Coronavirus Job Retention Scheme (CJRS)
The Government announced the introduction of a temporary job retention scheme, open to all UK employers
for at least 3 months, starting from 1st March 2020.
The objectives are simple.
1) It is to keep as many workers as possible employed (albeit on a reduced wage).
2) Avoid large numbers of people defaulting on rent and/or mortgages.
3) Assisting companies to maintain their skilled workforce ready for when the current crises ends and
their skills are needed.
4) Assist with the social distancing regulations.
Any UK employer can potentially claim.
The claim can be backdated until 1st March 2020.
The employer can also claim if they made employees redundant since 28th February 2020.
There are some caveats, specifically around Public Sector Organisations where the Government already funds the wages.
- The limit is the lower of £2,500 or 80% of the furloughed employees’ wages.
- The employer must have had a payroll scheme in operation by 28th February 2020.
- The employer must have a UK bank account.
- The employee cannot carry out any duties for the employer while on furlough.
- The employer needs to write to the staff advising them that they are being furloughed. The normal employment regulations in terms of record keeping apply.
- Employees hired after 28th February 2020 are not eligible for furloughing.
- Employees must be furloughed for a minimum of 3 weeks and for up to 3 months (although this may be extended) from 1st March 2020.
- Employees who are on sick leave or self-isolating cannot be furloughed but may be furloughed once they come back to work. Statutory Sick Pay applies whilst they are on sick leave or self-isolation and the government have made temporary changes to this throughout the coronavirus crisis.
- Employees shielding from the virus in line with public health guidance can be furloughed.
- Available for full-time, part-time, agency, flexible and zero-hour contracted employees.
- Whilst on furlough the employees wage will still be subject to tax and other deductions.
Those employees on reduced hours or reduced pay will not be eligible for this scheme and employers will have to continue paying their salary subject to the terms of the employment contract agreed.
Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers make the decision in relation to the process, including who to offer furlough to, equality and discrimination laws will apply in the usual way.
Employers can furlough any employee who has been subject to PAYE, including directors. Where directors are using dividends to top up their income, these amounts are unlikely to form part of the CJRS calculation as dividends are not subject to PAYE.
This scheme will include an allowance for the 3% minimum employer Auto-Enrolment contributions as well as Employer NI liabilities for salaries up to £2,500 a month (these will be based on the lower furlough wage).
Employers paying above the minimum contribution will not be able to claim back this additional contribution above the 3%.
Employers can not stop their pensions scheme during lockdown.
Employees will be expected to continue to pay their minimum contribution. Whilst they can opt out, this would mean that they lose valuable employer contributions.
What happens to salary sacrifice schemes?
Where furloughed staff are participants in a salary sacrifice scheme, unless the employees contractual terms are varied, the salary sacrifice is likely to continue from the furloughed pat and the benefits available to the employee are likely to continue. Current guidance does not specify refer to this.
It may be possible to cancel the salary sacrifice and associated provision of a benefit as part of a contractual variation. As with all contractual variations, this should be discussed and agreed with the employee and if necessary, employment law advice taken by the business.
The calculator is designed to assist our members with calculating the cost of furloughing staff instead of laying them off.
There are cashflow implications for doing this as HMRC have stated that the online portal will not be active until late April 2020.
Your business is therefore funding the furloughed staff for a minimum of 2 months if you are able to backdate the scheme to 1st March 2020.
There are other options available from the Government to assist with the above identified short-time cashflow issue, mainly loans available from your bank, and these will be covered off under a separate document.
The calculator has both tax years included, to allow for changes in current and next tax year.
The password is ncc-furlough.
HMRC have currently not released some of the finer details, specifically around Employers Ni and Employers pensions. The calculations are based on the tax year 2019/20. An updated schedule will also be available.
Notwithstanding the above, the calculations are fairly straight forward.
We have used 2 examples to demonstrate how the calculations work. An employee earning £1,100 per month and an employee earning £3,200 per month.
1. Employee earning £1,100 per month:
a. Calculate the Base claim. In this case it is 80% of the gross wage, being £880.
b. Calculate the Employers Ni. On current rules and assuming no change to the 0% threshold, the total is ((£880 – £719) * 13.8%) = £22.22.
c. Calculate the minimum pension contribution. On current rules and assuming no change to the minimum threshold, the total is ((£880 – £512)* 3%) = £11.04.
d. Calculate the total. The total claim under current rules is £880.00 + £22.22 + £11.04 = £913.26.
2. Employee earning £3,200 per month:
a. Calculate the Base claim. In this case it is capped at £2,500. (£3,200 * 80% = £2,560).
b. Calculate the Employers Ni. On current rules and assuming no change to the 0% threshold, the total is ((£2,500 – £719) * 13.8%) = £245.78.
c. Calculate the minimum pension contribution. On current rules and assuming no change to the minimum threshold, the total is ((£2,500 – £511)* 3%) = £59.64.
d. Calculate the total. The total claim under current rules is £2,500 + £245.78 + £59.64 = £2,805.42.
3. The figures above change slightly in April and May 2020 with the updated thresholds to £903.18 and £2,795.34 respectively.
4. Please note that the claim is reduced in 2021 because there is an increase in the 0% employers Ni threshold, thereby reducing the amount paid.
This document is for guidance only.
Any decision on furloughing staff is a business decision and should be taken in conjunction with your normal legal and professional and financial advisors.