Furloughing employees

There have been a flood of questions following the Government’s announcement of the availability of a grant to cover 80% of the wages of staff furloughed during the COVID-19 crisis.

We are still awaiting detailed guidance from the Government, but there is some understanding emerging in the industry and we aim to answer some key questions.

1. What exactly will the Government cover 80% of?

{Updated 27 March 2020 for clarified government guidance}

The grant to the company will cover 80% of the employee’s usual wage costs (gross basic salary – it is understood that fees, commission and bonuses are excluded), up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage.

It is understood that it will be at the employer’s discretion whether this is topped up, but this is to be confirmed.

2. What is the salary cost based on?

The Government has yet to confirm what pay period(s) will be used to calculate the 80% grant on. It would seem reasonable this may be some sort of average, or by reference to a similar period in a previous year. We understand that this is likely to be calculated on basic pay where overtime is regularly worked, but would stress this is subject to official confirmation, as is how this applies to situations such as short hours workers, holiday, maternity leave, sick or self-isolating employees.

The ICAEW has said: “Subject to the employment contract and any amendment, the salary which the employer actually pays the employee during the furlough period may be different to the pay paid used as the reference period and upon which the grant figure is based.”

3. What about shareholder directors?

This grant will only cover furloughed staff – and furloughed staff must not do any work for the employer while furloughed. This is expected to rule out many owner-managers or directors who will still carry out administrative or directorial duties, even if the business is closed.

4. Which staff are eligible?

The furlough is available for staff in employment on 29 February 2020 and is backdated to 1 March to enable employees already laid off since then to be taken back on to the payroll and furloughed. It will last for at least 3 months and will be extended if necessary. Note that while the scheme is backdated to the beginning of March as it is intended to support all those employed then, a firm will only be eligible to claim the grant once they have agreed the furlough with their staff, subject to employment law, and staff have stopped working for the employer.

In employment law there is there is no automatic right to furlough employees when work is not available or when it is not possible for employees to work. Instead, employers must agree lay-off arrangements with employees, unless there is already a contractual lay-off right written into employees’ contracts of employment (not many employers have this). Speak to your Barnes Roffe contact as we can help you ensure you meet the necessary requirements for consent to furlough.

5. How do I claim it?

HMRC are building the system and portal for claims at the moment. It is hoped this will be up and running by the end of April. The furloughed employees must be paid in the interim with the grant reimbursing these costs. This may cause cash flow difficulties in the short term. If you need financial support to cover this period, please consider the Coronavirus Business Interruption Loan Scheme.

6. How will the Government ensure the funds are being used to pay wages?

The Government will have the right to retrospectively audit all aspects of the scheme with scope to claw back fraudulent or erroneous claims.

See HMRC’s guidance here: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

If you wish to utilise this scheme speak to your Barnes Roffe contact and we can assist you through the process.

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