Rishi Saunak, the UK’s Chancellor announced the first budget of his term recently amid the havoc wrecked by the ongoing Coronavirus pandemic. It was the first budget since October 2018 and is mainly aimed at the healthcare sector and offering security by protecting the workforce of the country in the light of the current crisis.
The budget includes a Job Retention Scheme for employers (businesses) that have been severely hit by the impact of COVID-19 and are finding it difficult to keep their employees employed. The scheme allows employers to apply for a grant by the Government that will cover 80% of the monthly wages(upto £2,500 a month) of furloughed employees alongside covering the Employer National Insurance contributions as well as Minimum Automatic Enrolment Employer Pension contributions on employee’s wage. All employers are eligible to apply for the scheme but there are certain rules and regulations that will be considered and employers should be well-aware of.
The scheme will be in effect from March 2020, for at least 3 months which may be extended forward.
So, here’s everything you need to know:
Job Retention Scheme:
To claim the benefits of the scheme, employers must have:
- Established and started a PAYE payroll scheme on or before 28 February 2020
- Registered for PAYE online( may take upto 10 days)
- A UK bank account
Businesses, charities, public firms and recruitment agencies fulfilling the above criterias can apply to benefit from the Job Retention Scheme.
Job Retention for Apprentices:
For Apprentices also the scheme works similarly and they can be granted leave and can continue with their respective training whilst they are furloughed. However, employers are to pay Apprentices the Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage (AMW/NLW/NMW).
Public sector organisations:
Not many public sector organisations will use the scheme since most employees of such organisations are already contributing towards the fight against coronavirus outbreak.
For employers that used to get public funding for managing staff costs, and the funding is still on, such employers are expected to pay the staff as they did to and not furlough them. Same applies to the publicly funded non-public sector employers.
Organisations that are receiving public funding specifically for providing services as a response to fight the COVID-19 are not expected to furlough staff.
Individuals paying employees like nannies, maids, babysitters,etc are allowed to furlough such employees. However, individuals should pay them through PAYE provided they were on their payroll on, or before, 28 February 2020.
Companies managed by an Administrator, the Administrator can get benefits from the Job Retention Scheme, provided there is a likelihood of rehiring the workers.
Some Rules Employers and Employees should know about the Job Retention Scheme:
- Furloughed employees that were on employer’s PAYE on or before 28 February 2020.
- Employees hired after 28 February 2020 aren’t eligible for claim under the scheme and therefore can’t be furloughed.
- Employees eligible can be any type of contract workers(full-time, part-time, flexible,zero-hour or agency) and this also includes foreign nationals.
- Furloughed employees will also be subject to their usual income tax and other deductions.
- During the furloughed period, employees can’t be generating revenues on behalf of the organisation.
- Employees made redundant or employees that stopped working for their respective employers after 28 February can be re-employed and be claimed as furloughed under the scheme.
- Employees under reduced pay(reduced hours) won’t be eligible.
- Employees on unpaid leave only after February 28th will be considered under the scheme.
- Employees on sick leave or who are self-isolating will get Statutory Sick Pay, however, once they recover and are no longer receiving Statutory Sick Pay, they can be furloughed under the scheme.
- Employers can claim for furloughed employees that are shielding in line with public health guidance(protecting vulnerable people). Employees that aren’t able to work from home because they need to stay with someone who is shielding will also be eligible for the scheme or else the employer needs to make such employees redundant.
- Any employee unable to work due to the caring responsibilities(children, old parents,etc) can be furloughed.
- If an employee has more than one job, s/he can be furloughed for all of them.
- Employees that are on fixed term contracts can be furloughed and can be extended without breaking the norms of the scheme. However, if an employee’s contract isn’t renewed(extended), employers can’t claim a grant for such employees.
Job Retention Scheme eligibility for individuals who are not employees:
Individuals that aren’t necessarily employees under the employment law but are paid via PAYE are eligible for the Job Retention Scheme under the fellow guidelines:
Office holders are eligible to be furloughed after an agreement between the operator of the PAYE and the office holder(might be a Director or a member of LLP).
WHile salaried office holders are eligible to be furloughed, Company Directors(under the Companies Act 2006) can be furloughed depending on the mutual decision of the board of Directors, provided they perform particular duties in order to fulfil the statutory obligations they owe to their company. Also, such directors shouldn't be generating commercial revenues and/or provide services to or on behalf of their respective company.
