The UK COVID-19 furloughing scheme
On 26 March, HMRC published more information on how employers can claim for furloughed employees. Employers can put employees in ‘furlough’ which means the employee is no longer available to work for that employer. This is a contractual change so the employee must agree and a different contract must be drawn up, or an addendum added.
An overview of furloughing employees
Government will give a grant that covers 80% of wages plus the employers NIC payment on the 80% and the minimum employer pension amount of 3% of earnings above £520 per month.
For example, if a furloughed salary was £1000:
- Employers Nic - £36.98
- Employer Pension - £14.40
- Total amount covered £1051.38
The good news is that the process appears to be pretty straightforward and the application and payment process is not dependent on payroll software having to make any additional changes.
This means that employers can make their claims (backdated if appropriate to 1 March 2020) for any minimum 3 weeks period without waiting for software updates.
Payments will be made directly into employers’ bank accounts and so again, there should be no undue delay from any third party (obviously HMRC will be under a massive amount of strain because of the anticipated volume of applications - expect teething problems as this is a brand new system the HMRC is creating at very short notice). Employers must have a UK bank account to be able to claim the money back from HMRC.
The less good news is that employers won’t be able to apply until HMRC have made the online portal available, which will be sometime before the end of April.
But that still means you can get the information together in preparation.
I’m not going to replicate the document here, because it needs to be read in full, but some of the key points are:
- This relates to employed people (whether on salaries or variable/zero hour contracts)
- For variable hour workers the calculation is the higher of either the same month’s earning from the previous year, or the average monthly earnings from the 2019-20 tax year (average monthly earnings for the employed period for employees who have worked less than a year)
- With regards to salary sacrifice furloughing will be applied to the reduced salary, as this is a contractual reduction so the overall furloughed amount will be reduced (i.e. it will be 80% of the post-sacrifice salary or £2,500 gross, whichever is greater)
- National Minimum Wage does not apply to furloughed earnings, but any earnings for hours actually worked (including training) must be paid at least at NMW/NLW rates
- A 2 week break for new mothers (4 weeks if they work in a factory/workshop) is mandatory. Normal SMP provisions also apply, should mothers continue to want to have a longer break
- Automatic Enrolment still applies (with contributions and calculations based on the payments made - so no difference in the calculation method there)
- Employers can top up from the 80% level
- Employees made redundant since 28 February 2020 who are re-employed can be furloughed and therefore part of the claim
- Any redundancies at the end of this scheme will still have the same statutory obligations attached (i.e. these individuals are still treated as being employed while they are furloughed)
- All normal T&Cs continue e.g holiday accrual, employment rights etc.
KeyPay is a fully cloud payroll and work management system available for accountants, bureaus, bookkeepers or direct clients. Integrated with Xero and Quickbooks and with API links to the main AE providers.