Whilst currently there is a lack of detail regarding the Government’s Coronavirus retention scheme, I thought I would put across to you all my thoughts in relation to the potential scheme and how it would work in practice.
What we do know
- The Scheme will be open for an initial three months. There is always the potential as laid out in the plans by the Chancellor that this could be extended at a later stage
- All eligible employers will receive a grant from HMRC. This Scheme will cover the cost of wages and all employers with the PAYE Scheme will be eligible
- The Scheme will cover the cost of wages backdated to 1st March
I have chosen to answer some of the questions that I have been asked in recent days in relation to furlough:
Firstly, what is furlough?
Businesses use furloughs as an alternative to laying off staff and it is a measure to keep employees on the payroll and to bring them back in the future. However, in the meantime the Business does not have a need for their employment.
Who can be furloughed?
Any employee who is paid PAYE can be furloughed provided they have worked for the Company since before the 1st March 2020.
A Company can require all of its employees to go on furlough or can decide only to keep staff that are deemed essential and necessary to the business. However, each employee must agree to be placed on furlough leave unless the employer has a “lay off” clause in the employee’s contract of employment.
Will the Government’s Job Retention Scheme still require employees to pay tax on this?
It would be my view that individuals will still pay income tax and National Insurance on any payments they receive through the Scheme, as per normal practice.
Can I furlough someone after the announcement and claim their wages back to 1st March?
No, in my opinion the Scheme would be backdated to 1st March. This would cover any employees who had already been made redundant or had been placed onto furlough. It would appear to be extremely important the date on which the employee was informed that they were being placed on furlough.
How much will I receive from the HMRC?
80% of the salary costs. It is clear from the wording of the announcement and the Department of Business Energy and Industrial Strategy that you as an employer could choose to fund the differences between this payment and the salary but you do not have to. It would appear from this that the employer has the ability to decide whether to top up the additional 20% drop in employees’ salaried wages, however be mindful that any failure to do so would be classes as an unlawful deduction from wages or a breach of contract, unless the employee has agreed to the drop in pay.
It is worth noting that employers must pay their staff at least 80% of their wages up to the cap of £2,500 to qualify for the Scheme.
What if I made staff redundant already before this was announced?
In relation to this I would advise that the Scheme has been mooted to be backdated to 1st March. This will cover those that have already been made redundant or lost their jobs due to the Coronavirus.
If you have staff that you have made redundant after 1st March and they would be eligible to be furloughed then in my view you would qualify for the Scheme, provided you re-employ them.
Can I furlough my staff for a short period of time and then bring them back?
I have been asked this question a number of times and as of today’s date there is still no firm guidance from the Government on this position. However, in my view there would have to be a set minimum period in order to define who is and who is not furloughed.
On reviewing the Department of Public Health it would appear that their guidance would indicate that a worker should be furloughed for a minimum of three weeks in order to be eligible for a claim under the job retention scheme.
What about zero hour and flexible contracts, would these still apply?
The first point to note is provided these employees are paid through the PAYE system regardless of their employment contract status the Scheme should be applicable.
The difficulty in my view, would appear to arise from how to quantify what the 80% of their wages would have been for this period. It would appear to me that the Government will follow the current employment law guidance when considering holiday pay, commission etc. This guidance is currently 12 weeks however in my view it is likely that the pay of your employees on zero hours/flexible contracts will be determined over a 52 week period or a period since they have been employed by you.
There is a current change in the calculation period that from 6th April 2020 instead of the average number of weekly hours and pay from the previous 12 weeks this would be increased to 52 weeks. It is therefore my view that in light of the upcoming change any calculation regarding the average wage in relation to working out the 80% contribution would have to be based over the previous 12 months as opposed to any 12 week average.
Will this cover employer National Insurance and employer pension contributions?
In my view the Scheme itself was announced in such a way which would appear that the Government is stepping into the employer’s shoes in relation to paying the 80%. As such it is my view that the Scheme would also cover the employer’s National Insurance contributions and automatic enrolment pension contributions.
As detailed above in my answers, all of the above is based upon my own personal opinion of what the Coronavirus Job Retention Scheme will look like once Government guidance has been published.
This is not deemed advice and I will provide you with a detailed update once further details of the Scheme have been released by HMRC.
If your business requires any assistance in relation to employment or corporate advice during the Coronavirus pandemic please do not hesitate to contact me on 01228 522215 or si@bendlessolicitors.co.uk.
Stuart Irving is the Head of Employment and Partner at Bendles LLP. Bendles LLP has offices in Carlisle, Wigton and a meeting room in Barrow.