Coronavirus Job Retention Scheme
Guaranteeing a proportion of the salaries of millions of workers
Around the country, many employers have implemented lay-offs due to reduced revenues and the closure of their business premises due to coronavirus. The Coronavirus Job Retention Scheme has been set up to support those employers and help them continue to pay wages of staff who would otherwise have been let go.
The Government will pay up to 80% of wages for workers at risk of being laid off due to the coronavirus (COVID-19) pandemic, Chancellor Rishi Sunak announced. Under the Coronavirus Job Retention Scheme, all UK employers with a PAYE scheme that was originally created and started on or before 28 February 2020 qualified, but the eligibility date has now been extended to 19 March 2020.
Temporary scheme open to all UK employers
Any employer in the country will be able to apply to HM Revenue & Customs (HMRC) for payments of up to £2,500 per worker per month – just above the median UK income – Rishi Sunak announced.
The unprecedented move means the Government will guarantee a proportion of the salaries of millions of workers, if employers keep them on their payrolls rather than laying them off. This is a temporary scheme open to all UK employers for at least three months, which started from 1 March 2020.
Intended to be up and running by the end of April
The scheme is designed to support employers whose operations have been severely affected by coronavirus and is intended to be up and running by the end of April. HMRC is working on a portal that employers can use to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs.
This is capped at £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions (assuming employees have not opted out) on that wage.
Available to employees who are being furloughed
The scheme is open only to all UK employers that had registered and started a PAYE payroll scheme on 19 March 2020 who have a UK bank account. In addition, HMRC has revised the slightly lighter guidance available to employees who are being furloughed as a result of the COVID-19 impact.
Any UK organisation with employees can apply, including businesses, charities, recruitment agencies (agency workers paid through PAYE) and public authorities. Where a company is being taken under the management of an administrator, the administrator will be able to access the Job Retention Scheme.
Furloughed employees must have been on your PAYE payroll on 19 March 2020, and can be on any type of contract, including:
- Full-time employees
- Part-time employees
- Employees on agency contracts
- Employees on flexible or zero-hour contracts
Employee’s wage subject to Income Tax and other deductions
The scheme also covers employees who were made redundant since 19 March 2020, if they are rehired by their employer. To be eligible for the subsidy, when on furlough, an employee cannot undertake work for or on behalf of the organisation. This includes providing services or generating revenue. While on furlough, the employee’s wage will be subject to usual Income Tax and other deductions.
This scheme is only for employees on agency contracts who are not working. If an employee is working but on reduced hours, or for reduced pay, they will not be eligible for this scheme, and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed.
Making changes to employment contracts
Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way. To be eligible for the subsidy, employers must write to their employee confirming that they have been furloughed and keep a record of this communication.
Employees hired after 19 March 2020 cannot be furloughed or claimed for in accordance with this scheme. You do not need to place all your employees on furlough. However, those employees who you do place on furlough cannot undertake work for you. Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 19 March.
Furloughed for each job with more than one employer
Employees on sick leave or self-isolating should receive Statutory Sick Pay, but can be furloughed after this. Employees who are shielding in line with public health guidance can be placed on furlough. Also, if an employee has more than one employer, they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
However, if workers are required to, for example, complete online training courses whilst they are furloughed, then they must be paid at least the National Living Wage (NMW)/National Minimum Wage (NMW) for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
Eligibility for Statutory Maternity Pay or Maternity Allowance
Individuals who are on or plan to take Maternity Leave must take at least two weeks off work (four weeks if they work in a factory or workshop) immediately following the birth of their baby. This is a health and safety requirement. In practice, most women start their Maternity Leave before they give birth. If you are eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply, and you 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 six 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.
Wage costs that employers can claim through the scheme
If women receive enhanced (earnings related) contractual pay on Maternity Leave, this is included as wage costs that employers can claim through the scheme. The same principles apply for employers where an employee qualifies for contractual adoption, paternity or shared parental pay.
Employers will need to make a claim for wage costs through this scheme. They will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included.
Fees, commission and bonuses should not be included
At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary beyond this, but is not obliged to under this scheme.
For full-time and part-time salaried employees, the employee’s actual salary before tax, as of 19 March 2020 should be used to calculate the 80%. Fees, commission and bonuses should not be included.
Liability for automatic enrolment employer pension contributions
All employers will remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees. Individuals are only entitled to the NLW/NMW for the hours they are working.
Therefore, furloughed workers who are not working must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.
Completing online training courses whilst employees are furloughed
If workers are required to, for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
Employers will need to discuss with their staff and make any changes to their employment contracts by agreement. If sufficient numbers of staff are involved, some employers may also need to seek legal advice on the process.