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COVID-19 PAYE Advice

Coronavirus Job Retention Scheme – Current Rules (until 30.06.2020)

The Coronavirus Job Retention Scheme (CJRS) was announced in the Chancellor’s speech on Friday 20 March 2020.

HMRC are continually updating their guidance and we will ensure we keep you up to date with the latest information.  Please see our commentary at the bottom of this page for some of the recent questions and answers.

­(To see details on the Coronavirus Job Retention Scheme – Flexible Rules effective 1st July 2020 please click here.)

The Scheme

CJRS will be a Government grant to reimburse employers for 80% of furloughed workers’ wage costs to a cap of £2,500 per month per employee, plus associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. It will be backdated to 1 March and was open initially for at least 3 months but following the government announcements on 12 May, the scheme will continue until the end of October.  It will remain in its current form until the end of July and new flexibility will be introduced from August.  More specific details on what those changes will be, are to be announced shortly.

The original guidance stated that all UK businesses were eligible provided that they had created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account. However, on 15 April, HMRC announced that the date when an employee had to have been on the employers payroll to qualify for the furlough scheme was being changed to 19 March 2020.

The employer will need to submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal.   You can claim for employees that were employed as of 19 March 2020 and were on your payroll scheme on or before that date.  This means that when processing your payroll, you will have made a submission notifying HMRC of payment of that employee on or before 19 March 2020.

Employers will make all wage/ salary payments to the furloughed worker through the PAYE scheme. They can top up to full salaries if they wish.

 

Classifying your workers

We strongly recommend that employers take advice from an employment law specialist or HR adviser before amending any terms and conditions of employment for any employee.  Changing the status of employees remains subject to existing employment law.

Employers should make any changes to the employees’ employment contract by discussion and agreement with the employee. Employers must consider equality and discrimination laws as is necessary when changing the employment status of employees. The employer must then write to their employees confirming that they have been furloughed and keep a record of this communication as evidence.

Once you have taken specific employment advice then the following applies:

We understand that furloughed workers are “workforce who remain on payroll but are temporarily not working at all during the coronavirus outbreak”. This means that the employee can not undertake any work for or on behalf of the organisation, including providing services or generating revenue.

Anyone who is working from home or working fewer hours are not classed as furloughed workers.

The scheme also covers workers employed on 28 February 2020 and on your payroll at that time but were made redundant or stopped working for you after that date but before 19 March 2020 if you re-employ them and put them on furlough. If an employee is unable to work because they are self isolating or have symptoms of coronavirus the employee must follow Government guidance regarding staying at home.  An employee’s rights to Statutory Sick Pay (SSP) depends on their employment status and earnings.  However, if they are eligible and receive medical advice to self-isolate or become ill, they will be entitled to SSP from the first day of their absence from work.  Employers may also have contractual sick pay in place as part of their terms and conditions of employment so should follow their normal sickness policy.

 

Processing your payroll

Employees’ wages need to be processed through the payroll scheme and reported on RTI submissions to HMRC as normal.  As is the requirement now, you will need to pay your employees the amount that is reported on the regular RTI submission.  Any deductions for tax, National Insurance, Pensions etc will need to be deducted in the normal way.

If you can classify your worker(s) as furloughed (see above), then the employee(s) must be kept on the payroll but they must not undertake work for the employer while being classed as furloughed.

It is up to you as an employer whether you decide to pay only 80% of wages/salaries or “top up” and pay each employee’s full salaries/wages.  The HMRC online portal will only reimburse employers for 80% of furloughed workers’ wage costs.

If you have staff who are on irregular or zero hours contracts, the grant that can be claimed is the higher of:

  • 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 (and their pay varies), the grant will be based on their average monthly earnings since they started work.

If the employee only started work in February 2020 (and their pay varies), the claim should be based on a pro-rata of their earnings to date.

If we process your payroll – then you will need to advise us of the following:

  • Those employees who are being furloughed.
  • Those employees who are absent due to sickness and the reason (coronavirus related or not).
  • Hours, salaries you wish us to process for each employee. You will need to keep your own records as to what you have asked to be processed and whether this is 80% calculations as you will need this information for your online portal reporting.
  • Those employees on statutory leave such as maternity pay – these will still receive their normal statutory pay.

 

What to include in furlough staff wages

A calculator has now been launched to help you calculate 80% of your employees’ wages.  You can find the calculator by following this link https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme

Regular payments of set salaries, variable wages, non-discretionary overtime and fees, and compulsory payments including commission and bonuses, are included when working out the 80% figure.

Current government guidance has confirmed that payments at the discretion of the employer such as discretionary bonuses and commission payments are excluded.  Tips and non-cash payments such as health insurance or use of a company vehicle should be excluded as well.

 

Holiday Leave and Pay

Furloughed employees continue to accrue leave as per their employment contract and statutory annual leave entitlement still applies.

Employees can take holiday whilst on furlough. Working Time Regulations require holiday pay to be paid at the employee’s normal rate of pay or, where the rate of pay varies, calculated on the basis of the average pay received by the employee in the previous 52 working weeks.

