Changes to the Coronavirus Job Retention Scheme (CJRS)

On 29 May 2020 the Government announced an update to the Coronavirus Job Retention Scheme (CJRS). The CJRS is open to all UK employers to access support to continue paying part of their employees’ salary for those that would otherwise have been laid off during this crisis.

An overview

Following the Government’s announcement, from the 30 June, no new employees will be able to be placed on Furlough and their wages claimed through the CJRS. In accordance with the existing rules on claiming via the CJRS, any employee must have been Furloughed for a minimum of 3 weeks in order to make a claim.

Important: the final date on which an employee can be placed on Furlough for the first time is 10 June.

As to whether employees who have been furloughed before or as of 10 June can be brought back in to the business and then furloughed again at a later date, as businesses experience peaks and troughs in performance, this is currently unclear, however further guidance is expected.

One measure that will be introduced from 1 July 2020 to enable employers to gradually re-scale operations as the UK emerges from lockdown is to bring previously furloughed employees back part-time and still receive a grant for the time when they are not working. Whilst this will prove a very useful mechanism for numerous businesses, the evolving changes to individuals’ pay over the coming months will complicate the current CJRS claims calculations and increase payroll processing. Therefore, successful claims will continue to rely on both the honesty of employers and open communication of information between clients, payroll and the claims team.

Finally, as announced on 12 May, 2020, the CJRS has been extended until October, but employers will have to start contributing to the wage costs of paying their furloughed staff Starting from 1 August 2020. There will be no changes to what can be claimed until then.

Breakdown of Government and Employer contributions

March – July

80% of wage costs can be claimed via CJRS (up to £2,500)

Employers NI contribution and pension payable by the Government

August

80% of wage costs can be claimed via CJRS (up to £2,500)

Employers NI contribution and pension payable by the employer

September

70% of wage costs can be claimed via CJRS (up to £2,500)

10% of wage costs paid by employer*

Employers NI contribution and pension payable by the employer

October

60% of wage costs can be claimed via CJRS (up to £2,500)

20% of wage costs paid by employer*

Employers NI contribution and pension payable by the employer

 
* This doesn’t include the optional 20% top-up that some employers will pay to staff to ensure they receive 100% of their pay/salary

 

Further support for employers and agents on how to calculate claims with this extra flexibility will be available by 12‌‌ June, including webinars and detailed online guidance.

To make a claim, you need to meet three conditions:

  1. You need to have created and set up a PAYE scheme before 19 March 2020
  2. You need a UK bank account, into which the money will be paid
  3. You MUST have enrolled for PAYE online. Employers can now set up a PAYE online account with immediate access. Removing the need to wait 10 days for an activation code.

 The last condition is very important. If you registered for PAYE as an employer, but didn’t do it online, you need to enrol online before you can receive CJRS payments.

Coronavirus Job Retention Scheme (CJRS): A step by step guide for employers

This step by step guide from the government will take you through five sections:

Step 1: Essential information
Step 2: Before you make your claim
Step 3: Calculating your claim
Step 4: Making a claim
Step 5: What to do next

 

Download

 

 

Legal agreements

To furlough employees, you need an agreement – The Treasury Direction says that to claim under the furlough scheme, the employer and employee must have agreed in writing that the employee will cease all work (para 6.7). Notification alone is not sufficient. This document also needs to be kept for five years. Further, as stated above, any reduction in salary is a breach of contract without express agreement from the employee.

Furlough agreements are required to include the time period for which the employee will be out of work. This time period will likely be the period that the Job Retention Scheme remains in place, subject to a minimum of 3 weeks. We understand that if an employee comes back to work after the set period and you do not require them to work still, you can ‘re-furlough’ them for a further period of time. 

A furlough agreement is a temporary variation of the contract of employment and the employees will revert to their normal terms following furlough, although some employers are using furlough agreements to introduce and agree permanent changes such as the right to put the employees on short-time working or to temporarily lay them off. This is a complex area of law and legal advice should be obtained before making such changes.

In respect of contractual terms which have not been varied by agreement, the underlying contract of employment continues to apply during the furlough period, as do an employer’s statutory obligations which often override contractual terms, particularly around termination of employment, for example timings of consultation on a collective redundancy process.