The same shall apply to salaried individuals that are directors of their own personal service company (PSC).
Salaried Members of Limited Liability Partnerships (LLPs)
LLP members that are salaried employees under the Income Tax (Trading and Other Income) Act (ITTOIA) 2005 are eligible to be furloughed to benefit from the scheme. Such members to be furloughed need to be verified by a mutual decision of the LLP. In case of absence of an agreement, default provisions shall be considered under the LLP Act 2000.
Agency Workers including the ones employed by umbrella companies
Agency workers including those employed by umbrella companies paid via PAYE are eligible to be furloughed. Agency workers to be furloughed shouldn’t perform any work for, through or on behalf of the agency that has furloughed them.
As for workers under the umbrella company under the PAYE, it has to be agreed between the umbrella company and the worker to furlough the worker or not.
Limb (b) Workers
Limb(b) workers paid through PAYE can be furloughed under the scheme. However, such workers that pay tax on their trading profits through Income Tax Self-Assessment, would instead be eligible for the Self-Employed Income Support Scheme (SEISS), that was announced by the Chancellor Rishi Saunak on 26 March 2020.
Additional rules for employer and employees under the Job Retention Scheme:
Employee doing volunteer work
Furloughed employees can be a part of volunteer work provided they don’t generate any revenue for, or on behalf of their organisation.
Employees that undertakes training
Furloughed employees can undertake training but such employees shouldn’t offer services that generate revenue for, or on behalf of their organisation.
However, in case if the time spent in training attracts a minimum wage entitlement that exceeds the furlough payment, employers will be liable to pay the additional wages.
Employees on maternity leave, adoption leave, paternity leave or shared parental leave can claim via the scheme provided they qualify for:
- Maternity pay
- Adoption pay
- Paternity pay
- Shared parental pay
Agreeing to furlough employees:
Not all employees need to be furloughed and employers can discuss with their staff(in accordance with the equality and discrimination laws). Eligible employees need to be confirmed in writing by the employer that they have been furloughed, a record of which will be kept for 5 years. Furloughed employees cannot undertake work for the employer.
How much can employers claim:
Employers can claim for:
- 80% of employees’ wages (even for employee’s on National Minimum Wage; full-time and part-time also included) up to a maximum of £2,500. Shouldn’t be claimed for the worker’s previous salary.
- Minimum automatic enrolment employer pension contributions on the subsidised wage.
- Employers can opt for a top-up of employee’s salary(should be avoided though). However, even after a top up, employees shouldn’t offer any services for the employer.
- Employees will be paid even if they are only furloughed for part of a pay period.
- Employers need to pay National Insurance and Pension Contributions
- Employers can claim for any regular payments including wages, past overtime, fees and compulsory commission payments(excluding discretionary bonus, commission payments and non-cash payments) that they are obliged to pay to their employees.
Benefits in Kind and Salary Sacrifice Schemes
The reference salary shouldn’t not include non-monetary benefits provided to employees, including taxable Benefits in Kind and Salary Sacrifice Scheme.
Apprenticeship Levy and Student Loans
Apprenticeship Levy and Student Loans aren’t covered under the scheme and should continue to be paid as usual.
National Minimum Wage
Employees are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW)/ Apprentices Minimum Wage (AMW) for the working hours
What employers need to make a claim
To claim, employers will need:
- 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 3 consecutive weeks)
- Their bank account number and sort code
- Their contact name
- Their phone number
However, HMRC will have the right to audit all aspects of your claim.
Employers should make their claim using the amounts in their payroll( either shortly before or during running payroll). Also, employers can reduce, worker’s wages to 80% of their salary within their payroll before they are paid.
Minimum furlough periods
Furloughed employees must be furloughed for a minimum period of 3 consecutive weeks. Employees can be furloughed multiple times, and on each instance, the furlough must be for a minimum period of 3 consecutive weeks.
After employers have claimed
HMRC will audit your claim, and once found eligible, they will pay it to the employers via BACS to a UK bank account.
What happens when the government ends the scheme
When the government ends the scheme, employers can decide whether to bring back furloughed employees or not.
Employees will still be paying all the taxes they are usually paying.
Employees will still be getting all the rights they have at work, including:
- Statutory Sick Pay
- Maternity and other parental rights
- Rights against unfair dismissal
- Redundancy payments
Working for a different employer
If allowed in the contract, employees can work for another employee till the time they are on furlough.