Coronavirus Job Retention Scheme – Our understanding of the financial details
As the government’s Coronavirus Job Retention Scheme (CJRS) opened up this week for grant applications, some clarity on the financial details regarding furloughing employees was offered in government updates released on 15 and 20 April 2020.
Here, our employment law expert, James Johnson breaks down what we know so far.
When does a furlough claim start?
A claim for furlough payment should be started from the date that the employee finished work and started furlough, not when the decision was made or when written confirmation of their furloughed status was obtained.
How to work out an employee’s furlough wage
As we’ve explained in previous posts, an employer can claim 80% of their employees’ wages, up to a maximum of £2,500. For any full or part time employees with a fixed salary, this will be calculated as of 28 February 2020, before tax.
Where an employee’s pay varies and they have been an employee for 12 months or more, you can claim the highest of either their earnings from the same month the previous year or, their average monthly earnings from the 2019/20 tax year.
If they have been an employee for less than a year, you can claim 80% of their average monthly earnings since they started. Although, if they started in February 2020, calculate the pro-rata for their earnings so far and claim 80% of that figure.
You can also claim for employer National Insurance and minimum auto-enrolment pension contributions for the subsidised salary, however, if you choose to top up your employees’ wages, you cannot claim for any additional National Insurance.
Employers can decide to “top up” the employees wages beyond the 80%/ maximum £2500 per month rate, but they can only claim for a grant on the values set out above.
Claiming for overtime, commission, bonuses and non-cash payments
In the latest government guidance, it appears that you can claim for any regular contractual payments you are obliged to pay your employees. This is a change from previous guidance published on 26 March 2020.
The guidance now confirms that claims can include contractual elements of pay such as compulsory commission and non-discretionary overtime. However, certain elements of pay are expressly excluded, including discretionary commission/ bonuses, discretionary overtime and the costs of non-monetary benefits such as private healthcare or a company car.
Benefits in Kind, Salary Sacrifice schemes and furlough pay - how does it work?
The government has made it clear that non-monetary benefits provided to employees, including taxable Benefits in Kind, should not be included when calculating an employee’s furlough pay. This rules out including in claims the costs for benefits such as healthcare costs or costs for a company car.
If an employer continues to provide these benefits to the employee, this should be in addition to the wages available to claim under the CJRS and cannot be claimed as a grant.
If an employee has entered into a salary sacrifice scheme, the net pay (i.e. the pay received after the salary has been sacrificed) should be used as the reference salary when calculating their furlough pay/ the claim for a grant.
Under normal circumstances, an employee can only cease a salary sacrifice arrangement if there has been a “life event”, which HMRC agrees COVID-19 is.
Although, this does not deal with how a salary sacrifice arrangement ceased after 28 February 2020 will be calculated, as presumably the salary being used as the reference salary would have been sacrificed and it is this salary which will be applicable.
Please note, all advice and opinion offered in this article are subject to change in line with the latest government advice.