The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers for at least three months starting from 1 March 2020. Where it applies the scheme provides the employer with a grant to cover 80% or £2,500 of employment costs of employees who have been furloughed.

A furlough is a temporary leave of employees due to special needs of a company or employer, which may be due to economic conditions at the specific employer or in the economy as a whole.

Employers can also claim for the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.

Who can claim?
Any limited company, partnership, sole trader, charities and any UK organisation who have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.

Which employees are eligible?
The employee must have been on your PAYE payroll on 28 February 2020, and can be:

• full-time or part-time
• on flexible or zero-hour contracts
• the scheme also covers employees who were made redundant after 28 February 2020, as long as they are rehired by their employer.
• Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.
• Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.
• Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this.
• Employees who are shielding in line with public health guidance can be placed on furlough.
• Employees who have more than one job can be furloughed for each job separately. Being furloughed for one employment does not mean they will need to be furloughed for all.

An employee must be furloughed for a minimum of three weeks to be eligible for a claim.

When on furlough, an employee cannot undertake work for or on behalf of the organisation. This includes providing any services or generating revenue. A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of your organisation.

If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme. While on furlough, the employee’s pay will be subject to usual income tax and other deductions.

Maternity Leave, contractual adoption pay, paternity pay or shared parental pay:
If your employee is eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply, and they 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 6 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. This is not part of the Coronavirus Job Retention Scheme.

However if you offer enhanced (earnings related) contractual pay to women on Maternity Leave, this is included as wage costs that you can claim through the scheme. The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.

How to furlough an employee:
The process of furloughing an employee is subject to normal employment law and regulations.

The employer needs agreement from the employee to furlough them, unless it’s covered by a clause in the employment contract. They also need to select employees in a fair way to avoid any discrimination. If an employee disagrees with their employer’s decision, they’ll need to talk to their employer and try to come to an agreement.

Any furlough agreements should be in writing. It’s a good idea to include:

• the date furlough starts
• when it will be reviewed
• how to keep in contact during furlough

A worker will stay employed while they’re furloughed, but they must not work.

How to calculate the claim:
The employer will receive a grant from HMRC to cover the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised salary.

Fees, commission and bonuses should not be included.

At a minimum, employers must pay their furloughed employees the lower of 80% of their regular salary 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.

1. With 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% (fees, commission and bonuses should not be included).
2. For employees whose pay varies:

• If the employee has been employed for a full twelve months prior to the claim, you can claim for the higher of either:
  • the same month’s earning from the previous year
  • average monthly earnings from the 2019-20 tax year
• If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
• If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.

• For directors who take a relatively low salary and dividends, it is the salary figure only that can be included in this scheme, dividends are excluded. It will be the salary as at 28^th February that is used to make the calculation.

Employer National Insurance and Pension Contributions

Employer National Insurance contributions and minimum automatic enrolment employer pension contributions need to be paid for furloughed employees.

The employer can include in the grant claim 80% of the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions. Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded through this scheme.

Voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income and above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards) will not be funded through this scheme.

Making a claim:
To claim, the employer needs:

• the PAYE reference number
• the number of employees being furloughed
• the claim period (start and end date)
• amount claimed (per the minimum length of furloughing of 3 weeks)
• the employer’s bank account number and sort code
• A contact name
• A phone number

HMRC will retain the right to retrospectively audit all aspects of your claim.

An employer can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until the 1 March if applicable.
Once HMRC have received the claim and the employer is eligible for the grant, HMRC will pay it via BACS payment to a UK bank account.

The scheme is expected to be up and running by the end of April and initially will cover March, April and May.

Finally the grant will be treated as taxable income and included in taxable profits for Corporation tax (limited company employers) or income tax (sole trader and partnership employees).

The above notes have been taken mostly from the guidance released by HMRC and the government.

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