Last Updated 3rd August 2020
Read our in-depth article on the most recent changes to guidance on the Coronavirus Job Retention Scheme and how to flexi-furlough here.
Job Retention Scheme Bonus
The Government has released guidance on the Job Retention Bonus announced last month https://www.gov.uk/government/publications/job-retention-bonus/job-retention-bonus
Employers who retain previously furloughed employees until 31 January 2021 will be able to claim a Job Retention Bonus of £1,000 per employee.
To be the subject of an eligible claim the employee must
- be in employment and not under notice as at 31 January 2021
- have been furloughed at any time under the Coronavirus Job Retention Scheme and in continuous employment since then
- have been paid an average of at least £520 per month between 1 November 2020 and 31 January 2021
The scheme is said to extend to company directors and agency workers.
Payment will be withheld if HMRC believe that there is a risk that claims have been fraudulently made or improperly inflated.
Claims can be made from February 2021. Further guidance on the process for doing so is expected in September 2020. Payments made will be taxable and should eb included as taxable profits for Corporation Tax purposes.
Changes to the Scheme from 1 July 2020
The government has announced significant changes to the Coronavirus Job Retention Scheme.
Under the Scheme the Government offer subsidies to staff who are “furloughed” – for whom no work is required – which enables employers to claim back 80% of their monthly wage up to a maximum of £2,500 per month plus the employers’ national insurance contributions and auto-enrolment pension contributions due on that amount.
The Scheme has only been available for employees who are required to do no work for their employer and for a minimum period of three weeks. It is a key point also that employees must agree to being placed on furlough.
These are the key changes announced 6th :
- From the beginning of July the requirement that furloughed employees do no work will be relaxed and they will be able to return to work on a reduced hours basis, so that the Government subsidy will only be available on the balance of their normal full time salary.
- Employers will have to pay national insurance contributions and auto-enrolment pension contributions on furloughed salaries from the beginning of August.
- The subsidy percentage will decrease - to 70% from the beginning of September and to 60% from October. This will mean that the maximum subsidy will decrease to £2,160 per month and then to £1,875 per month.
- Employers will be required to continue to pay national insurance and auto-enrolment pension contributions and also to pay employees the difference so that employees continue to receive the same amount throughout furlough.
- The Scheme will close to new entrants from 30 June 2020. Claims may only be made after that date for employees who have already been furloughed. This will mean that, to comply with the three week qualification period, the latest date on which employees who are still working may be furloughed is 10 June 2020.
- The Scheme will cease completely at the end of October 2020.
Key points from the New Guidance
- “Flexible furlough” - from 1 July 2020 employees currently on furlough may return to work for any amount of time or work pattern. This applies only to employees who were in furlough for at least three weeks during the period 1 March – 30 June 2020. It need not be for the whole of that period.
- There are exceptions for those returning from maternity or shared parental leave
- A claim may still be made for furloughed employees who return on flexible furlough: this will be for the difference between 80% of pay for normal hours and actual pay for hours worked (subject to the monthly limit of £2,500).
- Claims for furlough period commencing before 1 July must be for at least three weeks: after 1 July flexible furlough periods may be for any duration
- Employee agreement to flexible furlough must be obtained and evidenced in writing
- There are complicated rules for working out “normal hours”. Broadly
- for employees with fixed hours this will be pay in the last pay period before 19 March 2020
- for employees with variable pay/hours this will be the higher of
- pay in the period 12 months before the claim
- average pay over the past twelve months.
- As flexible furlough can be for any period, claims are to be calculated by daily rates. The Guidance contains a calculator tool to assist in this https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme#calc
- The same rules as before apply to pay which can be included in a claim. This covers only basic salary and any additional non-discretionary payments: discretionary elements and benefits cannot be included.
- For the period up to 31 July 2020 employers national insurance contributions and auto-enrolment pension payments may continue to be claimed: from 1 August these costs must be borne by the employer
- From 1 September the Government subsidy will reduce to 70% of salary and from 1 October 2020 to 60%. The maximum pay recoverable will reduce to £2,187.50 and £1,875 respectively.
- The Scheme will end on 31 October 2020.
