The Coronavirus Job Retention Scheme was established by the government on 20 March 2020 and will be administered by HMRC.
The scheme will make available grants to those employers who elect to furlough, rather than lay off, employees who are without work during the current crisis.
What we know so far:
• All businesses are eligible, of any size and in any sector, to apply to use the scheme.
• The scheme involves “furloughing” designated employees who would otherwise have been “laid off” during this crisis.
• Any employee can be furloughed provided they are on PAYE and earn more than £118 per week.
• Zero hours workers who fulfil the same criteria may also be furloughed – the pay will be calculated taking an average over 52 weeks.
• This means that staff will be kept on the payroll instead of making them redundant or putting them on unpaid leave.
• HMRC will reimburse 80% of furloughed employees’ gross ‘wage costs’, up to a cap of £2,500 per month per employee.
• ‘Wage costs’ are expected to include wages, pension contributions and employer national insurance contributions.
• The employer can top-up the 80% HMRC payment but does not have to do so – it is recommended employers are consistent across all of their staff.
• Employers who have already made redundancies are encouraged to take back anyone they had dismissed and put them on furlough instead.
• The employer needs to pay their furloughed staff and then be reimbursed by HMRC.
• Employees cannot do any work for an employer that has furloughed them.
• There is nothing preventing employees from going to work part-time hours for another employer to top up their pay.
• The scheme will be backdated to 1 March 2020 and run for three months from that date. It will be extended if necessary.
• Employers need to decide on the employees and workers that you want to furlough and then submit the information to HMRC via a new portal which is due to be in place by the end of April 2020.
• Consent to the new arrangement needs to be obtained from all employees and workers in the correct format.
• The employer is likely to need to maintain benefits for furloughed staff, unless it agrees something different with them.
• Holiday is likely to continue to accrue during the time that staff are furloughed.
Less positive aspects of the scheme:
• It does not help where employees had agreed to reduce their hours, or to a pay cut but where they are still required to work. There is currently no option to do a mixture of reduced hours and furlough leave.
• It may create resentment between employees:
o Some will be at work getting either full or reduced pay
o Others will be on furlough leave getting paid at least 80% to do nothing
o Those off sick may only get SSP which at around £95 per week is likely to be less than 80% of full pay.
• There will be an incentive for employees not to notify their employer if they become sick or need to self-isolate during furlough leave because of these adverse pay consequences.
• Likewise, the employer will also be better off as they can only reclaim 14 days of SSP as opposed to indefinite furlough leave.
• The employees concerned will remain on the employer’s payroll and will continue to accrue holiday and service.
The scheme is clearly welcome news for the many businesses now struggling to cope with the Coronavirus crisis. Nonetheless, a careful approach is required when determined whether to furlough, or not to furlough….
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