The CJRS was the first business support scheme to be announced by Rishi Sunak on Friday 20 March and a number of professional bodies, trades unions, employer organisation and others have been consulting with HM Treasury to pin down the details since the announcement. What follows is the position as we understand it although be prepared for more clarifications in coming weeks!
Employers who created and started a payroll on or before 28 February 2020 will be able to claim. Employees who were paid through PAYE and were on the payroll on or before 28 February 2020 will be eligible for coverage. Employees can be on any type of employment contract including part-time and zero hours contracts. Furloughed members of staff must not work for the employer during the period of furlough.
Furlough can be backdated to 1 March 2020, will last for at least 3 months and will be extended if necessary. Note however that support will only be provided back to 1 March 2020 if furlough had been agreed then. Given that, prior to Mr Sunak’s announcement, “furlough” was a relatively unknown term in the UK, that is unlikely.
Normal employment law consideration will need to be dealt with if putting employees on furlough. In particular if, as is likely, the employment contract does not give the employer the power to furlough without needing the agreement of the employee, that agreement will need to be obtained.
The scheme is available for employees on the payroll at 28 February 2020 and, in most cases, we understand that the support will be based not on the amount actually paid to the employee in the period of furlough but by reference to the amount paid in February 2020 (but see below).
The support (in the form of a grant) will be paid to the employer through a new online system which is being built for this purpose. There is no detail about the application process at the moment.
The employer will pay the employee through payroll, and report payments to HMRC using the Real Time Information (RTI) system as usual, as required by the employment contract.
How much will Government pay?
The maximum grant will be calculated per employee and is the lower of:
• 80% of ‘an employee’s regular wage’ and.
• £2,500 per month.
Plus the associated employers’ national insurance contributions (NIC) on this amount and the minimum automatic enrolment employer pension contributions on that wage. Fees, commission and bonuses should not be included.
How much salary does the employer pay?
Subject to the employment contract and any amendment, the salary which the employer actually pays the employee during the furlough period may be different to the pay in the reference period and upon which the grant figure is based. However, the employer must pay at least the amount of the grant.
Many owner managed company director/shareholders pay small salaries and the balance of income as dividends. The scheme does not extend to dividends. Only the salary is relevant to the scheme. Such companies must have been paying a salary through a payroll to be eligible for a grant. In addition the Government say the following about the procedure to be followed:
“As office holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed. Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.
Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.”
What is the grant based on?
For full-time and part-time employees, the base for the 80% calculation is the employee’s actual salary as of 28 February 2020. For those whose pay varies HMRC guide as follows:
“If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either:
the same month’s earnings from the previous year; or
average monthly earnings for the year.
“If the employee has been employed for less than a year, claim for an average of their monthly earnings since they started work.
“If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
“Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.”
An employee must remain on furlough for a minimum period of three weeks, although a further period may immediately follow the previous furlough if agreed. This will ensure flexibility and permit furloughed employees being brought back to cover, for example, sickness of others.
An employee does not have to accept furlough if offered, but the employer could then make the employee redundant instead using the usual employment law procedure.
The claim portal is still being developed. HMRC have indicated that the portal will be open on 20 April 2020 with the first payments made before the end of that month. Claims can only be made via the portal; telephone claims will not be accepted. To make the claim, employers will need to have registered for PAYE Online – the link to do so is https://www.gov.uk/paye-online using the company’s Government Gateway ID.
To make the claim, an employer will need the following information:
- your ePAYE 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 consecutive weeks)
- your bank account number and sort code
- your contact name
- your phone number
HMRC indicate that they:
“retain the right to retrospectively audit all aspects of your claim.”
This covers most of the main points that clients have asked us over the last ten days or so. Should further clarifications on the details emerge over coming days and weeks, I’ll endeavour to update this blog. Please feel free to give me a call or email email@example.com should you need assistance on specific queries.