The Coronavirus Job Retention Scheme is an initiative that many people are asking questions about. How will it work? Who can be furloughed? Andrew Diver, head of tax, answers some of the questions he has been asked.
I pay some staff National Minimum wage. If I furlough these staff, will I be forced to top up their pay to National Minimum wage but only be able to claim back 80%?
National Minimum wage is due for work. But if you are furloughed you are not able to work, so a payment of 80% is permitted. However, if staff undertake any form of training while on furlough, you should ensure that they are paid the National Minimum Wage for this time as it is within the NMW legislation.
What is average pay?
Average pay includes wages, past overtime, fees and compulsory commission payments, but does not include discretionary bonuses, commission payments and non-cash payments. This will mean that claims can be made for zero hours contract staff based upon their average earnings in 2019/20 or the corresponding tax month in 2019/20.
What if I only joined the company on June 1, 2019?
You can claim the higher of the same month’s earnings for the previous year, or the average monthly earnings for the 2019/20 tax year.
The average should be calculated based upon how many months you were employed during the tax year. So, the average pay would be the pay (as calculated above) for the period from June 1, 2019, to April 5, 2020, divided by the number of months in that period being 10 months.
Can directors furlough?
Directors and office holders can furlough. This is a decision for the company to make and should be recorded in the company records if necessary. As with the general furlough scheme, a director is not able to work during the furlough period. They can however carry out the statutory duties as quoted in Companies Act 2006 in ensuring the company is capable of continuing to trade in the future. Examples of this might be to comply with the company’s HMRC, Companies House, and Health & Safety Executive obligations.
What if I have reduced my hours? Is it possible to make a claim for some part of furlough?
No, furlough means you are unable to work and must be for a period of at least three weeks. You can have many periods of furlough, so employers could furlough staff for say three weeks, and then have one week working, then furlough again. Alternatively, they could operate on more of a shift formation with say team one and team two. So, for the first three weeks team one is furloughed and team two works. The next three weeks team two is furloughed and team one works. This would provide some equity in the situation where there are reduced staff requirements, but it will require the teams to have sufficient skills to operate in each period and also manage the continuity between teams transitioning.
I have salary sacrificed some of my salary for a higher level of pension contribution to be made by my employer. How does being furloughed effect this?
If nothing else happens, your furlough reclaim amount will be based upon 80% of your pay which will be the net figure of your salary substitution amount. It will depend upon the contractual arrangement between employer and employee whether contributions are based upon a percentage of earnings (and will therefore be a reduced pension contribution if only 80% of pay is being made) or if it is a finite sum. It is possible as part of the furlough procedure to cancel salary sacrifice arrangements to maximise the cash available to employees as HMRC have agreed that Covid-19 will be classed as a life event.