Background of the scheme
Under the Job Retention Scheme (JRS), an employer is able to designate an employee or employees that it wishes to “furlough”. The Government will reimburse 80% of the employee’s wage for hours not worked. (this contribution has changed over time, see below for details)
Furlough is not a term that has previously been widely used in the UK. It is much more common in the US. It essentially means to lay-off. It is intended that a furloughed employee will return to work at some point so if you wish to permanently dispense with an employee’s services, redundancy may be a better option.
It is also important to note that you will still need to pay your furloughed employees and claim reimbursement from the Government, so there will be an initial cashflow cost.
This Government initiative doesn’t supersede employment law so if you wish to use the scheme, you will still need to satisfy yourself or seek legal advice that you are entitled to ask your employees to be furloughed.
FAQs
How long will the scheme last?
The scheme was effective from 1 March 2020 until end of October 2020. However, it has now been extended to September 2021 in the Chancellors Budget speech.
Can a furloughed employee continue to do any work for me?
Employers are able to bring furloughed employees back on a part time basis, for example – pay them for 2 days a week and HMRC will pay them their furlough for 3 days a week.
What levels are the grant?
The levels of grant available under the scheme are as follows:
- Until the end of June 2021 HMRC will continue to pay 80% of employees non worked hours (up to a maximum £2,500), employers will be required to cover the National Insurance and employer pension contribution.
- In July HMRC will reduce their contribution to 70% (up to (£2187.50) with employers contributing 10%.
- In August and September HMRC will reduce their contribution to 60% (up to £1875) with employers contributing 20%.
Is the 80%/£2,500 of the employee’s net or gross salary?
This has been confirmed as their gross salary.
Do I have to top up my employee’s salary from the 80% to 100% of their usual salary?
No. It is acceptable to reduce an employee’s furloughed wage to 80% of their normal salary, even if that takes them to below National Living Wage levels. Although this is only a temporary relaxation.
Can I continue to pay 100% of my employee’s salary?
Yes, however you will need to fund the 20% difference yourselves.
What happens for employees on variable wages?
For employees whose pay varies, that the amount that can be claimed is the higher of the following:
- the same month’s earnings from the previous year; and
- average monthly earnings in the 2019/20 tax year
This excluded any commissions or bonuses.
Do I have to pay employer’s National Insurance Contributions, pension contributions, etc?
Yes. They will then need to be covered by the employer until the end of the scheme.
Do I need to do anything differently when running my payroll in order to identify employees as furloughed?
The Government’s guidance suggests that you need to write to any affected employees to notify them of the fact that they are being furloughed.
How do I furnish HMRC with details of my furloughed employees and claim a reimbursement?
HMRC have created a portal for this purpose visit https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme
Do directors qualify?
Yes directors can qualify but obviously cannot claim furlough whilst performing substantive work for the company. We understand that performing statutory directors’ duties for the company can be disregarded for these purposes.
Will the payments be subject to normal PAYE and National Insurance contributions?
Yes
What happens if my employee becomes sick whilst furloughed?
It is likely that they will be eligible for statutory sick pay but this may well be at a lower rate than their furloughed pay.
Not sure what to do next?
As with the original furlough scheme, we will be happy to assist you with these claims. Our fees will be on the same basis as the original scheme. We invite you to contact your normal team who will offer you support. We are experts in many of these areas and will be pleased to assist you in every way we possibly can. If you are not sure who to contact, call us on +44 (0)330 024 3200 or email hi@hhllp.co.uk.