Further to our blog on 21 March regarding the Job Retention Scheme [click here], the government has now issued further guidance on how the scheme will operate.
Employers will be able to place certain employees on furlough where there is insufficient work for the employee. The employee must have been on the PAYE payroll on 28 February 2020.
The minimum period an employee can be furloughed for is three weeks and during this period the employee cannot undertake any work for the employer.
For employees whose wages vary:
- The employer may claim based on the higher of the same month’s earning from the previous year or an average of monthly earnings from the 2019-20 tax year.
- If the employee has been employed for less than a year, the claim will be based on an average of their monthly earnings since staring work.
- Finally, if the employee only started in February 2020, employers would need to claim on a pro-rata basis for their earnings to date.
Employers will continue to pay their employees and then claim the grant back from HMRC. Employers can choose to pay the remaining 20% of salary but there is no obligation to do so in order to qualify for the grant. However, employers should check the employee’s contractual status.
Employers will still be liable for Employer National Insurance (NI) contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.
The HMRC grant to cover wages for a furloughed employee can cover 80% of an employee’s salary, subject to a £2,500 cap per month, plus the associated NI and minimum automatic enrolment employer pension contributions on paying those wages. In affect this may provide a grant of around £2,800 per furloughed employee per month which is more generous than we expected when the scheme was announced.
Employer NI contributions and the minimum automatic enrolment pension contributions on any additional top-up salary will not be funded through this scheme. HMRC will pay the grant to employers who will then have to pay their employees. Employers still have to pay National Insurance Contributions and pension contributions as normal.
The grant is taxable, but businesses can deduct employment costs as normal when calculating taxable profits for Income Tax or Corporation Tax purposes so should in effect be tax neutral.
The scheme is also to accessible charities, recruitment agencies (agency workers paid through PAYE) and public authorities as long as a PAYE payroll scheme was created and started on or before 28 February 2020 and the business has a UK bank account.
It is important an employer considering taking advantage of this scheme takes legal advice on the employees’ contracts before placing employees on Furlough.
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