Covid-19 Response: Coronavirus Job Retention Scheme (last updated 12 May 2020)
Update: on 12 May it was announced that this scheme will be extended to the end of October 2020 but that from August onwards employers would "start sharing" the cost of the scheme. The guidance and comments below will be updated once details are made available (towards the end of May) but we understand that this means that employees will be able to go back to work part-time and still be part-supported by the scheme. This isn't possible at present. Managed properly, this will be a welcome development and will make particular sense in the hospitality, tourism and leisure sectors, which should see a more phased re-opening than other sectors of the economy.
On 20 March the Chancellor announced the creation of the Coronavirus Job Retention Scheme (CJRS). This scheme is designed to protect jobs by allowing employers to claim 80% of the wage costs for employees that are not required to carry out any work for them for a period of time.
Guidance on this scheme has been updated many times since it was initially announced. There is too much to go over in this article so we will just set out the headlines below and the detailed guidance can be found by following this link CJRS Detailed Guidance on Gov.uk.
The main points are as follows:
- All UK businesses are eligible so long as they had an active PAYE payroll scheme at 19 March 2020 and have a UK bank account
- To be able to claim for an employee, they must have been included on an RTI submission during the 2019/20 tax year, by 19 March 2020 (RTI submissions are typically made at the time of a pay run, so new employees engaged on monthly pay from late February onwards are not likely to be included)
- Eligible employees can be engaged on any type of contract
- Affected employees will need to be designated as 'furloughed', notified of this (please note that there are employment law aspects to this that we can't advise on) and evidence of this furloughing should be retained by the employer for 5 years
- The furloughed workers should not carry out any work for their employer while classed as furloughed; note that employees continuing to work, possibly on reduced hours/pay, will not qualify
- HMRC will reimburse 80% of furloughed workers' gross wages, up to a cap of £2,500 per employee per month (see below regarding the method of calculation)
- The employer could choose not to fund the remaining 20%; we believe that they should confirm the % to be paid when agreeing the furlough with the employee(s) as this will form part of the amendment to the employment contract
- HMRC will also reimburse 80% of the employer's National Insurance costs and minimum employer's pension contributions under auto-enrolment (these are subject to detailed calculations which aren't always logical!)
- Furloughing can be backdated to 1 March 2020 to cover workers laid off from that point if the employer offers to reinstate and then furlough the employee (and the now ex-employee agrees)
- Affected employees may be eligible for support through the welfare system if their earnings are reduced
- Claims are made via the employer's PAYE online login or via an agent; the first claims were made on 20 April
- Payouts under the scheme are to be made within 6 working days; so far this seems to be the case as claims submitted on 20 April were mostly paid on 27 April
- There are detailed sections in the guidance covering situations such as employees on unpaid leave, maternity pay or sick pay, and those with more than one main job or undertaking training or volunteer work; we suggest that you review the guidance on these in the first instance then let us know if you have any follow-up queries
The system should therefore work in the following way:
- Employer identifies workers to be furloughed
- Employer consults with employees and agrees the change in status and obtains consent to change in employment terms in writing
- Employer pays employee as usual via PAYE system, anything between 80% and 100% of their qualifying salary (see below); note that this will be subject to the usual income tax and employee NIC deductions as well as employee pension contributions, and the employer will continue to have to pay this to HMRC via their PAYE scheme (unless separate "Time to Pay" arrangements are made)
- Employer submits claims for funding
- The Government pays the funding directly to the employer
- Repeat steps 3-5 for subsequent pay periods and claims
Calculation of the gross pay due to each employee should be based on the following:
- For full and part time salaried employees the gross pay for the scheme will be the actual gross salary for February 2020 or March 2020
- For employees whose pay varies, if they have been employed for a full 12 months prior to the claim, the claim can be for the higher of the same month's earnings for the prior year, or average monthly earnings for the 2019/20 year
- For such employees who have been employed for less than a year at 19 March, the claim should be for the average monthly earnings since starting work
- For an employee who started during March 2020, a pro-rata of that month's earnings can be used
- Note that these calculations should include non-discretionary overtime, fees and commission payments as well as piece work, but should exclude tips, non-cash benefits, and non-contractual fees, commissions and bonuses
As we have commented before, there has been some confusion as to whether some or all small company directors can be included in this scheme. This area has been covered in a separate news article which can be found here: Directors and the CJRS.