COVID -19 Support for businesses

26 Mar 2020
Sophie Kwiatkowski
A 15 minute read
by Sophie Kwiatkowski

Coronavirus Job Retention Scheme

The following is our understanding of this government policy as at 25 March 2020 and how this will work based on the information published so far. It should not be relied on for advice at this stage but is intended to give an indication of how the scheme will work.

Introduction says “Under the Coronavirus Job Retention Scheme, all UK employers with a PAYE scheme will be able to access support to continue paying part of their employees’ salary for those that would otherwise have been laid off during this crisis. This applies to employees who have been asked to stop working, but who are being kept on the payroll, otherwise described as ‘furloughed workers’. HMRC will reimburse 80% of their wages, up to £2,500 per month. This is to safeguard workers from being made redundant. The Coronavirus Job Retention Scheme will cover the cost of wages backdated to March 1st and is initially open for 3 months, but will be extended if necessary”.

Rules as outlined in official government statements released up to 23 March 2020

Which businesses are eligible?

  1. Eligible businesses include charities and not-for-profit organisations and will include single director companies, although the same rules will apply as to other businesses. The grant applies to all UK based businesses.

Owner/managed companies

  1. Many owner managed company director/shareholders pay small salaries and the balance of income as dividends. The scheme does not extend to dividends. Only the salary is relevant to the scheme.

How is payment going to work in practice?

  1. We understand that the employer will pay the contractually agreed amounts as required by the employment contract in the usual way. This will involve paying the employee, and HMRC the PAYE and both primary and secondary National Insurance Contributions. The grant will be paid directly to the employer.
  2. Employers will claim the grant through a new separate portal to be built by HMRC.

What is the £2,500 maximum grant based on?

  1. The £2,500 monthly grant covers all employment costs, ie, salary, employer pension contributions required by auto enrolment (if applicable), and employer NIC.
  2. The earnings period to be used to determine the maximum grant has yet to be clarified. For new employees in particular, options will be needed and also for seasonal staff. However, clearly there will need to be a base line and options being considered are likely to include:
    1. Average for a prior period such as 12 months to 1 March or perhaps the month of February alone for a new employee.
    2. For seasonal workers, it might be possible to use the same period last year, such as three months March, April, May 2019.
    3. For those working irregular hours or say, on reduced pay (eg, maternity or sick leave) a different previous period may be needed.

Will entitlement to other employment benefits continue during the period of furlough?

  1. The rules for the grant will not displace the existing employment contract. So, for example, we would expect the entitlement to holiday and sick pay would depend on the contract.

Employees eligible

  1. Eligible employees are those on the payroll on 1 March 2020. It has yet to be clarified whether or not those re-employed under a new contract will qualify, although the policy intent would seem to support this would be reasonable.
  2. We have had many questions asking if workers can be moved in and out of being furloughed if work becomes available to an employer and then ceases again? This has yet to be clarified, but we consider it very likely that they will. The scheme is being designed to allow for flexibility so that furloughed staff can be brought back to work to replace those still working who later become sick. We anticipate that this will be seen as difficult to regulate an anticipate that a minimum period of furlough leave may be built in as a requirement before the person van return to work. So, we anticipate that the rules will specifically make provision for:
    1. Sickness cover where a continuing employee is now off sick and a furloughed worker can provide cover.
    2. Where employees agree to share shifts to enable more of them to continue to be paid.

This will again depend on the employment contracts of those affected.

  1. The matter of which employees an employer decides to furlough will be a matter for negotiation with staff and employment law.
  2. The impact on job sharing employees and the decision to furlough will be a matter for negotiation with staff and employment law.
  3. We presume that, subject to anything different stated in the employment contract, eligible employees would also include apprentices and agency workers.
  4. We do not yet know whether the scheme will include deemed employees under the off payroll working rules.
  5. An employee does not have to accept furlough if offered, but the employer could then make the employee redundant instead using the usual employment law procedure.
  6. We understand that staff can study while they are being furloughed.
  7. It is a condition of the scheme that the employee must do no work at all during the furlough period. The intention of the scheme is to allow employers to pay staff who are without work. HMRC will of course have visibility of pay records.

Employees with more than one employment

  1. While we understand that an employee who is furloughed can do no work at all, our current understanding is that the employee can hold a separate employment with a different and unconnected employer which will be unaffected.

No responsibility for loss to any person acting or refraining from acting as a result of any material in this publication can be accepted by PFM Townends.

Professional advice should be taken before applying the contents of this publication to your particular circumstances.

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