 

Statutory Leave and Pay

Furlough claims for full or part time salaried employees who have returned from family-related statutory leave (maternity leave, paternity leave, shared parental leave, adoption leave, parental bereavement leave and unpaid parental leave) should be calculated against their salary, before tax, not the pay they received whilst on family-related statutory leave.

Those on variable pay should be calculated by using either the same months salary from the previous year on the average monthly earnings for the 2019/20 tax year.

Furloughed workers planning to take paid family-related statutory leave will be entitled to payments based on their usual earnings rather than their furlough pay.  New government guidelines state that individuals entitled to family-related pay starting on or after 25 April will have their payments based on their usual full pay.

 

Sick Pay

In line with other employees, claims for full or part time employees furloughed on return to work after time off sick should be calculated against their salary, before tax, not the pay they received whilst off sick.  Claims for those on variable pay, returning to work after time off sick should be calculated using either the same month’s earnings from the previous year or the average monthly earnings for the 2019 to 2020 tax year.

Please also see the section on our website regarding Statutory Sick Pay and the Statutory Sick Pay Rebate Scheme – https://www.doddaccountants.co.uk/covid-19-payroll-ssp/

 

National Minimum Wage Update 1 April 2020

National Living Wage (NLW) and National Minimum Wage (NMW) rates increased on 1 April 2020 (please click here for details and new rates).  However, Government guidance regarding the job retention scheme indicates that claims made under the scheme should be calculated on historic earnings, not contracted hours.

It states that individuals are only entitled to NLW/NMW for the hours they are working or treated as working under minimum wage rules.

This means that furloughed workers who are not working can be paid the lower of 80% of their salary or £2,500 even if, based on their usual working hours, this would be below their appropriate minimum wage.

Please note that time spent training while furloughed and is deemed as “of value” to the employer is treated as working time for the purposes of the minimum wage calculations and must be paid at the appropriate minimum wage, taking into account the increase in minimum wage rates from 1 April 2020.

Apprentices can be furloughed in the same way as other employees and they can continue to train whilst furloughed but must be paid the appropriate minimum wage for all the time they spend training.

 

HMRC Online Portal

The HMRC coronavirus job retention scheme portal was launched on Monday 20 April.  HMRC will check the claim and payments will be made within 6 working days via BACS into an employer’s bank account.

To claim you will need:

  • Your employer PAYE reference number
  • The number of employees being furloughed
  • Name, payroll number and National Insurance number of any furloughed employees
  • 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 and phone number

Some of our payroll clients have confirmed that they would like us to make the claim on their behalf and if you would like us to do this (but haven’t informed us yet), please can you let us know as soon as possible.

If we do not do your payroll, you must make sure you have registered for PAYE Online services to make your claim.  You will need to enrol separately for PAYE online services via the HMRC website https://www.gov.uk/log-in-register-hmrc-online-services if you didn’t complete this when you registered as an employer.  How you enrol depends on whether you already have an online account for other taxes such as VAT, Corporation Tax or Business Self Assessment.  If you are unsure how to register, please let us know.

 

Public Funding

Care needs to be taken where organisations receive public funding. The Government guidance states ‘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’

The Government guidance goes on to say:

‘In a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate for some staff.’

Specific guidance has been released by the Government for nurseries:

https://www.gov.uk/government/publications/coronavirus-covid-19-financial-support-for-education-early-years-and-childrens-social-care/coronavirus-covid-19-financial-support-for-education-early-years-and-childrens-social-care

This states that if it is difficult to distinguish whether staff are funded through public funds or private income, then the employer can access the CJRS to cover up to the proportion of its paybill which could be considered to have been paid for from the employers private income.

 

On 26 March, the Government issued further guidance on the new scheme and the main points to note are:

 

Which salary costs will the grant cover?

The good news is that the “80% grant” will cover a furloughed employee’s gross salary (as opposed to net salary) and furthermore it will also cover the associated employer’s NIC and minimum automatic enrolment employer pension contributions.

Hence, if employers and furloughed employees agree that salaries will be paid at a rate of 80% of their normal level, then in most cases the employer’s costs will be fully covered and consequently the scheme should achieve its objective of encouraging businesses to retain their employees, even if the business has temporarily closed and there is no income.  Please remember that the grant will be capped at £2,500 per employee per month (plus the associated employer’s NIC and minimum automatic enrolment employer pension contributions).

One point to note is that statutory holiday entitlement will continue to accrue during the furloughed period. Some employment lawyers have suggested that it may be possible to incorporate the taking of these holidays during the furloughed period and if employers want to also cover this statutory holiday cost, then they should seek appropriate advice from their legal advisors.  In fact, we would recommend that all businesses take legal advice when furloughing their staff, particularly if it involves a reduction in the employee’s salary (e.g. to 80% whilst furloughed) as this represents a change in their contractual terms and conditions and the employee’s consent will be required.

 

Which salary payment will the government base the grant on?

It has been confirmed that for employees who are paid a fixed salary, the grant will be based on their salary as at the end of February 2020.