According to businesssupport.gov.uk, “HMRC will pay employers a grant worth 80% of an employee’s usual wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage.” Once HMRC have received your claim and it is eligible for the grant, they will pay it via BACs payment to a UK account. This support is for employees on PAYE only.

This facility opened on 20 April. The funding is initially available in respect of furlough which takes place during the period from 1 March until the end of October.

As detailed above, employers will need to make a contribution after 31 July towards the 80% up to £2,500 a month.

Employers currently using the scheme will also be able to bring furloughed employees back part-time. Further detail will follow by the end of May.

As a firm that services owner-managed businesses, we are aware that in many instances there are director/shareholders who compensate small salaries with either income as dividends (for profitable businesses) or future promises through shareholdings and loans. Unfortunately, the scheme does not extend to dividends or loan interest – only the salary is relevant to the scheme. Whilst this will come as a setback to many, it is some good news that Directors can benefit from the scheme.

However, directors are extremely limited in what they can do during furlough.

Information required by HMRC

HMRC is putting together a support pack and further guidance due out this week on how to compile and upload claims, because they say if a million employers try to ring us all on the same day, it will not be possible to provide enough resources to handle all of those calls at the same time. At the moment the details of what is needed to make a claim are as follows:

  • your employer PAYE reference number
  • the number of employees being furloughed
  • National Insurance numbers for the employees you want to furlough
  • Names of the employees you want to furlough
  • Payroll/works number for the employees you want to furlough
  • your Self-Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number
  • the claim period (start and end date)
  • amount claimed (per the minimum length of furloughing of 3 consecutive weeks)
  • your bank account number and sort code
  • your contact name
  • your phone number

You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.

If you have fewer than 100 furloughed staff you will be asked to enter details of each employee you are claiming for directly into the system – this will include their name, National Insurance number, claim period and claim amount, and payroll/employee number (the last item is optional).

If you have 100 or more furloughed staff you will be asked to upload a file with the information rather than input it directly into the system.

You can now save claims and return to them later.

We will accept the following file types: .xls .xlsx .csv .ods

The file should include the following information for each furloughed employee: name, National Insurance number, claim period and claim amount, payroll/employee number (optional).

You should retain all records and calculations in respect of your claims.

Conditions of the employee

  • New employees on or after 28 February 2020 – employees that were employed as of 28 February 2020 and on payroll (i.e. notified to HMRC on an RTI submission on or before 28 February) and then subsequently made redundant or stopped working for the employer after that and/or prior to 19 March 2020, can now qualify for the scheme if the employer re-employs them and puts them on furlough.
  • Redundant employees on or after 28 February 2020 – “If you made employees redundant, or they stopped working for you on or after 28 February 2020, you can re-employ them, put them on furlough and claim for their wages through the scheme.” This can apply to employees that were made redundant after 28 February, even if they are not re-employed until after 19 March. The conditions of this require that the employee was on the company’s payroll as at 28 February and had been notified to HMRC on an RTI submission on or before 28 February 2020. If an employee is being furloughed by their current employer, former employers within the last year cannot re-employ them in order to furlough them and claim wages through the scheme.
  • Zero-hour/ flexible workers – Employees on zero-hour or flexible contracts are eligible for the scheme, and ‘salary’ in this instance will be calculated on the following basis, 80% of either:
  1. the same month’s earnings from the previous year;
  2. the average monthly earnings from the 2019-20 tax year; or
  3. the average or pro-rate of their monthly earnings since they became employed. Whichever is the higher.
  • Unpaid leave – As a result of the change in eligibility date to 19 March 2020, if an employee started unpaid leave after 28 February 2020, you can now put them on furlough instead and pay them at least 80% of their regular wages, up to the monthly cap of £2500, in line with the scheme. However, if an employee went on unpaid leave on or before 28 February, you unfortunately cannot furlough them until the date agreed that they would return from unpaid leave.
  • Sick leave – If an employee is on sick leave or self-isolating, they should continue to receive Statutory Sick Pay, but they can still be furloughed on return to work.
  • Bank Holidays – According to HMRC, if your employees usually work bank holidays then you can agree that this is included in the grant payment. If they usually take the bank holiday as leave then you would either have to top up their pay to their usual holiday pay, or give them a day of holiday in lieu.
  • Employees with more than one employer – The £2,500 cap applies to each employer individually, therefore if an employee has another form of employment they can be furloughed for each job.
  • Training provisions – If an employee is required to complete online training courses whilst they are furloughed, then they must receive, at least, the National Living Wage/ National Minimum Wage for the time spent in training, regardless of whether this exceeds the 80% of their subsidised wage.
  • Salaried Members of LLPs – Members of LLPs who are designated as employees for tax purposes under the Income Tax (Trading and Other Income) Act (ITTOIA) 2005 are eligible for furlough and support through the scheme. This will require a variation to their LLP agreement and subject to a formal decision by the LLP.

