COVID-19 Furloughed Workers
Guidance for employers for Furloughed Workers
This guidance has been complied from information from HMRC, ICAEW, ACCA and the AAT and is our interpretation of the scheme which has been announced and is intended for employers. Full technical details is still not available yet and therefore should not be taken as absolutely correct. It was updated on the 9th April 2020 at 08.00am
Below is a summary of the scheme.
- Furloughed members of staff must not work for the employer during the period of furlough, however voluntary training course may be used as long as its not part of their normal role and does not directly result in earnings / profit for the employer during this period.
- Furlough is from 1 March 2020, so is to be backdated. It will last for at least 3 months and will be extended if necessary. Note that while the scheme is backdated to the beginning of March as it is intended to support all those employed then, a firm will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer. This will of course be subject to employment law in the usual way.
- The scheme is available for employees on the payroll at 28 February 2020 and on any type of contract. This therefore includes fulltime, part time, agency contracts and flexible or zero hour contracts.
- All UK businesses are eligible, 'any employer on the country, small or large, charitable or non-profit' to use the Chancellor's words.
- The scheme pays a grant (not a loan) to the employer.
- The grant will be paid to the employer through a new online system which is being built for this purpose. There is no detail about the application process at the moment.
- The employer will pay the employee through payroll, and report payments to HMRC using the Real Time Information (RTI) system as usual, as required by the employment contract. This contract may be re-negotiated, but that is a matter for employment law.
- Relevant employees must be designated as furloughed employees. We have a template to use for this and the employee must agree to be furloughed.
- Employers will submit claims to HMRC through a new online portal. This will be three weeks after the start period of the first staff member being furloughed.
- Employers can choose to either pay the employees 100% of the wage of 80% of their wages as it is the employers choice.
- The claim portal for employers will open on the 20th April 2020 for staff who have already been furloughed.
- Directors of Limited companies can be furloughed, however it will require board minutes of the company to consent to this action.
- We have pre-prepared letters for employees, consent acceptance templates and board minutes for directors already prepared. Please get in touch if you require these.
Calculation of the payment
The maximum grant will be calculated per employee and is the lower of:
• 80% of ‘an employee's regular wage’ and.
• £2,500 per month.
Plus the associated employers’ national insurance contributions (NIC) on this amount and the minimum automatic enrolment employer pension contributions on that wage.
Discretionary, commission and bonuses should not be included in the calculation.
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.
X Ltd employs Mr A at an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto enrolment.
Each month, Mr A currently receives net pay of £1,655 which is after deducting PAYE of £191 and employees NIC of £154. On this salary, the employer pays employers' NIC of £177.
The available grant for the employer is the lower of
(a) 80% of £2,000, and
Plus employers' NIC on this amount
So X Ltd claims a grant of £1,600 plus £177 = £1,777.
The net amount of cash required by X Ltd to furlough Mr A based on maintaining the existing salary is £2,000 + £177 - £1,777 = £400 per month.
It is a matter for employment law whether the employer is actually required to pay this top up. Employees and employers can agree to a different arrangement during the furlough.
X Ltd employs Mr B at an annual salary of £42,000, so £3,500 per month. Mr B has opted out of auto enrolment.
Each month, Mr B currently receives net pay of £2,675 which is after deducting PAYE of £492 and employees NIC of £333. On this salary, the employer pays employers' NIC of £383.
The available grant for the employer is the lower of
(c) 80% of £3,500 = £2,800, and
Plus employers NIC, £245, on this amount
So X Ltd claims a grant of £2,500 plus £245 = £2,745.
The net amount of cash required by X Ltd to furlough Mr A based on maintaining the existing salary is £3,500 + £383 - £2,745 = £1,138 per month.
It is again a matter for employment law whether the employer is actually required to pay this top up. Employees and employers can agreed to a different arrangement during their furlough.
What you’ll need to make a claim
To claim, 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
You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim. We will be completing this on behalf of our clients in due course.
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.
We understand that the rules for the scheme are being designed with underlying reference to employment law. If the individual is still under contract, Mr A can expect to receive his salary in full. The grant paid to X Ltd should not be taken as the new maximum cost of employment to the employer unless the contract has been redrafted.
Subject to the employment contract and any amendment, the salary which the employer actually pays the employee during the furlough period may be different to the pay in the reference period and upon which the grant figure is based. However, the employer must pay at least the amount of the grant.
An example of the pub (pubco)
In the following illustration, the business has already closed as instructed by the government and is seeking clarification of our understanding of how the rules apply.