As before, to the extent that any of these changes may result in adverse changes for employees, consent will be needed. So, for example, if an employer has “topped up” a furloughed employee’s salary to its full amount but is not able to do so if the Government percentage decreases, agreement must be obtained from the employee, which, if a large number of employees are likely to be similarly affected, may require formal consultation. Careful planning is therefore necessary.
A similar scheme has been available to self-employed people who have been able to recover 80% of their taxable profits for a three month period up to a maximum of £7,500. This scheme will be made available for a further three month period up to the end of October but at the reduced rate of 70% so a maximum of £6,570 for the three months.
The Guidance contains detailed advice on the mechanics of making a claim. Our COVID-19 team can help you through what is a complex process. It is important that this be done accurately as HMRC have restated their intention to carefully audit claims made and to take recovery steps for employers who have claimed too much, with possible criminal sanctions for fraudulent claims.
What is available?
All UK employers are eligible to access support to continue paying part of their employees’ wages if they would otherwise have been made redundant.
Her Majesty’s Revenue and Customs (HMRC) will reimburse the lower of 80% of workers’ regular wages, up to a maximum of £2,500 per month where employees are kept in employment but not working (furloughed employees).
In addition, HMRC will reimburse employer National Insurance contributions and employer’s auto enrolment pension contributions. The employee’s furloughed pay will be subject to PAYE and employee NIC’s as normal through the payroll.
The scheme was originally announced on 19 March 2020 and opened for claims on 20 April 2020. The arrangement was originally intended to cover the three months until the end of May 2020 but will now continue until 31 October 2020 after which it will close.
From 1 July 2020 furloughed workers may return to work part-time with employers being able to make a claim under the scheme in respect of the balance of their full-time salary. In addition, the amount that can be claimed under the scheme will be tapered from August to October with the scheme closing at the end of October 2020.
In summary, claims made under the scheme are as follows:
April to July 2020
80% up to £2,500
80% up to £2,500
70% up to £2,187.50
60% up to £1,875
Employer NICs and Pension
80% up to £2,500
80% up to £2,500
80% up to £2,500
80% up to £2,500
Maximum claim per employee
For the purposes of the scheme fees, commissions, bonuses, benefits in kind and salary sacrifice arrangements are excluded for the calculation of wages. There are also particular rules for calculating wages of employees on zero hours contracts or with irregular pay.
The furloughed pay is tax deductible for the employer, however, any reimbursement from the scheme is taxable.
When is it available and how do I apply?
Claims under the scheme have been possible since 20 April 2020 and so far, 1 million employers have made claims in respect of 8.4 million employees with HMRC making payments promptly. Claims under the scheme will continue to be made monthly as the scheme continues to operate.
Guidance on the parameters of the scheme is being updated regularly. Each claim requires information to be sent to HMRC through an online portal about all employees who have been furloughed. The information you should expect to need is:
- your ePAYE reference number
- the number of employees being furloughed
- names of, national insurance numbers for and payroll/employee numbers for the furloughed employees
- your Self Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Refererance or Company Registration number
- the claim period (start and end date)
- amount claimed (per the minimum length of furloughing of 3 consecutive weeks)
- your bank account number and sort code
- your contact name
- your phone number
You will need to calculate and pay furloughed employees using your payroll. You can choose to top up the salary of each furloughed employee at your own cost. You must keep accurate records of the amounts claimed including, for five years, a record of the communication in writing to each employee confirming they have been furloughed. HMRC may audit your claim in the future.
If you have less than 100 furloughed employees you will need to enter details of each employee onto the online portal.
If you have 100 or more furloughed employees you will need to upload a file to the portal which can be .xls, .xlsx, .csv, .ods..
An agent who is authorised to act for you for PAYE purposes can file the claim. If you use a ‘file only’ agent they cannot make the claim on your behalf.
What are the conditions?
You will need to notify employees that they have been ‘furloughed’ and apply to HMRC. This will require a review of the employment contract and may require negotiation.
The minimum period of furlough is three weeks and the furloughed employees must undertake NO work for their employer.
From 1 July 2020 furloughed employees may return to work on a part-time basis and claims under the scheme with be accordingly restricted. The consent of furloughed employees for any change will be required and employers will need to submit details of both the usual hours the employee would be expected to work and the actual hours worked with their claim under the scheme.
