26th March 2020
In today’s coronavirus business update we detail our understanding of the Coronavirus Job Retention Scheme (the furlough scheme) and how this will work based on the information that has published so far by the government.
The scheme is an extremely important element in the fight to keep UK business functioning and in keeping people employed during the time when they are not allowed to work, ie while they are furloughed.
How Does the Scheme Work?
The scheme allows employers to directly access grant funding (not a loan, so no repayments are due) to allow them to still pay up to 80% of the wage costs (capped at £2,500 per employee) of employees who are ‘furloughed’ workers.
The payment of the remaining 20% of wages is at the discretion of the employer.
What is a furloughed worker?
An employee is not working (because of the current crisis) and would have otherwise been laid off but has been retained on the payroll.
Which employers are eligible?
It is available to all UK businesses irrespective of their size, who operate a PAYE scheme. The scheme is also extended to include charities and not for profit organisations.
An employee cannot work if they are furloughed. However, we do not know yet if they can return in and out of work if more work becomes available, (e.g. an existing staff member gets sick). Given the scheme is designed to be flexible, we would hope some sort of mechanism is put in place for this.
Which employees are eligible?
The scheme applies to all employees on the company payroll as at 28 February 2020.
From when does the grant apply?
The scheme will be backdated to take effect from 1 March 2020 and will apply for the three months from this date. If deemed necessary the government will extend the scheme beyond May 2020.
What does the grant cover?
The grant covers up to 80% of employment costs per an employee. Based on published information available, it is our belief this will also include employers’ pension contributions and National Insurance Contributions.
As mentioned, this is capped at £2,500 per an employee for each individual month.
What is the grant based on?
This has not yet been fully confirmed, as there are areas that need clarification. For example what to do for new employees and seasonal staff.
For new staff, one thought is that it will be based on their wages in February 2020.
For seasonal staff, it may be based on their corresponding monthly payments they received in 2019. For example, what did they receive in March – May 2019. Further details are to be announced.
How to apply for the scheme?
The first thing an employer will need to do is to designate applicable staff members as furloughed employees. The employer will require the agreement of an employee to do this (unless there is a clause in the contract). If no agreement can be reached in this regard, legal advice may be necessary.
If the status of an employee has changed, they will need to be informed in writing, they will also need to be advised of the following as advised by ACAS:
ACAS information can be found at: https://www.acas.org.uk/coronavirus/if-the-employer-needs-to-close-the-workplace
The next step is to advise HMRC who your furloughed workers are through the new HMRC online portal that is being setting up.
When can I access this grant?
Unfortunately, this is not ready yet as the portal has not yet been set up by HMRC. However, it is the intention of HMRC that these grant payments will begin to be made from April 2020.
As this support is delayed, it is advised that if a business needs these funds urgently it makes use of the Coronavirus Business Interruption Loan scheme to support cash flow. Details of this may be found on our website in earlier publications.
How will this scheme be administered?
The pay will be processed through RTI in the usual manner as per the terms of the contract. Given the change in status of an employee the contract may need to be re-negotiated for this period and legal advice may be required.
The employer will still need to pay HMRC, PAYE plus Primary and Secondary NIC in the normal manner. The employee will continue to receive their pay net.
What about owner managed businesses?
Directors of these organisations tend to pay themselves smaller salaries as they mainly extract money through dividends.
The scheme at this moment is not relevant to dividend payments. Based on current guidance, only the salary payments a director receives will be relevant.
This initially suggests all directors are eligible for the scheme. However, if the status of a worker (including a director) changes to furloughed they cannot continue to undertake duties for the company until they revert to their normal status.
We would envisage many directors would wish to continue to work (and so not be classed as furloughed) to ensure they help their companies navigate their way through this current crisis.
Also under company law, each company must have at least one active director, suggesting not all directors in a company can be furloughed. However, this point has not been addressed and we await more detail on this matter.
We appreciate there are still many unanswered questions in this regard and we hope more detail will be released shortly to clarify these outstanding matters.
Please remember we are here to help as much as possible through these challenging times. We will continue to keep you updated as further announcements are made over the coming days.
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