Coronavirus Job Retention Scheme – Examples of How to Furlough Employees

Since the announcement of the Coronavirus Job Retention Scheme we have had many discussions with clients as to how this will work.

An important point to note is that, although the grant that the government is offering to employers for furloughed employees is linked to the payroll, they are two completely separate transactions.  The payroll must be run and staff paid and then the grant claim will be submitted via the HMRC portal, that is still in development.  So, claims cannot be made as yet and you must factor this into your cash flow planning.

Here are some examples of the more common scenarios and ways that clients are dealing with this.

Pay 100% Salary

Some clients are in a position where they have furloughed employees but can afford to continue to pay 100% of their salaries.

In this case, the payroll is run as usual and employees will receive the same pay.

The employer will then submit a claim for a grant of 80% of the salary plus the employer’s NI and employer’s pension contributions attributable to the 80% of salary.

The maximum grant that can be claimed is £2,500 per employee plus employer’s NI and employer’s pension contributions up to maximum of 3% of that amount.

In this situation the employer will be paying out more than they can reclaim.  Therefore, if you decide to go down this route, we recommend that you consider building in a review period giving you the option to change to paying only 80% of the salaries at a later date if required.

Pay 80% Salary

In this case, the payroll is run with employees’ gross pay of 80% and employees will receive their net pay based on this amount.

The employer will submit a grant for 80% of the salary plus the employer’s NI and employer’s pension contributions attributable to the 80% of salary.

The maximum grant that can be claimed is £2,500 per employee plus employer’s NI and employer’s pension contributions up to maximum of 3% of that amount.

In this case, the impact on your cash flow will depend on how many employees that you have on the payroll that will receive salaries in excess of £2,500, and you will need to be mindful of this.

Holiday pay

Some employers are asking employees if they want paid for accrued holidays to date and then placing them on furlough. The employees then receive full pay for their holiday entitlement and subsequently reduce down to 80% of their salary as above.

The date of the furlough cannot start until after the holiday pay period is complete.

Selecting staff to furlough

There are many clients that are only furloughing selected staff i.e. staff who cannot complete duties from their homes. You must bear in mind that furloughed staff cannot carry out any work for the employer during the furlough period.

The minimum furlough period is 3 weeks and staff can be rotated on and off furlough leave.

For example, take an employer who currently has enough work for one member of staff but employ two people. They could rotate the staff on and off furlough every 3 weeks if they want to be fair and share the duties.

Consultation

All the above has to be done in consultation with your employees. Whilst the notification of furloughing of the employees can only come from employer, the employees can refuse to the accept the proposal.  If this happens then normal employment procedures need to be followed.

https://jsca.co.uk/coronavirus-job-retention-scheme-update/

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.

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