Coronavirus job retention scheme: Get the details right
The guidance for employers on the coronavirus job retention scheme (CJRS) was updated on 20 April and 27 April with details on eligbility, and this article has been amended based on that guidance as well as the earlier updates issued throughout April, to cover all the key points about this scheme.
Who can claim?
All employers can benefit from the scheme, even owner-managed businesses. On 17 April Rishi Sunak, Chancellor of the Exchequer announced that CJRS grants would be available to pay furloughed employees until the end of June. This extension is widely understood to be put in place to avoid businesses having to start redundancy processes to take effect from the end of May.
The government wants the support to be as inclusive as possible. There is no conditionality related to having sufficient funds which for example have been applied to the business interruption loans. However, the employer must have set up a PAYE scheme before 19 March 2020, enrolled for PAYE online and have a UK bank account.
Owner-managed businesses can make a claim from the CJRS, effectively they will furlough themselves, but see comments on directors below.
The following employers would therefore qualify:
- Charities and not-for-profit organisations
- Individuals employing domestic staff (4 April update)
- Public sector organisations (see below re: public funding)
To reclaim a CJRS grant from HMRC, the employer has to designate employees as furloughed (essentially a period of paid leave when they cannot work) other terms and conditions of employment continue unless these have been varied too, (see How to Furlough below).
Whilst furloughed staff can’t do any work for the employer that furloughed them, they can undertake training, work for other unconnected employers (see Direction para 6.2), work on a self-employed basis (see Directors below) or as a volunteer.
The guidance refers to employees (and occasionally workers). HMRC confirmed on 4 April that the following individuals are covered:
- Employees on any type of employment contract including zero-hours, flexible, part-time or fixed term
- Apprentices (make sure you follow the guidance on continuing apprentice training and NMW)
- Agency workers (including those employed by umbrella companies)
- Office holders (including company directors) - but only on their PAYE income
- Salaried members of Limited Liability Partnerships (LLPs).
- Limb (b) workers - ie those on PAYE not those who are self-employed
- Nannies and other domestic staff.
HMRC confirmed on 9 April 2020 the following employees are covered:
- Unpaid leave - CJRS grant only covers employees who were on unpaid leave on, or after, 28 February 2020 and furlough can only begin when that period was due to expire eg return from sabbatical. Unpaid leave that begin after 19 March 20 cannot be covered under the CJRs
- Maternity and paternity leave - those on statutory leave can return from that leave and be furloughed.
- Sick leave - Furloughed employees who become sick can be moved on to SSP, and sick employees can be furloughed, but the CJRS only covers salary (SSP will not be paid by employer as SSP has ended)
- Shielding - employees who are caring for someone or shielding can be furloughed.
- Working for another employer - these employees can be furloughed as long as they are doing no work for the employer who is furloughing them.
- TUPE transfers - where the transfer was made from 19 March onwards it does not affect the ability to furlough and make a claim.
- PAYE restructures – where employees are moved to a new PAYE scheme within the business to consolidate two or more schemes after 19 March 20
- Deemed employees- those subject to the off-payroll rules in the public sector. These individuals can be furloughed and the CJRS can be claimed as long as there is no public money going to the individual from the project them were working on. Note this is a complete change from the previous position for deemed employees as it was understood.
The following individuals will not be covered:
- Workers engaged under a contract for services, ie sole traders being paid gross via an invoice. These individuals will have to claim under the self-employed support scheme.
A business may need to furlough all employees if it has effectively closed down, as in hospitality or non-food retail. However, it can choose to furlough a group of employees, whilst key workers continue to work, or to rotate groups between furloughing and working.
The HMRC CJRS Direction confirms that company directors can be furloughed as long as they do no work for the business which employs them or for any "person" connected to that business. "Person" in this context includes individuals, charities and other companies. A director/ shareholder who controls a company remains connected with the company while he controls it, so any work he performs as a self-employed individual is treated as indirect work for the company (CJRS Direction para 13.4).
