren't making any further claims, then they would have been required to contact HMRC. Should they have underclaimed, they would also have had to contact HMRC.
In the event that an employer does make an error and doesn't delete the claim within 72 hours, then they will still be required to follow the above steps.
PayFit and employee furloughs
We've updated our app to help customers with any employee furloughs they may choose to implement within their organisation. There is also advice and support regarding what can and cannot be done within the app.
The furlough calculation is done automatically within the app. The reclaimable employer contributions are also automatically calculated for NI and pensions.
What can the PayFit app do?
- Provide support on furloughing
- Automatically calculate the cost of furlough and the reclaimable employer contributions for NICs and pensions
- Provide a report for all pay related to furloughed leave
- Facilitate flexible furlough
PayFit - employee furloughs.
If you’re interested in finding out about how PayFit can help support your payroll and HR processes, then why not book a demo with one of our product specialists?
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