Everything you need to know about The Coronavirus Job Retention Scheme & furloughing your staff.
Recent updates released on the 26 March 2020 regarding The Coronavirus Job Retention Scheme mean we now have more information and are in a position to advise on the specifics.
What is the Coronavirus Job Retention Scheme?
At its core, it’s a scheme enabling employers who would otherwise have to let their staff go, to retain their staff at a reduced salary, funded by the government.
The scheme allows employers to ‘Furlough’ their employees and claim 80% of their monthly wage costs, up to £2,500 a month, plus Employers National Insurance & Employers Pension Contributions.
The scheme will be in place for a minimum of three months, starting 1st March 2020. It should be available to process applications by the end of April.
What does Furlough mean?
The actual definition of furlough – ‘Leave of absence, especially that granted to a member of the services or a missionary’.
In the context of the Coronavirus Job Retention Scheme, it essentially means putting your employees on a leave of absence, paid by the government.
Who can claim?
As per HMRC guidance, any UK organisation with employees can apply including:
- Recruitment Agencies (Agency workers paid through PAYE)
- Public authorities
The guidance also states that you must have created and started a PAYE payroll scheme on or before 28th February 2020 & have a UK bank account.
You can furlough your employees and be eligible for the scheme as long as the furloughed employees were active on the payroll on 28th February 2020. This includes full time, part time & zero-hour contract employees.
While furloughed, the employee can not undertake any work for, or on behalf, of the organisation.
If the employee is still working on reduced hours, or reduced pay, they will not be eligible.
If your employee is on sick leave or self-isolating, they will receive SSP but can be furloughed after this period.
How to calculate furlough pay
The process differs slightly between salaried workers and employees who’s pay varies.
For salaried workers, simply take the employees gross salary (Before Tax & NI) and work out 80% of this. This is excluding any commission of bonuses.
Employees who’s pay varies it gets slightly more complicated. If the employee has been working for longer than 12 months you can claim the higher of either:
- The same month’s earnings from the previous year
- Average monthly earnings from the 2019-20 tax year.
If the employee has been employed for less than a year, you take an average of their monthly earnings since they started work.
If the employee only started in February 2020, you use a pro-rata for their earnings so far to claim.
Each employee can be furloughed for a minimum of 3 weeks.
In addition to the above, the employer can choose to ‘top up’ their employees wage, but this won’t be reimbursed via the scheme.
How to process a claim
You’ll need the below information to make a claim:
- Your employer PAYE Reference number
- The number of employees being furloughed
- The claim period (start and end date)
- Amount claimed (per the minimum length of furloughing of 3 weeks)
- Your bank account number and sort code
- Your contact name
- Your phone number
Claims can be made every 3 weeks. Once HMRC receives the claim, payments will be issued via BACS to the account details included within the claim.
What if I can't pay my staff until I receive the funding from HMRC?
In this scenario, you're encouraged to apply for a Coronavirus Business Interruption Loan with one of the accredited lenders. The full list is here.
I’m a director of a Limited Company – Can I furlough myself?
Yesterday the Chancellor announced the Self-Employed Income Support Scheme (SEISS). Unfortunately for company directors that pay themselves a small salary plus dividends, they won’t be eligible for this. That said, they might be eligible to furlough themselves.
If, like most of our clients, you’re paid a small salary of around £719 under PAYE, you will only receive around £575 per month if you were to be furloughed.
However, as with employees, you’ll only be eligible to claim if you aren’t undertaking any work.
Universal Credit could also be an option. We’d recommend using a calculator to check eligibility.
If you’re a client of ours and we process the payroll, we’ll be in touch soon to discuss any employees that are being furloughed. We’ll of course take care of any claims as soon as we’re able.
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