This update is written and posted on 28th March 2020 and is likely to quickly become out of date. We will endeavour to update information as it becomes available.
Previous updates and other useful information can be found at our WEBSITE.
Saturday morning and we apologises for sending out this update, when we advised everyone to take a break – however a couple of updates, calcifications came out yesterday afternoon, in areas where we have had a lot of queries regarding the Job Retention Scheme.
Please feel free to park this brief, until Monday morning, if you can’t face today!
Job Retention Scheme
Both the CBI and the ICAEW have held conversations with senior HMRC executives, following the guidance issued late Thursday.
Our quick summary of the scheme:
- Businesses can claim 80% of employees’ wage who is placed on furlough, up to a maximum of £2,500 per month, plus (this was a new bit) the associated Employer NICS and minimum auto-enrolment employer pension contributions on that wage. That in effect raises the cap that the government has set to a maximum ceiling of £2,804 of total grant per employee;
- The government have also clarified the interaction between the scheme and the National Living and Minimum Wage. The guidance from government is that furloughed workers are to be paid 80%, or a maximum of £2,500 of their salary (based on their usual working hours), even if this would be below the National Living or Minimum Wage.
- Those in full-time and part-time contracts qualify, as do employees on agency contracts or on flexible contracts, including those on zero-hour contracts.
Our summary of the issued HMRC guidance
Company directors qualifying for the job retention scheme?
One of the unclear areas of the scheme is whether it applied to company directors or not.
HMRC confirmed following questions raised yesterday, that a director can be furloughed provided they were paid via PAYE as at 28 February 2020. The only work the director is allowed to undertake while on furlough, is their statutory director duties, no revenue generation or provision of services. A quick guide to director duties can be found at Companies House
One of the most important director duties, is to act in a way that the director considers in good faith, would be most likely to promote the success of the company for the beneﬁt of its shareholders.
If you are the shareholders and directors are one in the same, and you have seen your business close, or likely to in due course and there is no way to generate any sales, or provide your services, then you would be eligible for the furlough scheme. We would advise that you document/minute the point and follow the same procedures required for employees.
It may be possible as the business slows down the number of directors required to operate the business can be reduced, for example in a husband and wife shareholder/director business, one director can take furlough, while the other continues to operate and run the business.
If your company has other shareholders, other than directors, for example you have received investment, then you should consult with those shareholders regarding any action you take, again documenting the decision.
We would emphasis the point that the scheme is for those who are unable to work and would be laid off as a result of the COVID-19 crisis, which must apply to the director’s situation. HMRC have advised there will be stringent anti-fraud measures and we have previously warned all business owners that in the event of abuse of the system, they should expect heavy penalties and public naming and shaming for what will be, after all, a form of illegal profiteering from a national crisis.
Please note that you are only able to claim 80% of your salary, HMRC have confirmed that dividends will not be treated as salary.
In these difficulty times, you need to weigh up the opportunity to take furlough and claim the grant, versus endeavouring to operate during the crisis.
Duration of furlough
As an employee can’t work while on furlough, many have asked for what period can an employee be put on furlough. The current scheme is for three months (although this could be extended, the decision to extend will be taken May).
The minimum period you can furlough an employee is three weeks after which they can come back to work if you require or you can extend. After coming back to work if the business situation changes, you can place them on furlough again, provided the scheme is still operational.
We continue to emphasise the point that you need to discuss the situation with employees, and you will need to make changes to their employment contract by agreement. It is unlikely there is anything in their current contract of employment to cover this new concept, however clearly employees who otherwise face the option of no pay if you did lay them off are likely to agree. However, you don’t want a clever employment lawyer coming back after the crisis, with an action for not dealing with the matter correctly.
We strongly recommend you take legal advice before seeking consent.
You are allowed under the scheme to select some employees to furlough but not others, but you will need to ensure that you use a fair selection process, and we would advise documenting the process, as the Government has flagged that equality and discrimination laws would apply in the usual way.
We have put together an example of a letter notifying an employee of furlough leave, a letter is a requirement of the scheme – link to letter
Holiday will continue to be accrued while the individual is furloughed, but in addition the Government announced yesterday afternoon that workers who have not taken all of their statutory annual leave entitlement due to COVID-19, will now be able to carry it over into the next two leave years annual leave.
Currently, almost all workers are entitled to 28 days holiday, including bank holidays each year. However, most of this entitlement cannot be carried between leave years, meaning workers lose their holiday if they do not take it. There is also an obligation on employers to ensure their workers take their statutory entitlement in any one year, failure to do so, could result in a financial penalty.
The Government announcement will allow up to four weeks of unused leave to be carried into the next two leave years, easing the requirements on business to ensure that workers take statutory amount of annual leave in any one year.
Business owners will need to consider employee holiday entitlement when the crisis comes to an end when businesses start to look to move forward.
Enjoy your weekend.