You can only claim for furloughed employees that were on your UK payroll on or before 19 March 2020 and which were notified to HMRC on a Real Time Information (‘RTI’) submission on or before this date. You can also claim for employees made redundant on or after 28 February 2020 provided you re-employ them and out them on furlough.
The Scheme will close to new entrants from 30 June 2020 and the entire scheme will close on 31 October 2020. Claims may only be made after that date for employees who have already been furloughed. This will mean that, to comply with the three week qualification period, the latest date on which employees who are still working may be furloughed is 10 June 2020.
Employees can be on any type of employment contract. Please refer to our addition document about eligibility requirements by type of employee. Foreign nationals are eligible to be furloughed and grants under the scheme and not counted as ‘access to public funds’.
How can we help?
We can help advise you on all employment law aspects of furloughing employees, help you track your entitlements and support you with your application to HMRC for access to the funds you are entitled to under the scheme as soon as it becomes live. Get in touch for further advice.
Are there any conditions?
- The Treasury Direction states that the furlough must have been caused as a result of circumstances arising as a result of coronavirus or coronavirus disease. There does not appear to be any process whereby HMRC will require evidence of that but it would be sensible for employers to keep records of decision making.
- The minimum period of furlough will be three weeks. Claims may not be made for shorter periods.
- The Scheme covers employees who were on the employer’s payroll on 19 March 2020. Employees who were made redundant after 28 February 2020 will be covered by the Scheme provided they are rehired. It also applies to employees who transfer to the employer under the Transfer of Undertakings Regulations 2006 (TUPE) after 28 February 2020 but who have continuity of service with their previous employer dating back beyond that date.
How long does the Scheme last?
- The Scheme was originally stated to last until the end of June 2020. The Government has recently announced that it will continue until the end of October 2020.
Will there be any changes?
The payments under the Scheme will change after June 2020.
- From the beginning of July - the requirement that furloughed employees do no work will be relaxed and they will be able to return to work on a reduced hours basis, so that the Government subsidy will only be available on the balance of their normal full time salary up to the 80% limit.
- From the beginning of August - Employers will have to pay national insurance contributions and auto-enrolment pension contributions on furloughed salaries from the beginning of August.
- From the beginning of September - The subsidy percentage will decrease to 70%
- From the beginning of October – The subsidy percentage will decrease further to 60%.
This will mean that the maximum subsidy will decrease to £2,160 per month and then to £1,875 per month. Employers will be required to continue to pay national insurance and auto-enrolment pension contributions and also to pay employees the difference so that employees continue to receive the same amount throughout furlough.
- From 30 June 2020 - The Scheme will close to new entrants. Claims may only be made after that date for employees who have already been furloughed. This will mean that, to comply with the three week qualification period, the latest date on which employees who are still working may be furloughed is 10 June 2020.
- From the end of October - The Scheme will cease completely.
Can I impose this on employees?
- The Government has said that the scheme is subject to current employment law and has stated that changes to employment contracts – which will be the case for furloughed employees unless the employer “tops up” salaries – should be made by agreement. The Treasury Direction states that employer and employee have to agree in writing and the agreement must
- Specify the main terms and conditions upon which the employee will be furloughed; and
- be incorporated into the employee’s contract of employment
- be retained by the employer for at least 5 years.
- This will mean that furlough under the Scheme cannot simply be imposed on employees. If it is done without their consent then claims of constructive dismissal may arise or affected employees may make claims for unlawful deductions from wages for the balance between their normal salary and the sums they receive under the scheme. Further, claims will not be compliant with the direction and so will either not be paid or recovery proceedings may take place if HMRC subsequently becomes aware that employee agreement has not been given.
- The Government has also stated that current consultation obligations applying to changing employee terms and conditions will continue to apply which will mean in practice that employers looking to furlough 20 or more employees may have to consult for 30 days (or 45 if 100 or more) with trade unions or, if none are recognised, with employee representatives elected for the purpose. This may become important if the terms of the Scheme change in August as these consultation obligations may apply if the result of the changes is that employee consent will be required.
Can I take employees in and out of furlough?
- The only requirement under the Scheme is that a period of furlough must be at least three weeks long. Payments will not be made for shorter periods. Guidance states that employees may be taken in and out of furlough so long as each period is a minimum of three weeks.
