COVID-19 Job Retention (“Furlough”) Scheme – Questions Answered Based on HMRC Guidance

1. Who can claim the furlough rebate?

Any entity which has created and started PAYE payroll on, or before, 28 February 2020, including enrolling online and has a UK bank account.

2. Minimum furlough period

Any employees on furlough must be remain so for a minimum period of 3 consecutive weeks. When they return to work, they must be taken off furlough. Employees can be furloughed multiple times, but each separate period must be for a minimum of 3 consecutive weeks.

3. How much can be claimed?

80% of pre-tax wages (even for employee’s on National Minimum Wage) up to a maximum of £2,500 per month.

minimum automatic enrolment employer pension contributions on the furlough wage

Employers can top up salary, but do not have to.

Pro-rated furlough pay applies for part of a pay period.

Claims apply from the date that the employee finishes work and starts furlough, not when the decision is made.

4. Public sector organisations

The government expects that the scheme will not be used by many public sector organisations, as most public sector employees are continuing to provide essential public services or contribute to the response to the coronavirus outbreak.

Where employers receive public funding for staff costs, and that funding is continuing, we expect employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them. This also applies to non-public sector employers who receive public funding for staff costs.

Organisations who are receiving public funding specifically to provide services necessary to respond to COVID-19 are not expected to furlough staff.

In a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate.

5. Individuals

Individual employers can furlough employees such as household staff (nannies etc), provided they pay them through PAYE and they were on payroll on, or before, 28 February 2020.

6. Administrators in insolvencies

Where a company is being taken under the management of an administrator, the administrator will be able to furlough employees of the company. However, we would expect an administrator would only access the scheme if there is a reasonable likelihood of rehiring the workers. For instance, this could be as a result of an administration and pursuit of a sale of the business.

7. Employees who can be furloughed

Employees that were on PAYE payroll on or before 28 February 2020.

NOTE: Employees hired after 28 February 2020 cannot be furloughed (However, this does not explain whether employees hired prior to 28 February 2020 but who commence their employment after that date, can be furloughed).

Eligible employees include: full-time, part-time, agency, flexible or zero-hour contracted employees. Foreign nationals are also eligible.

When on furlough, an employee cannot undertake work for, or on behalf of, the employer even if reduced hours and/or reduced pay.

Employees who started a period of unpaid leave on or after 28 February 2020 can be furloughed.

If an employee is on sick leave or self-isolating, Statutory Sick Pay applies but they can be furloughed for once they are no longer receiving Statutory Sick Pay.

Employees who are unable to work because they have caring responsibilities resulting from coronavirus (COVID-19) can be furloughed. For example, employees that need to look after children can be furloughed.

Employees who are isolating in line with public health guidance (or need to stay home with someone who is isolating) if they are unable to work from home and you would otherwise have to make them redundant, can be furloughed.

Employees on fixed term contracts can be furloughed. Their contracts can be renewed or extended during the furlough period.

8. Employees redundant or suspended on or after 28 February 2020

Employees made redundant or laid off on or after 28 February 2020, can be re-employed and furloughed.

9. Apprentices

Apprentices can be furloughed in the same way as other employees and they can continue to train whilst furloughed.

However, you must pay your Apprentices at least the Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage (AMW/NLW/NMW) as appropriate for all the time they spend training. This means you must cover any shortfall between the amount you can claim for their wages through this scheme and their appropriate minimum wage.

10. Training

Furloughed employees can engage in training, as long as in undertaking the training the employee does not provide services to, or generate revenue for, or on behalf of their organisation. Furloughed employees should be encouraged to undertake training.

Where training is undertaken by furloughed employees, at the request of their employer, they are entitled to be paid at least their appropriate national minimum wage for this time. In most cases, the furlough payment of 80% of an employee’s regular wage, up to the value of £2,500, will provide sufficient monies to cover these training hours.

11. Maternity leave, adoption leave, paternity leave or shared parental leave

The normal rules for maternity and other forms of parental leave and pay apply.

You can claim through the scheme for enhanced (earnings related) contractual pay for employees who qualify for either:

maternity pay

adoption pay

paternity pay

shared parental pay

12. Agreement to furlough

Employers should discuss with their staff and make any changes to the employment contract by agreement.

To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. A record of this communication must be kept for five years.

13. How to make a claim

To claim furlough pay, employers, you will need:

ePAYE reference number

number of employees furloughed

furlough period by start and end date

amount claimed referenced to the minimum length of furloughing of 3 consecutive weeks

UK bank account number and sort code

Employer contact name

Employer telephone number

Claims must be based amounts in the payroll. Claims can be backdated to 1 March 2020 where employees have already been furloughed.

As applicable, employers must make the 80% adjustment to pay before it is paid to the employee via payroll.

Claims must be based amounts in the payroll. Claims can be backdated to 1 March 2020 where employees have already been furloughed.

As applicable, employers must make the 80% adjustment to pay before it is paid to the employee via payroll.

Furloughed employees will be subject to tax on the furlough pay.

14. Employees whose pay varies

If the employee has been employed for 12 months or more, you can claim the highest of either the:

same month’s earning from the previous year

average monthly earnings for the 2019-2020 tax year

If the employee has been employed for less than 12 months, claim for 80% of their average monthly earnings since they started work.

If the employee only started in February 2020, work out a pro-rata for their earnings so far, and claim for 80%.

15. Employer NIC and Pension Contributions

Employers must pay employer National Insurance Contributions and the mandatory pension contributions based on the furlough pay level and these can also be claimed for.

Employers cannot claim for top-up pension contributions or the NIOCs on any top-up element of furlough pay.

16. Past Overtime, Fees, Commission, Bonuses and non-cash payments Benefits in Kind and Salary Sacrifice Schemes

Any regular payments the employer is obliged to pay, including wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments are excluded.

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 agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.

17. National Minimum Wage

Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW)/ Apprentices Minimum Wage (AMW) for the hours they are working or treated as working under minimum wage rules.

This means that furloughed workers who are not working can be paid the lower of 80% of their salary or £2,500 even if, based on their usual working hours, this would be below their appropriate minimum wage.

18. Collective consultation

If enough numbers are involved (20 or more), it may trigger the need to engage collective consultation processes to get agreement for changes to terms of employment. There are potential defences available for failure to fully consult but expert legal advice should be taken.

19. Employee rights

Employees still have the same rights at work, including:

Statutory Sick Pay

maternity and other parental rights

rights against unfair dismissal

redundancy payments

Grants cannot be used to substitute redundancy payments. HMRC will continue to monitor businesses after the scheme has closed.

20. Working for a different employer or more then one

If contractually allowed, employees are permitted to work for another employer whilst you have placed them on furlough.

Employees with more than one employer they can be furloughed for each job. Each job is separate, and the 80%/£2,500 cap applies to each employer individually.

21. Voluntary work

A furloughed employee can take part in volunteer work, if it does not provide services to or generate revenue for, or on behalf of the employer.

22. Tax Treatment of the Coronavirus Job Retention Grant

Payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.

Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.

22. 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