What is the Coronavirus Job Retention Scheme (CJRS)?
The CJRS is a temporary scheme, administered by HMRC, open to all UK employers for at least 3 months starting from 1 March 2020.
Under the CJRS, HMRC will reimburse 80% of a ‘furloughed’ employee’s salary costs, up to a cap of £2,500 per month, plus the associated employer’s National Insurance contributions and minimum automatic enrolment employer pension contributions on that salary.
In this context, a furloughed employee is a non-working employee who is kept on the payroll, rather than being laid off.
Who can make a claim?
The scheme is available to all UK based employers, including businesses (including those under the management of an administrator), charities, recruitment agencies and public authorities, although the government anticipates that public authorities will not need to use the scheme as much given most of their essential public services continue to function at this time.
To be eligible, employers must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
What about owner-managed businesses?
Owner-managed businesses can also make a claim through the CJRS, in which instance they will effectively be furloughing themselves. However, the scheme does not currently extend to dividends. Only salary is relevant to the scheme. If furloughed, owner-managers will still be allowed to complete statutory duties in these roles – this will not count as work which disqualifies them from the grant.
Who can I claim for?
The CJRS applies to all employees who were on the company payroll as of 28 February 2020. New employees since this date are excluded.
It also applies to employees who were made redundant after 28 February 2020, and were subsequently re-hired and then furloughed.
Employees on any type of contract can be included so long as they are paid through PAYE.
How much can I claim?
As mentioned above, the maximum claim will be calculated per employee and is the lower of 80% of an employee’s regular wage and £2,500 per month, plus the associated employers’ National Insurance contributions (NIC) on this amount and the minimum automatic enrolment employer pension contributions on that wage. Fees, commission and bonuses should not be included.
What should I pay to furloughed staff?
At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month.
For full-time and part-time employees, the base for the 80% calculation is the employee’s actual salary as of 28 February 2020.
For employees whose pay varies, this depends on their length of service:
If the employee has been employed for a full twelve months prior to the claim, you can claim for the higher of either:
- the same month’s earnings from the previous year; or
- average monthly earnings for the year.
If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
If the employee only started in February 2020, use a pro-rata for their earnings so far to make the claim.
Can I pay staff more?
Employers can choose to top up an employee’s salary but there is no obligation to do so.
Neither is there an obligation to top up to the national minimum wage or national living wage if the 80% takes an employee below the minimum. That is unless a furloughed worker is required to complete training while they are furloughed.
If you’re unable to top up employees’ salary, there are additional supports for people who find themselves in financial difficulties because of coronavirus. This includes the fact that mortgage lenders will offer at least a three-month mortgage holiday.
Are payments taxable?
Yes, payments you make to furloughed employees will be subject to PAYE and National Insurance contributions.
What about pension contributions?
The amount employers can claim in respect of pension costs will be the minimum auto-enrolment contributions based on the furloughed employee’s wage.
The current minimum contribution under the auto-enrolment regulations is 3% of an employee’s income above £512 per month (rising to £520 per month from 6 April 2020).
Where an employer pays more than the minimum in respect of its employees, those contributions cannot be claimed under the CJRS. Similarly, if an employer pays a top-up salary to furloughed employees, employer contributions on this top-up salary will not be funded by the CJRS.
Furloughed employees still have to pay employee pension contributions on their qualifying earnings. Although the amount paid will be lower on an 80% furloughed salary, furloughed employees may want to temporarily reduce or suspend their pension contributions during the furlough period.
Employers should check employment contracts and the pension scheme rules for any restrictions on the way in which employee pension contributions are calculated, as well as checking rules on the suspension of contributions under the pension scheme.
What happens to employee benefits for furloughed employees?
The rules for the grant will not displace the existing employment contract. So one would expect entitlements to other employment benefits to be maintained, unless you agree something different with furloughed employees.
Employers that offer permanent health insurance or death-in-service benefits should check with their scheme provider about what salary would be used in the event of a claim – would it be normal annual salary or the amount of pay received during furlough?
How do I furlough an employee?
The CJRS does not displace employment law. It is unlikely that most employment contracts will make provision for furloughing. Given, therefore, that designating an employee as furloughed will constitute a change in their employment contract, employers should (as best practice) provide written confirmation to their employees of their new designation, the reasons for and duration of it, together with details of pay and benefits they will receive. Employers should also seek written affirmation of an employee’s consent to the change.
An employee does not have to accept furlough if offered, but the employer could then make the employee redundant instead following the relevant employment law procedure.
We strongly recommend you take legal advice before taking action.
Can employees undertake work while furloughed?
No. Furloughed employees are not permitted to do any work for the company during the furlough period. However, they are permitted to undertake volunteer work or complete training, so long as that work does not constitute a service or generate revenue on behalf of the employer.
Can employees be moved in and out of furlough?
Yes. The scheme has been designed to be flexible so that furloughed staff can be brought back to work, for example, to replace those still working who later become sick. However, an employee must remain on furlough for a minimum of three weeks at a time and for a maximum of three months from 1 March.
Can employees be furloughed on a part-time basis?
Where an employee is working reduced hours or for reduced pay, they will not be covered by the CJRS. Employers will need to continue paying them through payroll in accordance with their employment contract.
Can an employer reinstate employees who have recently been made redundant?
Employees who have been made redundant since 28 February 2020 are covered by the CJRS if they are re-hired by their employer.
How do you treat employees on unpaid leave?
Employees on unpaid leave cannot be furloughed unless they were placed on unpaid leave after 28 February 2020.
How do you treat employees on statutory sick pay (SSP)?
Employees who are on sick leave or who are self-isolating should receive SSP, but can be furloughed subsequently. Employees in the very vulnerable category who have been told to stay at home for 12 weeks may be furloughed. Employees who are sick while on furlough would appear to receive the furloughed rate of pay rather than sick pay.
What about employees on maternity leave, contractual adoption pay, paternity pay or shared parental pay?
The right to statutory maternity pay will continue. However, where an employer offers enhanced earnings-related contractual pay for the various types of parental leave, this is a wage cost that can be claimed through the CJRS.
How do I make a claim to HMRC?
Employers will be able to claim the grant through a new online system. HMRC expect the new service to be available by the end of April 2020.
You can only submit one claim at least every 3 weeks.
Claims can be backdated to 1 March 2020.
Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to a UK bank account.
Will I have to pay back HMRC?
The scheme pays a grant (not a loan) to the employer, so it does not need to be repaid. Payments received under the scheme must, however, be included as income in its calculation of taxable profits for Income Tax and Corporation Tax purposes – although businesses can continue to deduct employment costs as normal.
Where can I find more information?
Correct at the time of writing [3 April 2020] and is intended for general information only and should not be construed as advice.