- Employees who fall ill may be switched from furlough to sick pay. If you do not pay company sick pay then this will be at the rate of Statutory Sick Pay (£95.85 per week) during their sickness absence. The employee may then return to furlough pay when well again. Given the low rate of SSP it must be unlikely that many furloughed employees will self-report as sick.
Can I top up employees’ pay where they are furloughed under the Scheme?
- There is nothing to prevent you doing this; indeed it may be an effective means of securing consent from the employees. Payments under the Scheme are however based on pay as reported to HMRC in February 2020 (or for employees with variable pay, an average of the twelve months prior to 1 March 2020 so no account will be taken of any salary increases from 1 March 2020 onwards.
- From 1 August the subsidy paid by the government will decrease to 70% then to 60% and it will be obligatory for employers who continue to furlough employees to make up the shortfall to 80% of pay.
- Reimbursement for employer’s national insurance contributions and minimum automatic enrolment pension contributions will only be on the payments made under the Scheme, not on any top-up. This will cease as of 30 June 2020.
What about holiday and holiday pay?
- Guidance makes it clear that a period of holiday will not interrupt furlough and employers can claim for the whole period.
- However, when an employee is taking holiday, payment must be made at the full contractual rate so that the employer must “top up” what is received from the Scheme.
- Employers may require employees to take holiday in the normal way – by giving a period of notice twice the amount of holiday required to be taken. Similarly employers can continue to refuse to allow holiday during furlough again by giving a period of notice twice the length of holiday sought.
- Up to four weeks’ holiday may be carried over to the next two holidays where the reason it could not be taken is due to coronavirus.
Does the Job Retention Scheme only apply to employees?
- The Scheme applies to all employees – full time, part-time, agency. fixed-term, flexible or zero hours contracts.
- As well as employees, claims may be made under the Scheme for
- Office holders – this would include company directors (including non-executive directors
- Salaried company directors so long as they are paid salary at least once each year
- Salaried members of Limited Liability Partnerships
- Agency workers
- “limb (b) workers” – people who contract personally to do work for the employer but who do not operate under a contract of employment
- In each case it applies only where the individual is paid under PAYE. Those who pay tax under self-assessment may be able to claim under the Self-Employed income Support Scheme
- Employees with variable hours will be eligible for the Scheme. Employers will be able to base their claim on earnings for the same month in the previous year or an average over the last twelve months, whichever is the higher. Zero hours workers will therefore be covered by the Scheme
How do I decide who to “furlough”?
- Employers are free to decide which employees should be asked to agree to furlough. In doing so, however, Government guidance makes it clear that employers must observe equality and discrimination laws.
Can I make my employees redundant regardless of the Job Retention Scheme?
- Courts and Employment Tribunals would normally regard decisions on redundancies as being for employers to take and generally only concern themselves with the fairness of selection and the requirement for consultation. Employers are, however, expected to consider alternatives to redundancy and so a failure to at least consider using the Job Retention Scheme could result in findings of unfairness.
- When the Scheme ends employers will have to decide whether employees can return to their normal duties. If not, redundancy may have to be considered. The mandatory minimum consultation periods should be borne in mind – 30 days where 20-99 redundancies are planned or 45 days for 100+.
How do I claim?
- Claims are made by way of reimbursement through a portal that has been created by HMRC. The portal opened on 20 April 2020.HMRC are intending to make payments on claims 4-6 working dates after receipt.
- Employers can claim for payments due up to 14 days before their payroll date.
- Employers may claim per pay period so on a weekly basis if that is how staff are paid.
- The following information will need to be provided
- details of the amount being claimed including the start and end date,
- the number of employees furloughed,
- the claim period
- ePAYE reference number, bank account and telephone contact details
- names, national insurance numbers of employees to be furloughed
- Self-assessment UTR or Corporation Tax UTR or Company Registration Number
- Note that HMRC are working on the basis of calendar days. Where claims are made for furloughed employees for a complete month no problem arises. For shorter periods, however, this may mean that the amount of reimbursement is less than if the calculations were done on the basis of a working day which is usually calculated by employers as being 1/260 of annual salary.
- The payment will be made by BACS transfer and employees must receive or have received the full amount claimed apart from tax and NI deductions – no fees may be charged and no part may be assigned to the cost of providing benefits.
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