tim@mallontax.co.uk +44 (0)7857 122076

When 80% isn’t enough

We are experiencing unparalleled times.  We have just heard our Prime Minister issue instructions to put all of us into a “near-quarantine” situation with citizens only being allowed to leave their house for essential reasons.  I fear that further restrictions will be imposed over the coming days and weeks.

Businesses have inevitably suffered, and the Government have intervened to assist with a range of financial support.  One such is the Coronavirus Job Retention Scheme (CJRS) which seeks to assist businesses by providing support to those businesses which must “lay off” (or “furlough” to use the new parlance) employees as a result of the Virus.

Coronavirus job Retention Scheme

The scheme will be administered by HMRC via a new portal which is in the course of being created.  It is not anticipated that claims will be able to be made much before the end of April 2020.  Until then of course, business will need to fund payroll costs without any direct support.

So, what does “furlough” mean and what help is available?

My employment law contacts tell me that  a “furloughed” employer is one who would otherwise would have been laid off or made redundant were it not for the assistance being provided.  It is effectively a form of paid leave. Businesses need to review employment contracts to see whether employers have the power to enforce “furloughed leave” or whether further negotiation with employees may be required.

The CJRS is a scheme whereby the employer will decide which employees will be furloughed and via the portal will notify HMRC of this.  Those employees will continue to be paid by the employer and the employer can then claim back 80% of their “wage costs” subject to a cap of £2,500 per furloughed employee per month.  More details are available here: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses.

The scheme will only apply to those employees who do not work.  If employees are put on reduced hours, then the scheme will not help.

Wage costs – clarity please

But what are “wage costs” – does this include Employers NIC or employers auto-enrolment pension contributions? That’s still to be announced but to examine the effect of excluding those additional costs, I have put together this table:

Gross per month Employers NICs Employers Pension (3%) Total Employer Cost CJRS payment Employer funded (%)
2,500.00 245.78 75.00 2,820.78 2,256.62 80
2,760.00 281.66 82.80 3,124.46 2,499.57 80
3,000.00 314.78 90.00 3,404.78 2,500.00 73.4
3,500.00 383.78 105.00 3.988.78 2,500.00 62.67

(This table assumes the employee has the standard personal allowance of £12,500 and assumes that the employer continues to pay their normal monthly salary during the period of “furlough”).

Broadly speaking then, if you have employees earning over £33,120 then the support that you can expect from the Government during furlough may well be less than 80%.  Employers might then decide to ask those employees to reduce their hours but note that the CJRS does not apply to those on reduced hours – they must not work at all.

Keeping going? No help here!

And this is where the scheme has a problem.  Many small businesses are not able to lose one member of staff and continue in the same way.  Most small business employ staff to do one job and usually that one job is crucial to the business functioning at all.  If the business is operating on a reduced basis because of lack of demand, the preference would be for everyone to work a little less.  For those businesses there is little assistance with payroll costs…..yet!

Close Menu