If your employer cannot cover staff costs due to COVID-19, they may be able to access support to continue paying part of your wage, to avoid redundancies.
If your employer intends to access the Coronavirus Job Retention Scheme, they will discuss with you becoming classified as a furloughed worker. This would mean that you are kept on your employer’s payroll, rather than being laid off.
This can be backdated and apply to employees who were on payroll as of 28 February even if you have since been let go.
To qualify for this scheme, you should not undertake work for them while you are furloughed. This will allow your employer to claim a grant of up to 80% of your wage for all employment costs, up to a cap of £2,500 per month.
You will remain employed while furloughed. Your employer could choose to fund the differences between this payment and your salary, but does not have to.
If your salary is reduced as a result of these changes, you may be eligible for support through the welfare system, including Universal Credit.
Rules as outlined in official statements released as at 26 March 2020
- Furloughed members of staff must not work for the employer during the period of furlough.
- Furlough is from 1 March 2020, so is to be backdated. It will last for at least 3 months and will be extended if necessary. Note that while the scheme is backdated to the beginning of March as it is intended to support all those employed then, a firm will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer. This will of course be subject to employment law in the usual way.
- The scheme is available for employees on the payroll at 28 February 2020.
- All UK businesses are eligible, ‘any employer on the country, small or large, charitable or non-profit’ to use the Chancellor’s words.
- The scheme pays a grant (not a loan) to the employer.
- The 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. This contract may be re-negotiated, but that is a matter for employment law.
- The scheme will be administered by HMRC:
• Relevant employees must be designated as furloughed employees.
• Employers will submit claims to HMRC through a new online portal.
• As the system will take time to build, businesses should look to the Coronavirus Business Interruption Loan Scheme to support cash flow in the meantime. The narrative used in the information released so far says ‘if your employer cannot cover staff costs due to COVID-19 they may be able to access support…’. This is a conditional phrase which may relate to existing funds available to the employer. We do not yet know how these might be determined, nor whether there is a bar of some description.
- 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.
This gives a maximum cap of £2,500 +£245 (employers’ NIC) + £59 (auto- enrolled pension contribution) = £2,804 of total possible grant that can be applied for per employee per month.
Guidance from HMRC:
- Guidance for employers on the Coronavirus Job Retention Scheme
- Support for employees on whether they are covered by the Coronavirus Job Retention Scheme
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
Plus employers’ NIC on this amount
So X Ltd claims a grant of £1,600 plus £177 = £1,777.
The net amount of cash required by X Ltd to furlough Mr A based on maintaining the existing salary is £2,000 + £177 – £1,777 = £400 per month.
It is a matter for employment law whether the employer is actually required to pay this top up. Employees and employers can agree to a different arrangement during the furlough.
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
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 again a matter for employment law whether the employer is actually required to pay this top up. Employees and employers can agreed to a different arrangement during their furlough.
Notes to illustration based on an extended understanding of how the scheme will work
- If Mr A had not opted out of auto enrolment, X Ltd would also be making pension contributions on his behalf.
- We understand that the rules for the scheme are being designed with underlying reference to employment law. If the individual is still under contract, Mr A can expect to receive his salary in full. The grant paid to X Ltd should not be taken as the new maximum cost of employment to the employer unless the contract has been redrafted.
- 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.
ACAS – information for advice for employers and employees: https://www.acas.org.uk/coronavirus
Health & Safety Executive: https://www.hse.gov.uk/news/coronavirus.htm
Information Commissioner: https://ico.org.uk/for-organisations/data-protection-and-coronavirus/
Coronavirus and claiming benefits: https://www.understandinguniversalcredit.gov.uk/coronavirus/