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Odd CJRS calculation

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Employee has a basic salary of £2,250 per month. Average, non-discretionary commission over 12 months is £2,000, which would lead to gross pay of £4,250.

The employer has, as a part of the furlough agreed with employees, only committed to paying 100% of basic. However, he's asking about including commission as well. I said I would do some comparitive calculations.

If he pays 100% of basic, then there's a net cost to the company of £505.40.

If he pays 100% of basic and commission, the next cost is around £2,200.

If he pays 80% of salary and 80% average commission subject to the £2,500 cap, there is no net cost to the company, and the employee is better off than 100% of basic only.

Does this sound right?

Replies (20)

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RLI
By lionofludesch
27th Apr 2020 12:37

It's not about how much better off the employee is.

It's about how much the Government is prepared to pay.

Which is the lower of 80% of £4250 gross and £2500.

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By Adam12345
27th Apr 2020 12:41

80% of £4,250 is £3,400 so the maximum furlough claim would be £2,500 meaning the cost to the employer is £900 (ignoring employer NIC/Pensions).

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RLI
By lionofludesch
27th Apr 2020 13:05

I think you're comparing apples and oranges here, Ste.

If the employer pays 100% of basic (£2250), the cap is still the lower of 80% of £4250 and £2500.

It's not 80% of £2250.

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Replying to lionofludesch:
By SteveHa
27th Apr 2020 13:24

Surely if the employees have agreed to receive 80% of normal basic and no pro-rated commission, in the example given the maximum CJRS claim (excluding NI & AE) is £1,800?

If I can confidently go with the £2,500 being paid as % of total pay (including commission) capped appropriately (so the employee gets £2,500 - and the employer claims £2,500) then I'll advise him to renegotiate with employees before I run the payroll on that basis.

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Replying to SteveHa:
RLI
By lionofludesch
27th Apr 2020 13:42

SteLacca wrote:

Surely if the employees have agreed to receive 80% of normal basic and no pro-rated commission, in the example given the maximum CJRS claim (excluding NI & AE) is £1,800?

The point is that you could pay them more and are now considering such an option.

If they're only going to get £1,800, yes, of course you're right. That would be at no cost to the employer.

Interestingly, that wasn't one of the three options in your OP.

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Replying to lionofludesch:
By SteveHa
27th Apr 2020 13:44

In which case, do you agree that if he renegotiates furlough terms with employees, it would be possible to include 80% average commission, with an overriding cap of £2,500, also at no cost to the employer?

For clarity, the figures quoted are not arbitrary, but are representative of a typical employee.

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Replying to SteveHa:
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By Wanderer
27th Apr 2020 13:43

There are two aspects of this:-

1. What is agreed between the employer and employee that they are going to be paid.
2. What can be reclaimed under the CJRS.

These two may be the same but often won't be.

As for advising the employer to renegotiate with the employees, I certainly wouldn't give that advice.

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Replying to Wanderer:
By SteveHa
27th Apr 2020 13:45

The employer has asked the question outright. It's not something I'm volunteering, but something I'm replying on. It's obviously up to him whether he does.

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Replying to SteveHa:
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By unearned luck
27th Apr 2020 14:06

If your client thinks that it can pay only £1,800 then see paragraph 7.1 of the directions. in your client's case para 7.1(b)(i) doesn't apply as it is paying less than £2,500 and para 7.1(b)(ii) doesn't apply as it is also paying less than 80% of the reference salary, ergo no valid CJRS claim can be made.

Employers wishing to pay only "80%" must realise that it is 80% of the reference salary and has no connection with what they would otherwise pay and that they are sailing between a Scylla and a Charybdis. Pay less than 80% of the reference pay (subject to the £2,500 cap) and the claim fails, pay more then the employer has unreimbursed expenditure.

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Replying to unearned luck:
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By Wanderer
27th Apr 2020 14:17

Jeese, that's a good point! Is there an unintended consequence here?

