Paying Employees’ Wages

What is it?

Under the Coronavirus Job Retention Scheme the Government will pay a grant to employers to cover 80% of employees’ salaries up to a maximum of £2,500 per month. The scheme will be backdated to 1 March 2020 and will be open for an initial three month period, to 31 May 2020. There will be no limit on the total cost.

On the evening of 26 March, the government published further details of the scheme and at the moment it is unclear whether HMRC intends to rely on this guidance only, or whether there will be actual legislation.

A summary is detailed below in this update, but we would recommend all employers to read the full guidance which can be found here.

Who is eligible?

  • The scheme is open to all UK employers who had a PAYE scheme in place and active on 28 February 2020.
  • Any UK organisation can apply (e.g. businesses, charities, recruitment agencies)
  • Furloughed employees must have been on PAYE payroll on 28 February 2020 and can be on any type of contract (full time, part time, agency contracts, zero hour). It also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.
  • Employees hired after 28 February 2020 cannot be furloughed or claimed for under the scheme.
  • Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February 2020.
  • Employees on sick leave or self-isolating are entitled to Statutory Sick Pay, but can be furloughed after this.
  • Employees with more than one employer can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
  • A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for the employer.

How does the scheme work?

  • Employers will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum auto enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses are not included.
  • For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.
  • For employees with variable pay, if the employee has been employed for a full twelve months prior to the claim, employers can claim for the higher of either:
    • the same month’s earnings from the previous year
    • average monthly earnings from the 2019/20 tax year
  • If the employee has been employed for less than a year, employers can claim for an average of the monthly earnings since they started work.
  • You can claim a grant from HMRC to cover wages for a furloughed employee plus the associated Employer NIC’s and minimum auto-enrolment employer pension contributions on paying those wages.
  • Employers can choose to top-up the salary to 100%. Employer NICs and pension contributions on any additional top-up salary will not be funded through the scheme. Neither will any voluntary auto-enrolment contributions above the minimum 3% employer contribution.
  • Employers can only claim once every three weeks, ie they cannot get weekly reimbursement. Claims can be backdated to 1 March 2020.
  • Once HMRC have processed the claim they’ll make a BACS payment direct to the employer
  • Receipt of grant by employer will be taxable income (e.g. subject to corporation tax for companies and income tax for unincorporated businesses)

How we can help

Employers need to submit information to HMRC about the employees that have been furloughed and their earnings. HMRC are working urgently to set up a system for reimbursement as existing systems are not yet in place to facilitate payments to employers. This system is expected to launch before the end of April.

The basic information required to make a claim will be:

  • PAYE reference
  • Number of employees being furloughed
  • Start and end of claim period
  • Amount claimed
  • Bank details of employer

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].

Finally, please get in touch if for an initial discussion if you think you may need support with any of the above or if you are generally are struggling to pay your employees’ wages. This is one of a range of measures which have been announced to support businesses and we can help guide you through what is available to suit your particular circumstances.

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