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Furlough: should I have included bonuses?

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Employer has a number of employees who receive regular fixed salary payments, who were treated as fixed rate employees for furlough and so claims based on February 2020 salary. 

However, some of them have a performance related bonus element to their contracts, although the employer has discretion regarding whether to pay the bonus and the amount paid. As a gesture, the employer paid 30% of last year's bonus in September, despite being closed.

I have a nagging supsicion that bonuses could have been included in the furlough calculations, but of course it's a bit late now.

I guess though I can take reassurance from the fact that the first treasury direction appeared to rule out the inclusion of bonuses, plus HMRC have stated that they will not seek to challenge the basis of fixed or variable rate calculations provided they are reasonable?  

Replies (17)

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By paulhammett
30th Nov 2020 13:52

If the contract stipulates that the employer has the discretion whether or not to pay the bonus, I vote to exclude from furlough claim.

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Replying to paulhammett:
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By Paul Crowley
30th Nov 2020 13:54

My understanding as well
Bonus is nothing to do with covid claim

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By the_drookit_dug
30th Nov 2020 13:59

Thanks Paul(s)

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Replying to paulhammett:
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By Wanderer
30th Nov 2020 14:16

paulhammett wrote:

If the contract stipulates that the employer has the discretion whether or not to pay the bonus, I vote to exclude from furlough claim.

What about:-
"arises from a legally enforceable agreement, understanding, scheme, transaction or series of transactions."(first direction) or
"a legally enforceable agreement, understanding, scheme, transaction or series of transactions prescribe the method of calculating the amount of wages or salary payable in respect of the payment (whether or not that method involves the exercise of discretion by the employer or a person connected with the employer)." (latest direction)
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By tom123
30th Nov 2020 14:03

However, if bonuses related to previously agreed scheme, then, I would have expected them to be paid out in full as a matter of contract?

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By Wanderer
30th Nov 2020 14:08

the_drookit_dug wrote:

I guess though I can take reassurance from the fact that the first treasury direction appeared to rule out the inclusion of bonuses, ......

You can't ..... because it didn't.
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By the_drookit_dug
30th Nov 2020 14:41

Okay. So I do what then? Tell the employer that they've underpaid employees and underclaimed the grant, but that there's nothing they can do about it? Disclose the position to HMRC?

I have not seen any contracts, and the employer gave the impression the bonuses were completely discretionary.

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Replying to the_drookit_dug:
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By Wanderer
30th Nov 2020 14:49

the_drookit_dug wrote:

Okay. So I do what then? Tell the employer that they've underpaid employees and underclaimed the grant, but that there's nothing they can do about it? Disclose the position to HMRC?

Not a good idea as if the employees have been underpaid then the whole CJRS claim can be invalid.
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By the_drookit_dug
30th Nov 2020 15:08

To bring in the bonuses would have required the employer to treat the employees as variable rate employees. It does seem a reasonable decision to treat an employee receiving, say, £1,800 every month (excluding the bonus month) as a fixed pay employee, especially as the scheme was only intended to run for 3 months initially.

HMRC have indicated in the guidance after all that they will not seek to challenge any reasonable decision to treat employees as fixed or variable pay employees?

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Replying to the_drookit_dug:
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By Wanderer
30th Nov 2020 15:33

Look, don't shoot the messenger, I am as annoyed about the structure of all this as the next person.

I don't really care what HMRC say or don't in the various incarnations of their 'guidance', they are mere administrators of the various schemes and should just do what they are told by the Treasury directions.

The problem lies is when they are following all this up in the next six years when they start checking the claims & you get some pedantic individual making a name for themselves with the amount of claw backs they enforce.

I don't disagree with what you say about treating employees as fixed rate employees when they receive £1,800 per month etc. The problem is that's not what the law says. The law also conveniently ignores that with the vast majority of small employers there are not extensive, written contracts about extra payments. Look at the quotes I have given above from two of the directions. There will be LOADS of situations where an employment tribunal would conclude that there is an 'understanding' even though it isn't written down.

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Replying to Wanderer:
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By the_drookit_dug
30th Nov 2020 16:21

Well, all I really have to go on are the figures the employer sent over to me and on which the claims were prepared - haven't seen any employment contracts, and the employer has insisted that bonus payments are completely discretionary.

It was only today that it came to light that they're actually in employment contracts.

It's all so frustrating - stuck between messy legislation and vague, imprecise info from employers.

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Replying to the_drookit_dug:
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By paulhammett
30th Nov 2020 16:28

I think that sight of the actual wording in the employment contracts would be beneficial.

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Replying to paulhammett:
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By Wanderer
30th Nov 2020 17:20

Maybe, but the OP is still clinging to the word discretionary even though the law says "whether or not that method involves the exercise of discretion by the employer or a person connected with the employer".
& has done since 20/05/2020.

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Replying to Wanderer:
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By the_drookit_dug
30th Nov 2020 17:55

And there's where the issue lies - "since 20 May 2020". The employer decided late March which employees to furlough, and the calculations were put in place by early April based on the guidance available then. I was not aware of any contractual entitlement to the bonuses, and so it was firmly established then that they were fixed rate employees. Everybody was happy - me, employer and the employees.

It's only a chance discussion today that made me pause for thought and ask a few more questions about bonuses. Even now I don't know what's in the contracts - and whether it's in all of them. All I can comment on is what I've seen paid in prior payroll records.

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Replying to the_drookit_dug:
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By Barbara G
30th Nov 2020 18:15

I could be wrong, but I doubt HMRC will force an employer to pay back all that has been claimed in the event that the calculations mean that employees have been underpaid and therefore furlough underclaimed. We're all doing the best we can and whatever is referred to as "the law" is somewhat vague. We have been underclaiming too by not going back and checking what employees were paid every week the year before to compare with average pay for the year. It would take far too long and would be impossible given there are only 24 hours in a day and we'd rather risk underclaiming rather than overclaiming. So don't beat yourself up about it. At least if you have claimed incorrectly it's been too little, not too much. My guess is that unless some employee gets wind that they could have been paid more, nothing will come of it.

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Replying to Barbara G:
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By Silvery Waves
30th Nov 2020 23:08

Agreed Barbara - derided as the guidance is, I'm putting copies on file to back up my decisions - plus the 'we will not seek to challenge' paragraph is crucial. There was a lot of uncertainty back in April, so in the unlikely event that anyone ever dared claw back any grant I've claimed, they'll have a fight on their hands.

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By the_drookit_dug
30th Nov 2020 23:13

Out of curiosity, I went back to The National Archives to see what the guidance was saying in early April:

"You will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included."

I take on board Wanderer's point regarding not relying on the guidance, but your average employer won't even know what the treasury direction is. And they most certainly will not be cross referencing their employment contracts to the HMRC website each month in case something has changed.

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