The chancellor announced the Coronavirus Job Retention Scheme on Wednesday 25th March and we now have details from HMRC as to how this will be operated.
The scheme is being operated through employers. Instead of making employees redundant if they are unable to operate (such as those in the retail and hospitality sectors who have been told to close), or if they have no work for employees to do because of COVID19, employers can “furlough” employees. Effectively this is keeping employees on their payroll but claiming a grant from the government to meet all or a substantial part of the costs of doing so.
Employers should have discussions with their employee or employees and any changes to the contractual terms of employment must be agreed between them. When making decisions in relation to the process, including deciding who to furlough, the usual laws concerning equality and discrimination will continue to apply. The employee and employer must agree to the furlough, and once agreed the employer must write to the employee confirming that they have been furloughed. It is the employer that makes the claim to the government.
Once the employee is on furlough, they cannot make money for their employer or provide services to their employer, but they may complete training courses or undertake voluntary activities subject to public health guidance.
The employee does not have to agree to be furloughed, but by not agreeing they run the risk of being made redundant or of having their employment terminated in accordance with the normal redundancy rules and employee protections.
If the employee agrees to be furloughed, they will be furloughed for 3 weeks. At the end of that period, a new furlough period can be agreed, or you can return to normal work. You can be on furlough more than once during the period of the scheme, which has initially been set to last for 3 months.
To qualify the employee must have been on their employer’s payroll at 28th February 2020 on any type of employment contract, including full time employees, part-time employees, employees on agency contracts, and employees on flexible or zero hours contracts.
Whilst on furlough the employee will be paid wages by their employer which will be subject to usual income tax, national insurance and other deductions (e.g. workplace pension contributions).
There are specific rules relating to employees that have more than one employment or are on Maternity leave, etc.
THERE IS NO PROVISION FOR EMPLOYEES WORKING REDUCED HOURS – THEY ARE NOT ELIGIBLE FOR THIS SCHEME AND EMPLOYERS WILL HAVE TO CONTINUE TO PAY THEM IN ACCORDANCE WITH THEIR CONTRACT OF EMPLOYMENT.
For each furloughed employee, employers will use a government portal to claim 80% of the furloughed employee’s usual monthly wage or salary up to a maximum of £2500 per month, plus the associated Employers national Insurance contributions and the minimum automatic employers pension contributions on that wage. This portal is expected to be available in April 2020 though claims can be backdated to 1st March 2020.
Employers will be responsible for calculating the amount of their claim, and HMRC will retain the right to retrospectively audit all aspects of the claim. Employers must pay their furloughed employee at least all of the grant that they receive in respect of their gross wages, no fees can be charged from the money that is granted.
The amount of the claim for each furloughed employee depends on whether the employee is salaried (i.e. paid the same gross amount each week or month) or paid according to work done (i.e. paid different gross amounts each week or month).
If the furloughed employee is salaried then the 80% is based on their salary as of 28th February 2020. Any fees, bonuses or commissions are excluded from the calculation.
If the furloughed employee’s gross pay varies then the employer can claim the higher of:
a) The same month’s earnings from the previous year; or
b) Their average monthly earnings from the 2019-20 tax year
If the employee has been employed for less than one year, the employer can claim an average of their monthly gross pay since they started, and if their employment started in February 2020 a pro-rata basis should be used.
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