NEWS EXTRA COVID-19: FOLLOW THE RULES ON FURLOUGH
Get it wrong and it will cost you. Andrew Rayment looks at how to maximise your chances of a successful job retention scheme claim.
CORONAVIRUS IS WITH us and the government swiftly offered support to businesses to help alleviate some of the effects of its actions. The Coronavirus Job Retention Scheme (CJRS) - offers up to 80 percent of an employee’s salary, capped at £2500 per month. It was extended on May 12th to the end of October. To take part in the scheme employers will be required to submit information to HMRC about those employees that have been furloughed and their earnings through the online portal.
Furloughing means placing staff on a leave of absence where they do not undertake any work for or on behalf of their employer or any associated or linked employer (including providing services or generating revenue) but are instead, kept on payroll. While only one claim can be submitted every three weeks, claims can be backdated to 1 March 2020 if applicable. Individual employees must be furloughed for a minimum period of three consecutive weeks. Claims can only be made for employees on the PAYE payroll on 28 February 2020, whether full- time or part-time employees or on flexible or zero-hour contracts.
Those included
Not all employees can be claimed for. The government’s list covers: l Employees who have been made redundant since 28 February 2020 if they are re-hired by the employer and furloughed. It is not clear whether any redundancy payments will need to be repaid as a condition of the employee being re-hired and placed on furlough. l Employees who are shielding (or are required to stay at home because a person in their household is shielding) in line with public health guidance if they are unable to work from home and would otherwise have to be made redundant.
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l Employees who are unable to work because they have caring responsibilities resulting from coronavirus. It is not entirely clear if a business case for redundancy is required for this category, but it is recommended. l Those on maternity, paternity, adoption or shared parental leave will receive the normal statutory payments if eligible and will not ordinarily be eligible for furlough. However, if they also have an enhanced contractual entitlement, they can be furloughed, and the employer can claim the enhancement back. l Office holders (including company directors and salaried individuals who are directors of their own personal service company); salaried members of limited liability partnerships; agency workers; and “limb (b) workers” where paid via PAYE. l Apprentices who can continue to train whilst furloughed, subject to meeting appropri-ate minimum wage requirements.
Those excluded But not everyone is included in the scheme - employees hired after 28 February 2020; em- ployees who are working on reduced hours or for reduced pay. However, an employer that has already introduced short time working may wish to bring that arrangement to an end and furlough a proportion of the workforce instead, unless they were placed on unpaid leave after 28 February.
Recoverable costs Employers can claim the lower of 80 percent of a furloughed employee’s gross regular wage, or £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions (3 percent) on that subsidised wage. For firms furloughing full- time and part-time salaried
employees, the employee’s actual salary before tax, as of 28 February, should be used to calculate the 80 percent. This means that any subsequent pay rises, including the increases to National Minimum Wage from 1 April 2020, are not included. For employees whose pay varies, if they have been employed for a full twelve months prior to the claim, the employer can claim for the higher of either the same month’s earning from the previous year; or average monthly earnings from the 2019- 20 tax year. If the employee has been employed for less than a year, the employer can claim for an av- erage of their monthly earnings since they started work. If the employee only started in February 2020, a pro-rata for their earnings so far can be used to claim.
Unrecoverable costs Some costs are not recoverable under the scheme. These are ldiscretionary bonuses (including tips), discretionary commission payments, non-cash payments, benefits in kind, and benefits provided through salary sacrifice schemes (including pension contributions). Where the employer provides such benefits to furloughed employees, these should be in addition to the wages paid under the scheme. Employees are only entitled to the national minimum wage, national living wage or apprentices minimum wage for the hours they are working, therefore furloughed workers who are not working can be paid the lower of 80 percent of their salary or £2,500 even if, based on their usual working hours, this would be below their appropriate minimum wage. However, any time that is spent undertaking training should be paid at the appropriate minimum rate (taking into account the increase in minimum wage rates from 1 April 2020). Caution should be exercised so that training
doesn’t become seen as work. Claims should be made using the amounts in the payroll either “shortly before or during running payroll”. If appropriate, workers’ wages should be reduced to 80 percent of their salary within the payroll before they are paid, as the adjustment will not be made by HMRC.
Producing evidence As with any governmental scheme, proof of compliance will be required. The guidance states that in order to claim, employers will need to supply their ePAYE reference number; the number of employees being furloughed; the claim period (start and end date); amount claimed (per the minimum length of furloughing of three consecutive weeks); their bank account number and sort code; their contact name; and their phone number.
Employers will need to calculate the amount they are claiming and confirm in writing to their employees that they have been furloughed, and the latest update to the guidance states that a record of this communication must be kept for five years. HMRC will check the claim and pay the grant via BACS into a UK bank account. The employer must pay the employee all the grant it receives for their gross pay. Payments received by a business under the scheme must be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles. As with any government programme, it’ll be policed to avoid fraud and error. However, it seems unlikely that HMRC will be able to undertake a forensic analysis of the circumstances of each furloughed employee. It’s more than likely that all that is required may be for the employer
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www.buildersmerchantsjournal.net May 2020
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