Where an employee’s pay varies (and providing the employee has been employed for at least one year prior to the claim), the grant that can be claimed is the higher of:

  • The same month’s earnings from the previous year
  • Average monthly earnings from the 2019-20 tax year

Update (6 April 2020) – further guidance has explained that the furlough grant will be based on wages, past overtime, fees and compulsory commission payments (but not discretionary bonuses/tips and commission payments). 

If the employee has been employed for less than a year (and their pay varies), the grant will be based on their average monthly earnings since they started work.

If the employee only started work in February 2020 (and their pay varies), the claim should be based on a pro-rata of their earnings to date.

 

Can furloughed employees carry out a small amount of work for the business (e.g. 1 or 2 hours per week just to help keep things ticking along)?

The guidance makes it very clear that no work whatsoever should be undertaken by the employee during their furloughed period.

 

Can the employee work for someone else whilst they are furloughed?

Somewhat surprisingly the answer is yes.

 

Can the furloughed period be switched on and off?

This is one of the most common questions that we have been asked about the new scheme, because many businesses (that are experiencing a significant drop in activity/sales, but not a complete closure) would like to share the reduced workload amongst all of their employees e.g. if the workload has dropped by 50%, they would ideally like to furlough an employee for one week, the employee then returns to work in week 2, the employee to then furlough in week 3, and so on (and with a second employee doing the opposite).

The good news is that the government are allowing the furloughed period to be switched on and off, but the disappointing news is that the furloughed period must be a minimum period of 3 weeks (a one week minimum furlough period would have been much more helpful).

The guidance states that an employer can only submit one furlough claim for an employee at least every 3 weeks, so in theory an employee could be furloughed for 3 weeks, then work say one week (or even only a few days) and then be furloughed again for another 3 weeks.

 

Can directors be furloughed?

We have left the trickiest question to last!

Whilst the guidance states that directors may be eligible under the scheme, it makes it clear that any grant claim can only relate to the directors salary (i.e. dividends are excluded) and consequently the value of the grant claim will be relatively modest for most owner-managed companies given that many of the owners will have been paying themselves in the region of £700 per month as at the end of February 2020.

There a number of reasons why directors are a tricky area under this new scheme and these include:

  • The guidance makes it very clear that no work should be undertaken by an individual for their company whilst they are furloughed.  Even if a business is temporarily closed, there will inevitably still be some administration to deal with (because the company continues to exist) and furthermore the director has duties and obligations under company law.  Hence, where a company currently has only one director, we anticipate that it will be very difficult for the director to furlough himself and make a claim under the scheme (because can the director honestly say that they are not going to carry out any work for their company).  If there are currently two directors (e.g. husband and wife), then one can see how it could be honestly argued that one of the directors will not undertake any work for their company and consequently could be furloughed and make a claim under the scheme. Update (30 March 2020) – there are several reports on social media that the government are going to introduce a concession for directors whereby some of their statutory duties which involve the director undertaking work (e.g. filing of accounts and forms at Companies House etc) can be ignored for the purposes of making a claim under the scheme.  Naturally we will provide a further update as soon as any formal guidance is published.  Please note that it is expected that any concession will only apply to these statutory duties and if any other work is undertaken by the director then they will not be eligible to make a claim under the scheme (in a similar manner to employees who are not eligible if they undertake any work for the company).  Hence, we would recommend that directors approach the position honestly, particularly as the government’s guidance states ‘”HMRC will retain the right to retrospectively audit all aspects of your claim”. Update (6 April 2020) – further guidance has now been published which confirms the position that we outlined above i.e. the statutory duties of a director can be ignored for the purposes of furloughing, but the guidance also makes the point that in order to be eligible for furloughing a director must not undertake any work that generates income for their company or provide services to or on behalf of their company.  The guidance also states that if a director is furloughed the decision should be formally recorded in the company’s records and communicated in writing to the director and a copy retained for 5 years.
  • Irrespective of whether or not HMRC are happy for a director to furlough themselves and make a claim under the scheme, there are potential company law and insolvency law implications if a director furloughs themselves, particularly if the individual continues to be shown as a being a director of the company to the outside world (e.g. on company headed notepaper, on the company website and at Companies House).  Consider the possible scenario of a significant claim being brought against the company at some point in the future and if the claimant discovers that the director has furloughed himself (i.e. he has effectively declared that he is not going to undertake the duties that he has as a director under company law), the claimant could look to pursue the director personally (who might otherwise be protected by the company structure and the protection of limited liability).  We have seen a lawyer advise that in order for a furloughed director to protect themselves the director may have to notify all suppliers, customers and other business contacts that the business has been suspended pending the end of the Coronavirus crisis.  In most cases this is impractical and undesirable because the director may wish to use this time working on improving the business so that when trading recommences the business performs well quickly.  In these circumstances, furloughing is not permitted because as mentioned above the guidance makes it clear that no work should be undertaken during the furloughed period.

 

Please click here to go back to advice on other Government measures in response to the coronavirus pandemic.

 

<May 2020>
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