Please note – Where a company is being taken under the management of an administrator, the administrator will also be able to access the Job Retention Scheme.

Maternity pay

According to Gov.uk, “If your employee is eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance. Employees who qualify for SMP, will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is currently £148.68 a week, rising to £151.20 a week from April 2020.

The guidance says that employers can claim for the enhanced elements of maternity pay under the scheme.

The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.

Two Examples

The ICAEW have provided worked examples, though they have caveated this as only an indication of how the scheme will work:

Example 1:

  • X Ltd employs Mr A at an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto-enrolment.
  • Each month, Mr A currently receives net pay of £1,655 which is after deducting PAYE of £191 and employees NIC of £154. On this salary, the employer pays employers’ NIC of £177.
  • The available grant for the employer is the lower of (a) 80% of £2,000, and (b) £2,500. Plus employers’ NIC, £122, on this amount
  • So X Ltd claims a grant of £1,600 plus £122 = £1,722.
  • The net amount of cash required by X Ltd to furlough Mr A based on maintaining the existing salary is £2,000 + £177 – £1,722 = £455 per month

Example 2:

  • X Ltd employs Mr B at an annual salary of £42,000, so £3,500 per month. Mr B has opted out of auto-enrolment.
  • Each month, Mr B currently receives net pay of £2,675 which is after deducting PAYE of £492 and employees NIC of £333. On this salary, the employer pays employers’ NIC of £383.
  • The available grant for the employer is the lower of (c) 80% of £3,500 = £2,800, and (d) £2,500. Plus employers NIC, £245, on this amount
  • So X Ltd claims a grant of £2,500 plus £245 = £2,745.
  • The net amount of cash required by X Ltd to furlough Mr A based on maintaining the existing salary is £3,500 + £383 – £2,745 = £1,138 per month.

It is a matter for employment law whether the employer is actually required to pay this top up.

We expect the grant to be recognised in most clients’ P&L statements, most likely on the basis set out in FRS 102.

HMRC has said claims can take up to six days; however, we have been informed on the phone that due to the volume of claims, some are taking 10 days.

Stepping back

Giving the likely timings of the scheme we expect many clients to still have a ‘timings’ issue around cash flows. Our advice is that this is appraised as soon as possible as part of short term forecasting.

If salaried Directors are being furloughed we anticipate that the Board will need to consider how the responsibilities to manage and lead the Company will be reallocated by the remaining directors.

However, again directors are extremely limited in what they can do during furlough.

Our Employment Law team can draft furlough agreements at a set cost on a per company, rather than per employee basis. Please note that until details of the grant scheme are released we cannot advise on reimbursement.

How can Price Bailey help?

You can make a claim now via the Gov.uk website here:

https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme

You’ll need the Government Gateway user ID and password you got when you registered for PAYE online.

For our payroll clients

Where we hold a 64-8 we can set them up on the portal and submit grant claims, subject to the client approving the claim before submission. Please speak to your PB contact for more information.

Where do not currently hold a 64-8, unfortunately we cannot do this, due to GDPR restrictions as per the advice by HMRC. However we can support you in preparing the claim for you to then file yourself.

For non-payroll clients

We also cannot do this due to GDPR restrictions. However, However we can support you in preparing the claim for you to file yourself and can offer advice on the Job Retention Scheme and other government support packages.

For more information on furloughing staff, please reach out to your Price Bailey contact, Joanna Smye from our Employment Law team.

 

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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