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Replying to unearned luck:
By SteveHa
27th Apr 2020 14:37

So, in actual fact, the most beneficial all round option of paying £2,500 is the only option?

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Replying to SteveHa:
RLI
By lionofludesch
27th Apr 2020 15:07

SteLacca wrote:

So, in actual fact, the most beneficial all round option of paying £2,500 is the only option?

Depends what you mean by beneficial.

I've got one employer paying full salaries.

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Replying to lionofludesch:
By SteveHa
27th Apr 2020 15:16

Granted - yes, if paying 100% then it's a different kettle of fish.

This one won't be if the cap is £2,500 and all recoverable.

And only one? I appear to have more than a couple of clients who are decent to their employees (and one or two who are anything but).

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Replying to SteveHa:
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By unearned luck
27th Apr 2020 17:58

It's the only option for the employer wishing to keep its furloughed workforce at no cost. A Hobson's choice.

Continuing with my theme:

Take care as even paying "100%" might not save your ship from attack by the sea monster or from foundering in the whirlpool. For example:

Fred was on a salary of £30K for a five-day week. It was long ago decided that wef 1/3 he would work 3 days a week with a commensurate reduction in pay. He is furloughed wef 1 April. His reference salary is £2,500 (his Feb pay). If he is paid 100% of his current salary (£1,500) the grant claim fails, as he should be paid £2,000.

Wilma’s pay varies. She does a lot of voluntary overtime. Her basic is £300 a week., but her reference pay is £400 because of the o/t. Paying her 100% of basic fails the test as that is less than £320.

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Replying to unearned luck:
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By unearned luck
27th Apr 2020 18:36

It can work the other way round too:

Barney was sick for the first half of 2019/20, receiving only SSP. Despite doing some overtime in the second half of the year his reference pay is only £200 a week. His basic is £300. If his employer were to pay him, say, 80% of basic (£240) the employer will be out of pocket by £60 plus associated pension and NIC.

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By Wanderer
27th Apr 2020 18:24

Following on from the excellent point made by unearned luck if the employer only pays the £2,250 it looks like there is no claim at all.

See my post here which explores this point:-
https://www.accountingweb.co.uk/any-answers/furlough-cjrs-claims-are-peo...

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By SteveHa
28th Apr 2020 09:42

Wanderer. Handy spreadsheet in the other thread, thank you.

Now, going to the regulations, the commission is sales commission, which is by it's very nature dependent on sales being made. As such, would it be excluded from reference pay by 7.4(b) or (since it's paid every month and so arguably contractually payable - I haven't seen a contract to determine if it's explicit in there, but an established pattern would, I believe, be sufficient to include it) inclusive by 7.4(d).

If the latter, then 7.5 would appear not to apply.

EDIT: I now have a copy of a sample contract, and commission is explicitly provided for.

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Replying to SteveHa:
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By Wanderer
28th Apr 2020 09:40

Agreeing with you. I think 7.4(a) specifically includes matters arising under 7.4(d) and therefore where that applies takes the whole of 7.5 out of the equation.
Only thing I don't like is the whole of 7.4 is 'and' so surely in every case 7.4(b) applies as commission etc is conditional on something!!!
Can someone who has a better understanding of the construction of law than me and SteLacca comment?

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Replying to Wanderer:
By SteveHa
28th Apr 2020 09:43

Therein lies the issue. 7.4(b) and 7.4(d) appear to be mutually exclusive.

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By SteveHa
28th Apr 2020 11:37

I've been on to HMRC CJRS helpline speaking to someone who absolutely understands the issue and referred to their own guidance (not .gov.uk) and discussed with colleagues and the technical team.

Her conclusion, in this case, was that the commission can (and should be included).

For info, I also asked if I could rely on this call in the future should it be challenged, and she confirmed I could and has noted our client's records accordingly.

The basis of the decision was the contractual entitlement (though since the regulations also refer to legally enforceable understanding, scheme, transaction or series of transactions, I believe that this would permit where the contract is silent, but commission has been paid consistently historically, which would form an implied addendum to the contract).

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