What did the Chancellor announce in relation to furloughed workers?<\/strong><\/p>\nOn Friday 20th March, the Chancellor announced under the Coronavirus Job Retention Scheme, all UK employers will be able pay some of the salary costs of their furloughed employees with a monthly grant.<\/p>\n
Unfortunately there is scant detail about the scheme. So, we have collated our frequently asked questions about the scheme and added it to this section of the website. We will continue to update the website, and so if you wish you can bookmark the site. And you can subscribe to our newsletter (see below) to keep updated.<\/p>\n
\u00a0<\/strong>What does it mean to furlough a worker?<\/strong><\/p>\nThis is primarily an American phrase that the Chancellor of the Exchequer used to describe a temporary leave of absence<\/em> due to the special needs of the company or employee. In the UK we are more used to saying, laying off<\/em> a worker.<\/p>\n\u00a0<\/strong>How much is the grant?<\/strong><\/p>\nIf the employee is classified as a furlough worker, remains employed but does not undertake work while furloughed, the employer can then claim a grant of 80% of the gross salary costs up to a cap of \u00a32,500 per calendar month. This equates to annual salary cost of \u00a337,500.<\/p>\n
What about the remaining 20% of the employment costs?<\/strong><\/p>\nTo claim the grant under this scheme you are not obligated to pay the remaining 20% of the employment costs. However, you need to ensure that the employee\u2019s rights are not prejudiced, and so we strongly advise<\/strong> you contact your HR consultant or employer to ensure you remain within the current employment legislation.<\/p>\nWhat are employment costs?<\/strong><\/p>\nThis\u00a0 includes gross salary. In addtion the employer can reclaim<\/p>\n
\n- employer\u2019s national insurance costs and<\/li>\n
- employer\u2019s pension contribution costs (up to the auto-enrolment limits – usually 3% of gross salry)<\/li>\n<\/ul>\n
Is it for everybody? <\/strong><\/p>\nThe scheme is for all employers in the UK, irrespective of size and sector.<\/p>\n
Is this a subsidy for me to continue to employ staff?<\/strong><\/p>\nNo. In the scant details we have so far, the scheme is only where employees have been furloughed.<\/p>\n
Furloughed workers being referred to as workers who remain on payroll but who are temporarily not working<\/em>.<\/p>\nThis is a key point, will it only apply where the employer has to lay the workers off because they cannot work or there is no work for them.<\/p>\n
Can my employee insist they are furloughed?<\/strong><\/p>\nNo, it is the employer who chooses who and when to furlough staff. Your staff member might be attracted by staying at home and receiving 80% of their salary, but it is the employer who makes the grant application, not the employee. Ultimately the employer needs to decide on the staffing levels of their own business.<\/p>\n
If the workload has reduced, but I still need the worker part-time, do I get a subsidy?<\/strong><\/p>\nDespite the Chancellor speaking on Friday 20th<\/sup> March, as of 10am on 24th<\/sup> March, there are no further details. We don\u2019t know for certain, but it appears no subsidy is available where the worker continues to do some work<\/p>\nIt seems absurd that where, for example, the workload has reduced so that the employee is only needed 3 days a week say, that they will then receive 60% of their salary, and the employer will not receive a grant. In this situation both the employee and the employer would be better off financially if the worker was furloughed. But we do appear to be in this absurd situation. One can understand policy being made on the hoof given the circumstances.<\/p>\n
Ok, I understand furloughed workers cannnot do any work for me, but can I keep in touch with them? <\/strong><\/p>\nAgain, there is no guidance on this. We would recommend that you do keep in touch, check on your staff\u2019s welfare, and keep them updated on the situation at work.<\/p>\n
I have identified some employees that need to be furloughed, what do I do<\/strong> next?<\/strong><\/p>\nIf your contract with the employee has provisions for laying off staff, you can write to them to furlough. At Jack Ross, we are not employment lawyers, and so we strongly recommend that you speak with your existing HR consultant, or employment lawyer to clarify any such provisions in the employee\u2019s contract.<\/p>\n
If there is no such provision in the employment contract, it would be by agreement with the worker. You are still required to abide my current employment legislation.<\/p>\n
The limited government information refers to employers advising they will discuss with employees becoming classified as a furlough worker<\/em>. This suggests discussion \/ consultation and agreement as an alternative to lay off \/ redundancy with pay being set at 80% (or higher if you chose to pay up to 100%.<\/p>\nSelecting and telling affected employees<\/strong><\/p>\nEmployers must select employees for furlough in a fair way to avoid any discrimination.\u00a0 They need to also get agreement from the employee to do this, unless it\u2019s covered by a clause in the employment contract.<\/p>\n
If an employee disagrees with their employer’s decision, they’ll need to talk to their employer and try to come to an agreement.<\/p>\n
Changing an employment contract<\/strong><\/p>\nIf an employer cannot reach an agreement, they may want to change the written terms in an employee\u2019s contract.<\/p>\n
If there are more than 20 employees affected, employers will need to consult staff representatives (\u2018collectively consult\u2019).<\/p>\n
Furlough agreements<\/strong><\/p>\nAny furlough agreements should be in writing. It’s a good idea to include:<\/p>\n
\n- the date furlough starts<\/li>\n
- when it will be reviewed<\/li>\n
- how to keep in contact during furlough<\/li>\n<\/ul>\n
Speak to your HR consultant or employment lawyer if you need help drafting a furlough agreement. If you don’t have that support, contact us and we will help.<\/p>\n
What if I furlough a worker now, but then need them intermittently until the virus is under control?<\/strong><\/p>\nIf you need them back at work, you can do so after a minimum of three weeks. If you need to furlough again, you are able to do so, subject to the employee being on furlough leave for three weeks.<\/p>\n
What about employees who have already had their employment terminated?<\/strong><\/p>\nThe scheme is running for three months backdated to 1 March. And so workers who have only recently had their employment terminated may be able to access the scheme. That is the employer’s decision.<\/p>\n
How can I calculate and claim the grant?<\/strong><\/p>\nThe maximum grant will be calculated per employee and is the lower of:
\n\u2022 80% of \u2018an employee’s regular wage\u2019 and.
