In the past few weeks we’ve received lots of questions about the Coronavirus Job Retention Scheme (CJRS) and furloughing. As Chancellor Rishi Sunak has now announced that the scheme will be extended until October, we thought it would be helpful to explain how the scheme works. This guide is useful both for those of you who have been furloughed and company directors planning to temporarily lay off staff.
What is Furloughing?
The CJRS was introduced to prevent mass layoffs of the UK workforce due to companies affected by COVID-19 having insufficient funds to pay staff wages. ‘Furloughing’ means giving a temporary leave of absence to a worker. Until recently, it had not been a recognised aspect of UK employment law, but it’s fairly common in the USA. Under the CJRS, which has been backdated to 1st March, the Government has agreed to cover 80% of a furloughed worker’s gross salary, up to a maximum of £2,500 per month. An employer may then top up the salary to 100% if they wish. Employers are still obliged to pay national insurance and pension contributions, though the statutory minimum of these payments can also be claimed for via the CJRS. All Government funding that an employer receives must be passed on to their affected employees. Employees will also still have to pay tax on their incomes, as well as make their usual pension contributions. Please note that as the scheme is wound down, the salary percentage that the Government will cover is likely to be reduced.
An employee must be consulted before being furloughed and must receive notification once the process has begun. Employees must be furloughed for a minimum of three weeks, a period during which they can do no work whatsoever for their employer. Whilst employers may not make work-related contact with furloughed employees, they are encouraged to make personal contact, to ensure that employee wellbeing and mental health is cared for. Furloughed employees may use the time not spent working to make the most of training and personal development opportunities that arise, so that they can bring new skills to their role when they return to work.
Non-public sector employers of all sizes are eligible to make use of the CJRS, provided they have started a PAYE payroll scheme by 19th March 2020 and have a UK bank account. They must be able to demonstrate the impact of Coronavirus on the business and the workforce. Businesses which receive public funding are not expected to make use of the furlough scheme.
Full-time, part-time and agency employees, as well as those on zero hour contracts, can all be furloughed, so long as they have agreed that this can happen. Staff who have been on sick leave, as a result of the virus or otherwise, may also be furloughed upon their return to work, if the need arises. There does not need to be an underlying risk of redundancy for a staff member to be furloughed (though this was an initial requirement); the company only needs to have had business significantly interrupted by the virus. Business owners and partners may also be furloughed if they receive a PAYE salary. If an individual works for two separate companies, they can be furloughed by both. The £2,500 limit applies to individual employers, meaning that this individual could be paid £5000 in total via the scheme. If the individual who has been furloughed from one company but not the other, they can receive furlough pay from the former and their full pay from the latter.
There are some restrictions in place which affect employees who were added to the payroll after 19th March, were recently on sabbatical, were made redundant as a result of the Coronavirus or are on parental leave or are caring for children. If you or your staff fall into one of these categories, please contact us.
Applications must be made online via the GOV.UK website. A number of steps are involved in the process and a wide range of information must be provided, from the total amount being paid to all furloughed employees and their National Insurance numbers, to the employer’s Corporation Tax Unique Taxpayer reference. Once a claim has been made, employees should be notified, but they need to take no further action. The claim should be processed within six days. If the claim period comes to an end and there is still a need for staff to remain on furlough leave, another claim must be made. An employee can be furloughed as many times as necessary.
The entire process can be quite a daunting one and can be time consuming. To avoid mistakes and ensure the best financial situation for both your company and its employees, please contact MCC Accountants, who offer a range of payroll services in Manchester. If you have any other questions, please do not hesitate to give us a call.