The overall objective of this scheme is to keep people at home while enabling employers to retain staff who will be needed when they begin to rebuild their businesses in the future. This will enable work to begin again with a critical core who have the necessary knowledge.
Rules as outlined in initial guidance published by HMRC on 26th March 2020 are:
- Furloughed members of staff must not do any work for the employer during the period of furlough.
- Furlough is from 1 March 2020, so is to be backdated. Note that while the scheme is backdated to the beginning of March as it is intended to support all those employed then, a firm will only be eligible to claim the grant once they have agreed the furlough with their staff and the staff have actually stopped working for the employer. This will of course be subject to employment law in the usual way.
- The minimum furlough period is 3 weeks and can be taken for up to 3 months- but this may be extended.
- It is available to employees who were on the payroll at 28th February 2020.
- All UK businesses are eligible, 'any employer on the country, small or large, charitable or non-profit' to use the Chancellor's words.
- The scheme pays a grant (not a loan) to the employer.
- The grant will be paid to the employer through a new online system which is being built for this purpose.
- The employer will pay the employee through payroll, using the Real Time Information (RTI) system as usual, as required by the employment contract. This contract may be renegotiated but that is a matter for employment law. So RTI system reporting of payroll will continue as normal.
- Scheme is expected to be up and running by the end of April and will be administered by HMRC:
- Relevant employees must be designated as furloughed employees.
- Employers will submit information to HMRC through a new online portal.
- Maximum grant will be calculated per employee and is the lower of 80% of wages or £2,500 per month. In addition, they can claim the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
- If the employee has been employed (or engaged by an employment business in the case of agency workers) for a full year, employers will claim for the higher of either:
- the amount the employee earned in the same month last year
- an average of the employee’s monthly earnings from the last year
If the employee has been employed for less than a year, employers will claim for an average of their monthly earnings since they started work. The same arrangements apply if their monthly pay varies such as if they are on a zero-hour contract.
HMRC has confirmed that ‘individuals will pay income tax and national insurance contributions (NICs) on any payments received through this scheme as they are replacement for income in line with normal practice for benefits or grants that replace income’.
The Pensions Regulator has confirmed that pension contributions would have to be made as usual. Employers should have received updates from Creative, NEST and other pension scheme providers.
Therefore, employers are recommended not to cancel their direct debits for PAYE and Pension payments made by the employer.
There is still clarity required on whether company directors can put themselves on ‘furlough’. The last paragraph in the self-employed scheme guidance from HMRC did offer a semblance of hope for directors: “If you’re a director of your own company and paid through PAYE, you may be able to get support using the Job Retention Scheme (JRS).” However, a detailed technical guidance HMRC is awaited as there are still many questions about the policy.
It should be acknowledged that employees are in a difficult position regarding the security of their jobs and may welcome some communication about what is happening. For this reason, we have created a template letter for our clients to use where you have plans to furlough your employees.
The full guidance released by HMRC is available here.