The government has laid out unprecedented new measures to protect individuals and employments during the Coronavirus pandemic.
The key measures announced today are as follows:
To access the scheme, employers will need to:
HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. The department is setting up a new system for reimbursement, as existing systems are not set up to facilitate payments to employers.
HMRC published further guidance on the scheme on 26 March 2020,
Payroll software providers will also have to update their packages so that businesses can automatically add laid off workers to their payroll systems.
ABC Ltd employs Mr A on an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto enrolment.
Each month, Mr A currently receives net pay of £1,665 which is after deducting PAYE of £191 and employees NIC of £144. On this salary, the employer pays employers' NIC of £174.
The available grant for the employer is the lower of
(a) 80% of (£2,000 + £174), and
So a grant of £1,739.
The cash required by ABC Ltd to furlough based on maintaining the existing salary is £435 per month. It is a matter for employment law whether the employer is required to pay this top up. Discussions with employees may have agreed that the employee has agreed to a different arrangement during their furlough.
If Mr A had not opted out of auto enrolment, ABC Ltd would also be making pension contributions on his behalf. If so, the available grant is based on 80% of (gross salary + Employers' NIC + employers pension contributions paid), subject to the monthly cap of £2,500.
The full details of the scheme have yet to emerge, and there will undoubtedly be teething problems when a plan such as this is put into action in such a short timescale. We can expect to see the scheme in operation before April, with grants backdated to 1 March 2020.
Perversely, the design of the initiative could result in employers actually laying off staff to focus the work on a smaller number of employees, and furloughing the rest rather than sharing work. At least those furloughed would be on 80% of what they could have been earning, though obviously not 100% like those still working. There is nothing to stop an employer voluntarily funding the laid off worker the difference between the 80% and 100% should they wish to do so.
It is also not yet clear how HMRC will know that a worker has been furloughed and not still actually working. What checks will be put in place to validate the status of a worker?
Also requiring clarification will be the position of those working through their own personal service companies (PSCs). Are they in the same position as other workers who face having no work, because as PSC directors they haven't been laid off? Or, could we see some PSC directors claiming that they are in fact employees of the engager and ignoring their PSC in order to claim 80% of their money?
In anticipation of the IR35 off-payroll rules being rolled out to the private sector from April 2020, some PSC owners will already have accepted employment. And even though the off-payroll rules have now been delayed for twelve months, the PSC owner - now an employee - could be relieved that they made the switch.
Something else to watch will be where a director/shareholder takes a low salary which is topped up by dividends. Only the salary element is covered.
Further guidance for employers is available here.
Whilst help with such matters as tax and VAT payment deferments are helpful, the package announced by the Chancellor does not do much for the self employed.
They can gain access to the equivalent of statutory sick pay, which is currently £94.25 per week, but this does not appear to be much when an employee is guaranteed 80% of their salary under the Job Retention Scheme. So, for example, an employee on an annual salary of £25,000 could possibly receive £20,000, compared with a self-employed sole trader normally earning a similar amount now only able to access around £5,000.
Some useful links for the self employed can be found here:
With regards to Universal Credit, it is not yet clear what the position will be where a household has two earners, as the rules normally require household income to be assessed. This may become more flexible in due course..
It is possible that the Chancellor may offer more to the self employed in the coming days and weeks.
The government has also announced further measures on social distancing, including asking the following businesses and venues to close:
For further guidance, please check out our Coronavirus Knowledge Hub.