Paying Employees’ Wages

What is it?

In an unprecedented move in the history of the British State, the Chancellor Rishi Sunak has unveiled support to businesses to help prevent job losses.

Under the Coronavirus Job Retention Scheme, the Government announced that they will pay a grant to employers from 1 March to cover 80 per cent of employees’ salaries up to a maximum of £2,500 per month. This scheme originally ran until 30 June. It has since been extended until the end of October, with changes effective from 1 July. The two variations in the scheme (pre and post June 30) are outlined in detail below.

HMRC have released an online service to enable employers to claim for their employees’ wages using the Coronavirus Job Retention Scheme.


Who is eligible?

  • All UK businesses are eligible for the scheme and the scheme is available to all employees.
  • Employers must have created and started a PAYE scheme on or before 19 March 2020. Employers can claim the grant for employees who were on the PAYE payroll on or before 19 March 2020 and were notified to HMRC on an RTI submission on or before 19 March 2020. This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 19 March 2020. Employees that were employed as of 28 February 2020 and on payroll (i.e. notified to HMRC on an RTI submission on or before 28 February) and were made redundant or stopped working for the employer after that and prior to 19 March 2020, can also qualify for the scheme if the employer re-employs them and puts them on furlough.
  • For any employees that were made redundant on or after 28 February 2020, employers can re-employ them, put them on furlough and claim for their wages through the scheme. This applies to employees that were made redundant after 28 February, even if employers do not re-employ them until after 19 March. This applies as long as the employee was on the payroll as at 28 February and had been notified to HMRC on an RTI submission on or before 28 February 2020. This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 28 February 2020.
  • Employees can be on any type of employment contract, including full-time, part-time, agency, flexible or zero-hour contracts. Foreign nationals are eligible to be furloughed.
  • As office holders, salaried company directors are eligible to be furloughed and receive support through this scheme.
  • Where agency workers are paid through PAYE, they are eligible to be furloughed and receive support through this scheme, including where they are employed by umbrella companies.

How does the scheme work until 30 June?

  • The employer should discuss and agree with affected employees and notify them in writing that they have become furloughed workers.
  • The furloughed workers should not undertake any work for their employer while they are furloughed. The minimum period of furlough is three weeks. The employer must have agreed with the employee in writing that they will cease all work. This can be via email.
  • The employees remain on the payroll as normal, deducting tax and National Insurance under the PAYE system.
  • If employers want to top up pay levels, they can, but will not be able to claim for more than 80 per cent of £3,125.
  • The employer could choose to fund the difference between this payment and employee’s salary (i.e. 20%), but does not have to, however, the employer needs to get agreement from the worker to do this (see above).
  • Employers don’t need to place all of their employees on furlough.
  • The grants received by employers are treated as taxable income for the employer, as they are used to offset the cost of employing staff.
  • 80% of employees’ wages (even for employees on National Minimum Wage) – up to a maximum of £2,500 per month. Employers cannot claim for the worker’s previous salary. Grants will be prorata based on the period of furlough.
  • In addition to the £2,500, employers can claim for the minimum automatic enrolment employer pension contributions on the subsidised wage (3%). Employers cannot claim for the employer pension contributions on the 20% top up if they choose to keep the employee’s salary at 100%.
  • In addition to the £2,500, employers can claim for the employers National Insurance contributions on the subsidised wage. Employers cannot claim for the employer National Insurance contributions on the 20% top up if they choose to keep the employee’s salary at 100%.
  • For employees whose pay varies, employers can claim the highest of either:
    • the same months earnings from the previous year, or
    • the average monthly earnings for the 2019/20 tax year.
  • If the employee has been employed for less than 12 months, employers can claim for 80% of their average monthly earnings since they started work. If the employee only started in February 2020, the employer can work out a pro-rata for their earnings so far, and claim for 80%.
  • Employers can claim for regular payments that they are obliged to pay their employees, including wages, past overtime and compulsory commission payments. This does not include discretionary payments (e.g. tips and non-compulsory commission).

How does the scheme work from 1 July?

  • On 29 May the Chancellor announced further detail about how the scheme will change to support businesses sending staff back to work.
  • The scheme will close to new entrants from 30 June. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full three-week period prior to 30 June. This means that the final date by which an employer can furlough an employee for the first time will be the 10 June, in order for the current three-week furlough period to be completed by 30 June. Employers will have until 31st July to make any claims in respect of the period to 30 June.
  • From 1 July the scheme will only be available to employers that have previously used the scheme in respect of employees they have previously furloughed.
  • From 1 July 2020, employers will be given the flexibility to bring furloughed employees back part time. Employers will decide the hours their employees will work on their return, so that they can decide on the best approach for them. Note that employers will be responsible for paying the employees’ wages while in work.
  • Below is a summary of how the scheme will change from July through to October. We are expecting more detail to be released on 12 June.
    • July 2020
      The Government will continue to pay 80% of gross pay, employer National Insurance and employer pension contributions for furloughed workers as outlined in the “How does the scheme work until 30 June” section above.
    • August 2020
      The Government will pay 80% of gross pay up to a cap of £2,500 per month. Employers will be required to pay the employer National Insurance and employer pension contributions.
    • September 2020
      The Government will pay 70% of gross pay up to a cap of £2,187.50 per month. Employers will be required to pay the other 10% of gross pay to top up furloughed workers’ pay to 80% of their normal wage (subject to the overall cap of £2,500 per month). Employers will continue to be responsible for paying employer National Insurance and employer pension contributions.
    • October 2020
      The Government will pay 60% of gross pay up to a cap of £1,875 per month. Employers will be required to pay the other 20% of gross pay to top up furloughed workers pay to 80% of their normal wage (subject to the overall cap of £2,500 per month). Employers will continue to be responsible for paying employer National Insurance and employer pension contributions.
  • As with the previous scheme, employers are still able to choose to top up employee wages above the scheme grant at their own expense if they wish.

How to apply

  • The employer (or their authorised agent) submits the following information to HMRC about the employees that have been furloughed and their earnings:
    • Employer PAYE reference
    • Number of employees being furloughed
    • The claim period start and end date
    • The amount claimed for all employees
    • Name, National Insurance number and employee number of each employee being claimed for
    • The employer bank account details (to receive the payment from HMRC)
    • Contact name
    • Contact phone number
  • Submissions are made via a new online portal, details of which can be found here
  • If the employer is claiming for fewer than 100 furloughed staff, they will need to enter details of each employee into the system, including their name, NI number, claim period and claim amount. If the employer is claiming for 100 or more furloughed staff, they can upload a spreadsheet with the data into the system.
  • HMRC will make all payments directly to a bank account via BACS.
  • As an authorised agent, we are able to submit claims to HMRC on behalf of clients.

How we can help

We can help you gather the information above as well as helping you to work out the most appropriate claim to ensure that your underlying calculations are both fully compliant and maximised.

Please note that employers may need to take legal advice when changing employees’ statuses to furloughed. As a Sedulo client, national law firm Freeths LLP will provide you with a template furlough letter to send to employees free of charge. If you require additional legal advice on furlough, selecting employees for furlough and seeking agreement, this can be provided for a fixed charge capped at £300+VAT for Sedulo clients. To receive a copy of the free template letter or to seek further advice, please contact Kevin Poulter at [email protected].

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