\n\u2022 \u00a32,500 per month.
\nPlus\u00a0<\/strong>the associated employers\u2019 national insurance contributions (NIC) on this amount and the minimum automatic enrolment employer pension contributions on that wage. Fees, commission and bonuses should not be included. This gives a maximum cap of \u00a32,500 +\u00a3245 (employers\u2019 NIC) + \u00a359 (auto- enrolled pension contribution) = \u00a32,804 of total possible grant that can be applied for per employee per month.<\/p>\nEmployee’s regular wage – how is it calculated?<\/strong><\/p>\nFull time and part time employees<\/strong>
\nFor full time and part time salaried employees, the employee\u2019s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.<\/p>\nEmployees whose pay varies<\/strong>
\nIf 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:<\/p>\n\n- the same month\u2019s earning from the previous year<\/li>\n
- average monthly earnings from the 2019-20 tax year<\/li>\n
- 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.<\/li>\n
- If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.<\/li>\n<\/ul>\n
Once you\u2019ve worked out how much of an employee\u2019s 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.<\/p>\n
National Living Wage\/National Minimum Wage<\/strong>
\nIndividuals 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, may be paid the lower of 80% of their salary, or \u00a32,500 even if, based on their usual working hours, this would be below NLW\/NMW.<\/p>\nHowever, 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.<\/p>\n
If your employee is on Statutory Sick Pay<\/strong><\/p>\nEmployees 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.<\/p>\n
If your employee has more than one job<\/strong><\/p>\nIf 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.<\/p>\n
If your employee does volunteer work or training<\/strong><\/p>\nA 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.<\/p>\n
If your employee is on Maternity Leave, contractual adoption pay, paternity pay or shared parental pay<\/strong><\/p>\nIndividuals 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.<\/p>\n
If your employee is eligible for Statutory Maternity Pay (SMP<\/abbr>) or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance.<\/p>\nEmployees who qualify for\u00a0SMP<\/abbr>, 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 \u00a3148.68 a week, rising to \u00a3151.20 a week from April 2020.<\/p>\nIf 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.<\/p>\n
I am a sole director, can I claim under the job retention grant?<\/strong><\/p>\nHMRC have made it clear that to be eligible for the subsidy, when on furlough, an employee can not undertake work for or on behalf of the organisation. This includes providing services<\/strong> or generating revenue.<\/p>\nThe key phrase from the government website is “providing services”. And so in our opinion, and without specific guidance from HMRC or the government, if you are the sole director of a limited company, you do not qualify for this scheme.<\/p>\n
Most directors pay themselves a relatively low salary, and then take out dividends based on the profits of the company. And so, even if the director can demonstrate that they are genuinely furloughed, their grant is based on 80% of their PAYE income, and excludes dividends.<\/p>\n
Directors whose dividend income is reduced as a result of coronavirus are not covered by this scheme. Unfortunately they are also not covered by the self employment support scheme.<\/p>\n
Can you furlough fellow directors?\u00a0<\/strong><\/p>\nBeing a Director or Manager of a company does not automatically disqualify you from this scheme. But you cannot provide services or generate income for the company whilst furloughed.<\/p>\n
Tax Treatment of the Coronavirus Job Retention Grant<\/strong><\/p>\nPayments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business\u2019s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.<\/p>\n
When will the scheme be available? <\/strong><\/p>\nHMRC are building an online portal through which employers can claim the grant. The guidance states that first payments will be made by the end of April. However, without wishing to sound skeptical, the government\u2019s record on IT projects is poor, and no doubt their developers will suffer the same disruption that the rest of us have, we recommend that you do not rely on the grants being paid in April.<\/p>\n
We strongly recommend that you make provision for your cashflow if the grant is not paid for a couple of months.<\/p>\n
So, what provisions for cashflow can I make?<\/strong><\/p>\nYou could do any or all the following<\/p>\n
\n- Speak to your bank about short term lending<\/li>\n
- Apply for funding via the Coronavirus Business Interruption Scheme. This gives small employers access to loans which are interest and fee free for the twelve months<\/li>\n
- Speak to your employee about deferring payment until you receive the grant. Once again, seek employment law advice before you go with this option<\/li>\n<\/ul>\n
Where do I get more information?<\/strong><\/p>\nRest assured, at Jack Ross, we will ensure that the technical details are worked out, and if you need our help in accessing the grant, we will be more than happy to help. This service will be developed by our payroll department.<\/p>\n
We will keep all our clients updated. If you are not yet a Jack Ross client, you can subscribe to our newsletter and we will add you onto our mailing list.<\/p>\n