Paragraph 6.6 the CJRS Direction clarifies that directors may fulfil a duties or other obligations arising by or under an Act of Parliament relating to the filing of company accounts, or provision of other information relating to the administration of the director’s company. Those tasks are not counted as work for the company for CJRS purposes. HMRC guidance has indicated that the director must do no income generating work for their business.
Public sector bodies
The government expects that most public sector bodies will still have the majority of employees working in frontline services.
The 4 April HMRC guidance says: "Where employers receive public funding for staff costs, and that funding is continuing, we expect employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them. This also applies to non-public sector employers who receive public funding for staff costs."
This has generated an area of major confusion as there are numerous employers who receive some sort of public funding even though they are not strictly in the public sector, such as nurseries receiving early years’ funding and universities. The public funding may be only a small proportion of their overall income and the rest of their income has been severely impacted as a result of COVID-19, so some clarity is needed as to whether any public funding causes the employer to be unable to furlough. Let’s hope we can rely on the phrase: where organisations are not primarily funded by the government’ (my italics).
When were they employed?
On 15 April HMRC changed the cut-off date for eligible employees from a start date of 28 February or earlier to 19 March 2020. However, all employees included in the CJRS claim must also have been reported to HMRC in an RTI submission by midnight on 19 March 2020, and must have received some pay in 2019/20.
HMRC categorically confirmed on 28 April that employees and directors who had reported thier only 2019/20 earnings under RTI after 19 March 2020 cannot be included in the CJRS. This affects all employees, not just directors on annual schemes who tend to pay themselves at the end of March.
Where employees were added to a March payroll retrospectively because they missed the February payroll cut-off date, they may have still missed the 19 March cut-off date if the March FPS was not sent until after 19 March.
It is useful to see in the updated HMRC guidance on 4 April (and expanded on 15 April) that people could be re-employed by their old employer if they had resigned since 28 February and had now had their new job offer withdrawn. However, this is the employer's choice and not an employee's right.
Employers need to be aware of the pitfalls of re-employing former employees. For example is this a new contract with a different salary and benefits package or are they being reinstated on the previous terms? It could make a huge difference to the pay they are receiving and what the employer can legitimately reclaim. Also will this additional period of service give the employee two years of employment and therefore entitlement to redundancy pay in the future or protection from unfair dismissal? If the employer decides not to reinstate everyone who was made redundant in March could there be an issue of discrimination?
The CJRS is effective from 1 March so changes to March payrolls can be made retrospectively to change employees’ status to ‘furloughed’ and reinstate those who had already been made redundant due to COVID-19. However, the PAYE scheme must have been in existence on 19 March 2020 (as per 15 April guidance).
How to furlough
The CJRS doesn’t override employment law. The employer must mutually agree with an employee, ideally in writing as it’s a contract change, that the employer is designating them as furloughed (there is no work for them due to COVID-19) and what the employer is planning to pay them whilst furloughed.
Decisions to furlough and the amount to be paid are a contract change. HMRC confirmed on 4 April that this decision must be put in writing to the employee and the employer must retain a record of this communication for five years. However, the employee does nto have to respond to this communication in writing.
In order to take advantage of the scheme employees should be paid at least 80% of their pay based on their pay in the last pay period before 19 March 2020, tax year 2019/20, or the same pay period last year, whichever is the higher.
Some businesses may choose to continue to pay full salary even though they can only reclaim 80% up to the cap. Other employers may only be able to pay 80% of regular salary or even less than that, until the CJRS grant arrives – but they must retrospectively pay the employee to meet the 80% value or will be in breach of the scheme.
An employee can be furloughed for a minimum of three weeks at a time and the government have extended the scheme to 30 June 2020. The individual could remain furloughed even if the CJRS is not extended, but then the employer would not have any grant funding to cover their wages. HMRC confirmed on 20 April that a furlough period can be extended for a shorter period thant three weeks as long as the initial period of furlough was at least 21 days.
