What is it?
The Coronavirus Job Retention Scheme (CJRS) applies to all employers with a PAYE scheme. These employers will be able to access support to continue paying part of their employees’ salaries for those that would have otherwise have been laid off during the crisis.
This scheme applies to employees who have been asked to stop working, but who are kept on the payroll, these are known as ‘furloughed workers’.
HMRC will reimburse 80% of their wages, up to £2,500 per month. This is to safeguard workers from being made redundant.
The CJRS will cover the cost of wages backdated to March 1st and is initially open for 3 months, but will be extended if necessary.
Am I eligible?
All UK employers with a PAYE scheme will be eligible – this includes the public sector, Local Authorities and charities.
People who get furloughed must not work for the employer during the period of furlough, but usually return to their job afterwards, unless redundancies follow.
To be eligible, the employer must have created and started a PAYE scheme on or before the 28th February 2020, and have a UK bank account.
Three weeks is the minimum length of time an employee can be furloughed for.
Employers have to pay over the entire grant received for gross pay to the employees plus any top up employers choose to pay.
How do I access it?
You will need to:
- Designate affected employees as ‘furloughed workers’, and notify your employees of this:
a. Fairly select employees affected for being furloughed (the government have not said this but it seems sensible)
b. Decide whether to pay 80% of the salaries or to supplement it.
c. Gain the employees’ written consent unless contractual provisions already cover lay off.
d. Stop the employees from working if they are now working from home or send them home from the workplace.
e. Calculate the amounts they are claiming from HMRC (this is important)
- Once the new online portal is live, submit information to HMRC about the employees that have been furloughed and their earnings (HMRC will set out further details on the information required)
- To work out the amounts they are claiming employers will have to work out the employer NI and minimum automatic enrolment employer pension contributions for all employees.
- Employers are advised to claim in advance of an imminent payroll or at the point that they run their payroll. Once HMRC have the claim and have agreed the employer’s eligibility, a BACS payment will arrive directly into the bank account supplied.
- When the portal is operational, employers will be able to apply with their PAYE reference number, bank account number and sort code, and specify:
a. the number of furloughed employees
b. the claim period, start and end date
c. the amount claimed (the minimum length of furlough is three weeks)
d. the employer’s contact name and telephone number.
The CJRS is only open to all UK employers that had created and started a PAYE payroll scheme on the 28th February 2020. The relevant employees must have been on the payroll on that date and would otherwise be dismissed as redundant or laid off.
The following apply:
- Employees hired after the 28th February 2020 cannot be furloughed or claimed for under the scheme.
- Employees on unpaid leave cannot be furloughed, unless on unpaid leave after the 28th February.
- Emloyees already made redundant or laid off between the 28th February and the 20th March (when the scheme was announced) are eligible under the scheme if reinstated.
- Employees on schedule to be made redundant after 20th March 2020 can be furloughed instead of proceeding with the redundancy process.
The scheme will then cover the cost of wages backdated to the 1st March. This ensures that those people who have already been made redundant as a result of the coronavirus are covered.
How much do I need to pay the employees?
- Employees who earn less than £3,125 a month normally, will get 80% of their salary for three months (or more).
- Employees earning in excess of £3,125 a month will have the 80% of their salary for those three months (or more) unless the employer chooses to supplement it.
Fees, commission and bonuses cannot be included when working out the 80% figure.
The £2,500 a month figure has presumably been chosen because it is roughly £30,000 a year, which is the national median salary.
Can employees work for the employer when furloughed?
No. To qualify under the CJRS, the furloughed employees MUST NOT undertake any work for the employer whilst furloughed.
The CJRS does not cover wages for employees who are still working, but doing fewer hours of work or for less pay due to the pandemic restrictions.
Are casual workers and zero hours contract workers covered?
The 80% wage guarantee will not cover zero-hour contracts or casual workers, unless they work on the PAYE system.
For casual and zero-hours contract workers who are on the PAYE system with variable hours, their previous pay can be used as a benchmark for furlough pay.
How do employers calculate the 80% figure for workers with variable hours?
Employees can claim the higher of either:
- the same month’s earnings from 2019, or
- the average monthly earnings from the 2019-20 tax year.
If the employee has been employed for less than 12 months before the claim, then the employer has to use an average of the actual monthly earnings since the employee’s start date. For employees who only started during February 2020 the employers will have to use those earnings on a pro rata basis.
What happens with National Insurance and pension contributions?
Employers are still liable for employer NI and employer pension contributions on behalf of their furloughed employees. The reimbursement from HMRC covers either the 80% or the £2,500, PLUS the associated employer NI and pension (minimum automatic enrolment) contributions.
What if this means the employees receive less than the National Living Wage?
The normal minimum wage rules do not apply to furloughed employees as they are not working.
Tax Treatment of the CJRS
Payments received by a business under the scheme are made to offset these deductible revenue revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes. Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.