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Furlough & the Job Retention Scheme Q&A

We have written the below Q&A to help answer any questions you may have regarding the Government's Furlough and Job Retention Schemes. 
 
 

What is a “furloughed” employee?

The word furlough means a temporary leave of absence from work. A furloughed employee is someone who, rather than being dismissed for redundancy or being put on lay off, is kept on the payroll during a period where the employer cannot offer any work.

 

Do I need to get employees to agree to the furlough?

Yes, unless there is a contractual clause allowing employees to be furloughed. If you don’t have a clause in their contract you will need to obtain agreement to designate them as furloughed and reduce their pay. 

Employers must have an agreement in writing that the employee will cease to do all work for the duration of furlough and accept only 80% of their pay.

Records detailing the employee’s acceptance to the terms should be kept on file for five years.

 

When does the Scheme start?

HMRC’s online portal opened on the 20 April 20. The scheme can be backdated for furloughed employees from 1 March 20. The scheme has been extended until at least the end of June 20.
 
 

Whose wages can I claim?

To be eligible, the individual must be PAYE, must have been on the payroll on 19 March 20 and have been notified to HMRC on an RTI submission on or before 19 March 20.

Full time, part-time, temporary and zero-hours and fixed-term staff can all be included as long as they are PAYE. 

Officeholders, (including directors), salaried members of LLPs, agency workers and those who fall into the employment status category of ‘worker’ can be included.

 
 

What do we use to calculate employee pay?

Salaried employees’ pay is that which they earned in the last pay period prior to 19 March 20.

You can reclaim up to 80% of wage costs up to a cap of £2500 per month, plus the associated employer National Insurance contributions and minimum auto-enrolment pension contributions on that reduced wage. 

Those with variable or irregular pay is different. If the employee has been employed for a full 12 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.

In line with other employees, claims for employees furloughed on return from family-related statutory leave, sick leave, sabbatical and unpaid leave should be calculated against their salary, before tax, not the pay they received whilst on family-related statutory leave.

 
 

What is covered in terms of elements of pay?

The Government guidance is that commission, bonuses and discretionary payments are not included when calculating pay. All elements that you are obliged to pay your employees including wages, past overtime, fees and compulsory commission payments can be included.
 
 

Will the payment be taxable?

Yes, payments you make to furloughed employees will be subject to PAYE and National Insurance contributions.
 
 

Will I be able to recover an Employer’s NI contributions and pension contributions under the Job Retention Scheme?

You remain liable for Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of furloughed employees.

However, you can claim a grant from HMRC to cover:
•    wages for a furloughed employee (equal to the lower of 80% of an employee’s regular salary or £2500 per month)
•    the Employer National Insurance contributions associated with that (capped) payment, plus
•    minimum automatic enrolment employer pension contributions in respect of that (capped) payment.
•    However, if the £4000 Employer Allowance is claimed you cannot claim the NI ERS cost associated with your CJRS

 
 

Do I have to meet the minimum wage with the 80%?

Minimum wage applies to hours worked. So, if employees are furloughed and do not work and 80% of their normal earnings would take them below the NMW, this is fine.

 

How do I apply for the reimbursement? 

Claims are processed via the HMRC online portal, open from 20 April 2020.

To claim, will need you to complete the attached form and provide the following info to your WR Payroll Manager:

•    Employer PAYE scheme reference number
•    Number of employees being furloughed
•    National Insurance Numbers for the furloughed employees
•    Names of the furloughed employees
•    Employer Name 
•    The claim period 
•    Amount claimed 
•    Their bank account number and sort code
•    UTR number for either the company/partnership/sole trader
•    Bank account confirmation –  business or personal

You should retain all records and calculations in respect of claims, including records of the amount claimed for each furloughed employee and the period for which each employee is furloughed and a claim made under the scheme.

 

Can annual leave be taken at the same time as furlough?

Yes. It was also clarified that employers must pay the employee’s normal pay for any annual leave but will still only be able to claim 80% of pay through the scheme. The rest must be topped up by the employer.

Normal rules will apply to annual leave requests from employees during furlough which means that employers can refuse the request. Some employers may choose to do this in light of the requirement to ‘top-up’ pay to 100% during annual leave.

 

22 April 2020 | Written by Natalie Pitt, People & Culture Manager 

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