Mr & Mrs Fuller are the tenants of a pub. They have a substantial wet and food trade as the pub is in a coastal location and does good trade over the Summer. The pub is open all year round.
Mr & Mrs Fuller operate the pub through a limited company (Pubco). They take salaries 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.
Pubco 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, Pubco 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 Pubco will be eligible to receive the government grant support under the Coronavirus Job Retention Scheme for the monthly wages of the three permanent staff members. The seasonal staff were not on the payroll at 28 February and so are not eligible. 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.
Frequently Asked Questions
Which businesses are eligible?
Eligible businesses include charities and not-for-profit organisations and will include single director companies, although the same rules will apply as to other businesses. The grant applies to all UK based businesses.
Many owner managed company director/shareholders pay small salaries and the balance of income as dividends. The scheme does not extend to dividends. Only the salary is relevant to the scheme. Such companies must have been paying a salary through a payroll to be eligible for a grant.
How is payment going to work in practice?
We understand that the employer will pay the contractually agreed amounts as required by the employment contract in the usual way. This will involve paying the employee the net salary, and HMRC the PAYE and both primary and secondary national insurance Contributions. The grant will be paid directly to the employer. We do not know how this will operate for employers which use a payroll agency. Employers will claim the grant through a new separate portal to be built by HMRC.
What is the £2,500 maximum grant based on?
As the £2,500 limit to the monthly grant appears to cover all employment costs, it is unclear how benefits in kind, and in particular those being payrolled, will be reflected in the calculation.
For full-time and part-time employees, the base for the 80% calculation is the employee's actual salary as of 28 February 2020.
For employees whose pay varies, HMRC guidance advises "If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either:
- the same month’s earnings from the previous year; or
- average monthly earnings for the year 2019/2020.
If the employee has been employed for less than a year, 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.
Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.
Will entitlement to other employment benefits continue during the period of furlough?
The rules for the grant will not displace the existing employment contract. So for example, we would expect the entitlement to holiday and sick pay would depend on the contract.
Which Employees are eligible ?
Eligible employees are those on the payroll on 28 February 2020. Any employee who was made redundant after that date but who was employed then, can be re-employed and furloughed.
Can I move employees in and put of being furloughed?
We have had many questions asking if workers can be moved in and out of being furloughed if work becomes available to an employer and then ceases again? The scheme is being designed to allow for flexibility so that furloughed staff can be brought back to work, for example, to replace those still working who later become sick. An employee must remain on furlough for a minimum period of three weeks, although a further period may immediately follow the previous furlough if agreed. This will ensure flexibility and permit furloughed employees being brought back to cover, for example, sickness of others. This will again depend on the employment contracts of those affected.
Can I furlough an Apprentice?
You are allowed to furlough apprentices who can continue on with training, however because of the minimum wages legislation and the terms of the apprenticeship contract they must be paid at least minimum wage legislation rates of pay for the period they are furloughed.
Does and employee have to accept being furloughed ?
An employee does not have to accept furlough if offered, but the employer could then make the employee redundant instead using the usual employment law procedure.
Can a furloughed employee volunteer, complete training or do a little work for me ?
The rules allow furloughed workers to undertake training while they are on furlough. The condition is that the worker must not be making money for the employer. Likewise volunteering for the NHS would be allowed as it does not form part of your employment.
It is a condition of the scheme that the employee must do no work at all during the furlough period. The intention of the scheme is to allow employers to pay staff who are without work.
What if my employees have more than one employment ?
While we understand that an employee who is furloughed can do no work at all, the employee can hold a separate employment with a different and unconnected employer which will be unaffected.
What if my employees had been on the sick on or before the 28th February 2020 ?
We simple don’t have the answer to this at present. We would assume the will be retained on the 80% or normal wages if they had a fixed term contract. If employees had variable hours or zero hour contract we would estimate that the payment is based on an average earned when they were not sick.
If your employee is on Statutory Sick Pay or self-isolating should get Statutory Sick Pay, but can be furloughed after the sick pay period has elapsed.
Can employees already on unpaid leave be furloughed
Employees on long term unpaid leave (such as gardening leave) cannot be furloughed, unless they were placed on unpaid leave after 28 February.
What about employees on Materinty Pay, adoption 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.
What if 80% wages fall below the 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 of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.
However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
When can I apply for the Grant ?
HMRC have recently updated the guidance to agents and have said the Beta program is in operation now, however this is by invitation only. We have been informed that the portal will open to business and their agents on the 20th April 2020.