Coronavirus Job Retention Scheme (CJRS) Update
On 17 April the Government updated its guidance on the Coronavirus Job Retention Scheme (CJRS) to provide more clarity on some of the specifics of the scheme and, in particular, answer a lot of the main queries employers were raising around the mechanics of the scheme.
Rather than to provide full guidance of the scheme as it stands, the purpose of this article is to summarise the main changes announced on 4th April 2020.
The Governments update can be found here.
Who is the CJRS for?
The latest guidance emphasises that the CJRS is there to help those businesses that have been severely affected by Covid-19 and is being used as an alternative to redundancies. It is open to all employers who have furloughed employees and the employer must have set up a payroll by 28 February and they must have enrolled for PAYE online and have a UK bank account.
What types of employee can be furloughed?
The new guidance has clarified the following:
- Employees who are self-isolating and who are on SSP/sick pay cannot be furloughed until they have completed their self-isolation;
- Employees who are Shielding are confirmed to be eligible to be furloughed;
- Apprentices can be furloughed and continue with their training – but must receive pay at NMW rates whilst training; and
- Employees who are staying at home to look after children can be furloughed.
When will the Claims portal be ready?
The update has confirmed that HMRC are not expecting to have their claims portal ready until the end of April, which is not that specific but, considering they are setting the system up from scratch is likely to be in the final week of April.
What will the grant cover?
The grant will cover the employer’s National Insurance and employer pension contributions for furloughed employees, but the contributions will be limited to the amounts due on the gross salary payable for the employee by the grant.
If an employer decides to top up an employee’s pay, any additional National Insurance or pension contribution payable will not be funded by the grant. Similarly, if an employer pays an employer pension contribution above the minimum requirements, the excess contributions will not be covered by the grant.
What payments can be included in the Grant Claim?
The grant claim is based on any regular payments that the employer is obliged to make.
- past overtime;
- fees and compulsory commission payments.
It does not include
- discretionary bonus (including tips) and commission payments; and
- non-cash payments.
- Neither does it include any benefits in kind or any benefits provided through salary sacrifice (including pension contributions).
Grants will be pro-rated if the employee is furloughed for part of a pay period, with the claim being made from the start date of the furlough and not the date that the negotiations started.
What about Benefits in Kind and Salary Sacrifice Schemes?
The reference salary should not include the cost of non-monetary benefits provided to employees, including taxable Benefits in Kind. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included in the reference salary. Where the employer provides benefits to furloughed employees, this should be in addition to the wages that must be paid under the terms of the Job Retention Scheme.
Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. HMRC has agreed that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.
Should the Apprenticeship Levy and Students Loan continue to be paid?
Both the Apprenticeship Levy and Student Loans should continue to be paid as usual. Grants from the Job Retention Scheme do not cover these.
What about eligible individuals who are not employees?
As well as employees, the grant can be claimed for any of the following groups, if they are paid via PAYE:
- office holders (including company directors)
- salaried members of Limited Liability Partnerships (LLPs)
- agency workers (including those employed by umbrella companies)
- limb (b) workers
Office holders can be furloughed and receive support through this scheme. The furlough, and any ongoing payment during furlough, will need to be agreed between the office holder and the party who operates PAYE on the income they receive for holding their office. Where the office holder is a company director or member of a Limited Liability Partnership (LLP), the furlough arrangements should be adopted formally as a decision of the company or LLP.
As office holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed. Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.
Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.
This also applies to salaried individuals who are directors of their own personal service company (PSC).
Salaried Members of Limited Liability Partnerships (LLPs)
Members of LLPs who are designated as employees for tax purposes (‘salaried members’) under the Income Tax (Trading and Other Income) Act (ITTOIA) 2005 are eligible to be furloughed and receive support through this scheme.
The rights and duties of a member of an LLP are set out in an LLP agreement and in the absence of an agreement, default provisions in the LLP Act 2000, based upon company and partnership law. Such an agreement may include separate agreement between the LLP and an individual member setting out the terms applicable to that member’s relationship with the LLP.
To furlough a member, the terms of the LLP agreement (or any such agreement between the LLP and the member) may need to be varied by a formal decision of the LLP, for example to reflect the fact that the member will perform no work in the LLP for the period of furlough, and the effect of this on their remuneration from the LLP. For an LLP member who is treated as being employed by the LLP (in accordance with s863A of ITTOIA 2005), the reference salary for this scheme is the LLP member’s profit allocation, excluding any amounts which are determined by the LLP member’s performance, or the overall performance of the LLP.
Agency Workers (including those employed by umbrella companies)
Where agency workers are paid through PAYE, they are eligible to be furloughed and receive support through this scheme, including where they are employed by umbrella companies.
Furlough should be agreed between the agency, as the deemed employer, and the worker, though it would be advised to discuss the need to furlough with any end clients involved. As with employees, agency workers should perform no work for, through or on behalf of the agency that has furloughed them while they are furloughed, including for the agency’s clients.
Where an agency supplies clients with workers who are employed by an umbrella company that operates the PAYE, it will be for the umbrella company and the worker to agree whether to furlough the worker or not.
Limb (b) Workers – i.e. those individuals who are not classed as employees but who have some employee type rights
Where Limb (b) Workers are paid through PAYE, they can be furloughed and receive support through this scheme.
What records should an employer keep?
The guidance confirms that letters to confirm employees have been furloughed must be kept on record for 5 years.
Can employees work for another employer whilst on furlough?
If the employee’s contract of employment allows it, they can work for another employer whilst on furlough.
What happens when the government ends the scheme?
When the government ends the scheme, the employer must make a decision, depending on circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).
If you have any immediate questions, please do not hesitate to get in touch:
Employment Taxes Partner
T: 07810 852362
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