On 20th March 2020, the Chancellor announced the Coronavirus Job Retention Scheme. Through the scheme, the Government commits to cover 80% of the wages of ‘furloughed workers,’ up to £2,500 per month. A ‘furloughed worker’ is an individual who remains employed but is not provided with work. The aim of the scheme is to ensure that employers who cannot afford to pay staff salaries do not make redundancies. We include below further guidance of how the scheme will work.

Key points to highlight:

The main objective is to keep employees at home whilst enabling employers to retain their staff once they begin to re-build their businesses in the future.

1. During the period of ‘Furlough’ – Furloughed members of staff must not work for the employer.
2. Furlough commenced from 1st March 2020, this can be backdated and will last for at least 3 months and will be extended if required. Whilst the scheme is backdated to the beginning of March as the objective is to help and 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 staff have stopped working for the employer. This will of course be subject to employment law in the usual way.
3. It is available to employees on the payroll at 29th February 2020.
4. The scheme provides a payment of a grant not a loan to the employer.
5. The grant will be payable to the employer through a new online process system which is being built for this purpose.
6. All UK businesses are eligible, ‘any employer on the country, small or large, charitable or non-profit’.
7. The employer will pay the employee through payroll, using the Real Time Information (RTI) system, as required by the employment contract. This contract may be re-negotiated but that is a matter for employment law. So RTI system reporting of payroll will continue as normal.
8. The Scheme will be administered by HMRC who will oversee its operation.
   • Relevant employees must be designated as furloughed employees.
   • Employers will need to submit information to HMRC through a new online portal.
   • As this will take time to build, businesses should look at other means to support cash flow in the meantime. The narrative used in the information released so far says ‘if your employer cannot cover staff costs due to COVID-19 they may be able to access support…’. This support is envisaged to be the offer of loans via the Business Interruption Loans scheme, although at present the availability of funds is still not fully operational.
9. The maximum grant will be calculated per employee and is the lower of:
   • 80% of ‘wages’. The notes published so far, use the phrase ‘wage for all employment costs up to a cap of £2,500 per month’. It is our understanding that this includes employers’ NIC and pension contributions. Wages will be determined by reference to a defined period (yet to be announced).

Example 1

X Ltd employs Mr A at an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto enrolment.

Each month, Mr A currently receives net pay of £1,655 which is after deducting PAYE of £191 and employees NIC of £154. On this salary, the employer pays employers’ NIC of £177.

The available grant for the employer is the lower of:

(a) 80% of £2,000, and
(b) £2,500

Plus employers’ NIC on this amount

So X Ltd claims a grant of £1,600 plus £177 = £1,777.

The net amount of cash required by X Ltd to furlough Mr A based on maintaining the existing salary is £2,000 + £177 – £1,777 = £400 per month.

It is a matter for employment law whether the employer is actually required to pay this top up. Employees and employers can agree to a different arrangement during the furlough.

Example 2

X Ltd employs Mr B at an annual salary of £42,000, so £3,500 per month. Mr B has opted out of auto enrolment.

Each month, Mr B currently receives net pay of £2,675 which is after deducting PAYE of £492 and employees NIC of £333. On this salary, the employer pays employers’ NIC of £383.

The available grant for the employer is the lower of:

(c) 80% of £3,500 = £2,800, and
(d) £2,500

Plus employers NIC, £245, on this amount

So X Ltd claims a grant of £2,500 plus £245 = £2,745.

The net amount of cash required by X Ltd to furlough Mr A based on maintaining the existing salary is £3,500 + £383 – £2,745 = £1,138 per month.

It is again a matter for employment law whether the employer is actually required to pay this top up. Employees and employers can agreed to a different arrangement during their furlough.

Click here for more information on support for businesses through the Covid-19 Job Retention Scheme

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