There have been lots of questions about salary sacrifice, particularly in respect to pensions where employees are concerned because of the reduction in their net pay and employers because of the increase in their pension contribution exposure. The HMRC guidance updated on 4 April now says that future contract changes (and that is crucial as a salary sacrifice contract change should be in place before the payday in which it takes effect – so not retrospectively) are acceptable even if the sacrifice hasn’t been in place for 12 months as this can be classed as a lifestyle event.
But this will not affect the CJRS claim which is based on the last pay day before 19 March. The Pensions Regulator provided new guidance on salary sacrifice on 17 April. It is vital that employers do not further reduce furlough pay to meet a sacrifice agreement or they will be in breach of the scheme.
How much will be paid?
The grant from the CJRS will be the lower of £2,500 per month per employee or 80% of gross regular wages plus employer NIC on the grant figure plus 3% employer pension contributions on the grant figure using the qualifying earnings threshold (see example). On 9 April HMRC confirmed that employers must not claim for the 3% pension contributions if the employee is not in the pension scheme.
The apprenticeship levy can’t be claimed as part of the CJRS grant.
The 9 April update clarified that any employers' NI covered by the employment allowance cannot be included in the CJRS claim.
When calculating claim values for directors of owner-managed companies you can only consider the salary that has been subject to PAYE, not any dividends paid to those directors.
HMRC has made a calculator available help you work out how much to claim, which on 22 April was updated to deal with employees with varible pay.
Running the payroll
It is important to distinguish between the CJRS grant funding and normal payroll operations which continue, other than that employees won’t necessarily be receiving their former contractual wages. On 23 April HMRC published guidance on reporting payments from the CJRS under RTI.
To decide how much to pay, employers will need to calculate how much the CJRS grant will cover. The £2,500 cap refers to regular wages as in their last pay period before 19 March (per 15 April guidance), excluding bonuses, fees, "compulsory" commission and tips paid from a tronc. The HMRC guidance update on 4 April confirmed that overtime is to be included, but not discretionary bonuses (including tips not from a tronc) and commission payments, nor non-cash payments.
For an individual with variable pay, such that the last pay period before 19 March was not an indicative week or month, their average earnings over 2019/20 or the period of employment during that year can be used. The HMRC calculator has now been updated to cope wiht employees who have variable pay.
The figure that is agreed with the employee to be paid in the period of furlough will treated as normal earnings, subject to all statutory and voluntary deductions, reported under RTI with the remittances paid over to HMRC by the normal deadline.
What is paid through the payroll will not necessarily equal what can be reclaimed from HMRC.
A standalone portal was introduced by 20 April 2020 to allow the CJRS grants to be claimed. HMRC has published a step by step guide for employers on how to make a claim. For more information on how to claim, see this AccountingWEB article.
Repeated claims for CJRS will be required for the same employer if the furlough period is extended. As long as the next claim follows on sequentially by date from the claim before, the CJRS claims can be submitted more than three weeks apart.
On 15 April HMRC confirmed that the employer will have to provide the NI number and name for each employee included in the claim, but the payroll number is optional. However, some employees don’t have a NINO, in which case you should contact the HMRC COVID-19 Helpline on 0800 024 1222 who can process their claim over the phone.
A major concern is that there may be a requirement to have a PAYE online account in order to make a claim. Thousands of businesses, particularly SMEs that outsource their payroll operation to a tax agent don’t have a PAYE online account. Those businesses will have furloughed employees in March on the understanding, from the initial HMRC guidance, that as long as they had a UK bank account and an operational PAYE scheme that was sufficient to be able to make a reclaim in due course. ICAEW have provided a step by step guide to agent authorisation as it stands at 20 March 2020.
As one amount of CJRS grant will be claimed for a group of employees you need to consider how this will be reconciled once it is paid into the company’s bank account (it needs to be a UK account).
HMRC will reserve the right to investigate claims and cross-reference them to RTI data.