By Nic Hart & Liam Hutton
26.03.2020
The UK Government’s COVID-19 Job Retention Scheme is available to any large or small employer. Furlough leave is short term temporary leave. The scheme will cover the cost of wages backdated to March 1 and cover all UK-wide employers with a PAYE scheme.
The government will pay cash grants (grants will be received from HMRC) of 80 per cent of an employee’s wages up to a cap of £2,500, providing the worker is kept employed.
At present the scheme will be open initially for at least 3 months but the government has indicated it will extend it for longer if necessary. There is no limit on the amount of funding available for the scheme.
Government expectation is that the first grants will be paid within weeks and HMRC are aiming to get this done before the end of April. There are no existing systems set up to facilitate payments to employers at this time.
Do individuals still have to pay tax on this?
Yes – individuals will pay Income Tax and National Insurance on any payments received through this scheme as they are replacement for income.
Will this cover the cost of employer National Insurance contributions and employer pension contributions?
Yes – employers will be able to apply for a grant to cover the Employer National Insurance contributions and minimum automatic enrolment pension contributions on paying the lower of 80% of regular salary or £2,500 per month.
How will this work for those on zero-hour/flexible contracts/agency workers?
This scheme aims to support all those employed through the PAYE system regardless of their employment contract, including those on zero-hour contracts. The 80% grant is applied to the higher of:
(1) the earnings in the same pay period in the previous year; or
(2) the average earnings in the whole previous 12 months (or fewer if they have worked for less time than this).
Can a business furlough someone after hearing the announcement and then claim back to March 1st even though they had been working that whole time?
No – the scheme is backdated to March 1st to cover those who have already been made redundant as a result of the coronavirus. Employees taken on after 1 March are excluded from the scheme.
To qualify, does the business need to be ‘essential’?
No, all businesses which employ and pay workers through the PAYE system are eligible.
What support is there for an employee whose hours are reduced?
The government has strengthened the welfare system to support those whose hours change including an increase to the UC standard allowance and the working tax credit basic element and enhancements to contributions to employment support allowance (now available from day 1) and making advances for all new UC claimants available online with no requirement to attend a job centre.
Can an employer top this up?
Yes. In order to qualify for the scheme, employers must pay their staff at least 80% of wages, up to the cap of £2,500 per month. It is discretionary if they wish to top up the additional 20 per cent.
What about employees that have already been made redundant?
The scheme will be back dated to March 1 with a view to covering those already made redundant due to the Coronavirus outbreak. If firms re-employ staff made redundant after March 1st, they are eligible to then be furloughed and the employer would qualify for the grant.
Can an employee be dismissed while on furlough? Can an employee be dismissed as soon as the furlough scheme comes to an end?
An employee can still be made redundant while on furlough or immediately after. There is no requirement to bring the employee back to work after the period of furlough. If an employee is made redundant during the period of furlough then grant payments will cease. However, in both cases legislation regarding redundancy rules and protections will apply.
Can an employee be furloughed for a short period of time, e.g. a week or a couple of days, and then re-employed?
A worker must be furloughed for a minimum of 3 weeks for their employer to be eligible to claim under this scheme. Employers cannot rotate staff weekly between furlough and non-furlough.
Can an employee volunteer or do training whilst furloughed?
An employee who is furloughed cannot work for their employer during this period. An employee can volunteer or train, provided that this does not generate any revenue for the business. Firms can require workers to undertake training from home, provided it meets the above.
For More Information
Please contact Nic Hart or Liam Hutton, or another member of the Duane Morris London team.