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What we know so far.

The Coronavirus Job Retention Scheme will be a government grant to reimburse employers for 80% of the furloughed workers wage costs to a cap of £2,500 per month.

Our understanding is that employers can choose to top up the employees pay for either the unfunded 20% or the amount above £2500 for higher earners.

Employers can backdate to 1st March.

The scheme will be open for 3 months but it will be extended if the Government deems this to be necessary.

The scheme is designed to support business and assist them in trying to retain staff through this period.

All UK business are eligible , large, small, charitable and not for profit.

Employers have to designate employees who are going to be furloughed.

Employers will have to submit employee information onto a new HMRC portal that is still under construction.

We are not sure when the portal will be live but it is hoped that the grants will be paid to employers by the end of April. We have concerns that this timeframe may not be met.

Employers will therefore have to outlay the wages as normal and the grant will reimburse them.

If employers can not fund this outlay before they are reimbursed they could seek short term support for the Coronavirus Business Interruption Loan Scheme.

Furloughing is a term that allows a temporary unpaid leave of absence due to special needs of the company or economic situations. It is not a term that is commonly used in employment law in the UK.

Employers need to be careful with amended employees terms of employment and they should review the content of contracts before acting. Some contracts have lay off provisions which will contractually allow amendments. In this case, employers can amend the contract and do as they please.

If employers have no lay off provisions, they should communicate with the staff and obtain written agreement of both parties intent.

It is important to get these processes correct and we would advise taking professional advice from your HR provider.

We are getting further clarity on the process every day but a number of points and the mechanics of the scheme remain unknown. Some clients are now processing March payrolls with no detailed guidance.

It is now understood that any individual who has been subject to PAYE, will be eligible to furlough. This should include casual works.

It remains unclarified if Directors are eligible, however some are stating they are.

To qualify as furlough staff, you have to be entirely non-active. You should undertake no work. This raises a major concern for Directors. Most Directors will still have some active role in managing the business so will they fail the requirements.

Tax efficient tax planning for small business will normally take the form of a small salary and dividends. As dividends are not subject to PAYE, they will probably not qualify for the grant. Directors will only receive 80% on the salary element of their package.

Other matters to note are as follows:

  • Furloughed employees can undertake no work
  • It is expected that the 80% grant will be calculated on a previous period, this has not been confirmed but it is expected to be February for most with other methods to be agreed for seasonal workers
  • Any employment duties at all are expected to mean you will not qualify
  • Wages increases this month and backdating will not work, RTI information is available to verify historic earning and the grant is expected to be calculated from previous periods as stated above
  • The grant paid will be 80% of the reference period wage, plus the legal minimum pension contributions and employers NIC, so if the wages were £1200, the pension is £21 and the employers NIC is £66, the total cost to the employer is £1287. The maximum grant is therefore £1030
  • There should be flexibility in the system for workers to go off and then come back into the workforce but detailed guidance is required on this
  • It is expected that this will not be subject to National Minimum Wage legislation. It is not working time, so it is expected this is outside the scheme
  • Is everyone eligible, it was introduced to encourage business to follow medical advice for the virus. To aid the lockdown and to allow some businesses who have a lot of physical interaction to close to the public
  • If you can work remotely and avoid physical contact, in some cases, you will be able to trade and this scheme should not apply

This leaves us with matters to review and action points to follow up:

  • Ascertain whether this applies to you
  • Ascertain what staff should be furloughed
  • Check their contracts for the lay off provision
  • If no lay off provisions, contact your HR professional to obtain advice how to ensure you obtain written consent to furlough
  • When you clarify this date, clarify what rate you are going to pay to the furloughed employees
  • Ensure your payroll is run correctly by internal finance team or your accountant
  • Keep reviewing where and when the HMRC portal will be ready to input your employee data
  • Clarify if you are going to back date your grant to 1st March
  • Keep reviewing and keep contacting you professionals around you for any updates

The Job Retention Scheme has been designed to avoid mass redundancies and give support to business to try to maintain their workforce. A lot of detail is still to come on the mechanics of this Scheme and how it works but it is important to act and make decisions to ensure you make the most of this support.

If you require further guidance on this subject please contact the Spirare Team.