Updated: Apr 21
So we now have something called a virtual lock-down which is not a full lock-down but almost a full lock-down according to the politicians. With most private businesses having been told to close so that employees do not have a travel to work, the question that is coming up every day is a how are we going to pay our employees and how does the new
Coronavirus Job Retention Scheme work.
I have spent a lot of time researching this and there is, to be honest, not a lot of clarity about this because everyone is waiting for the actual legislation which is yet to be published. Based upon the five paragraphs in the Government’s published guidelines and based upon the views of some reliable experts in this field I am happy to pass on the following summary of how the scheme will operate. I need to point out this is subject to legislation and should therefore be treated at this stage as best guidance and nothing more.
The overall objective of the scheme is to keep employees at home while enabling employers to retain staff who would be needed when they begin to rebuild their businesses in the future. This is to be achieved through HMRC who are to set up a new online portal so that all UK employers, regardless of size, will be eligible for assistance where an employee has been designated as a ‘furloughed worker’.
The word 'furlough' generally means a temporary leave of absence from work. A furloughed employee is someone who rather than being dismissed for redundancy by their employer, is kept on the payroll during a period where the employer does not have any work for the employee.
The condition is that any member of staff who is furloughed must not work for the employer during the period of furlough. Furlough is available from 1 March 2020 and at this stage it is to last for at least three months but may be extended if necessary.
Even though the scheme is available from the beginning of this month, employers will only be eligible to claim the grant once they have obtained the agreement of the employee to be furloughed and the said employee has stopped doing any work for the employer. This will require a written agreement between the employer and the employee in most cases. Email me if you need a copy of a draft agreement that you can use as provided by a lawyer specialising in employment law.
We understand that employers will have to pay their furloughed employees through payroll using the RTI or real-time information system as usual. The scheme will be administered by HMRC but it is unlikely that this system is going to be set up in the next few days. As such, it looks like the employers will have to fund the initial furloughed wages from the own resources.
The maximum grant available per employee is the lower of 80% of ‘wages’ or £2,500 per month. It is our understanding that this includes employers’ NIC and pension. Contributions.
Some practical pointers:
The three options available to employers:
Make staff redundant (and pay statutory redundancy pay)
Reduce staff hours – pay pro-rata accordingly
Furlough – claim the grant but they cannot do ANY work during this period.
It is not available to a sole director but if a company has more than one director then all but one can be furloughed.
Employees will accrue holiday pay during period of furlough.
Employers are not obliged to pay the 20% not covered by the grant
I hope the above is helpful. If you have any questions please feel free to ask.