This article on Furloughing and COVID 19 money was updated on 31-Oct-2020. Most importantly, furloughing is there to help those employers maintain a workforce. So, let’s kick off with the meaning of furlough. A furlough is a temporary leave of employees due to special needs of a company or employer, which may be due to economic conditions at the specific employer or in the economy as a whole. On the other hand, employee hibernation is another way of describing it
The use of furloughing is more common in the USA than in the United Kingdom. For the purposes of this blog, we will be looking at the position in England. Furloughing has come into vogue since the COVID 19 outbreak. The governments Coronavirus Job Retention scheme, aka, The COVID 19 Furlough for short is part of a raft of measures. We’ve looked at these in previous blogs.
Furloughing and Covid 19- an overview
The Dec 2020 COVID 19 furlough scheme is open to all UK employers, initially for at least one month starting from 1 November 2020, claim period ending 31 December 2020. It is designed to support employers whose operations have been severely affected by coronavirus (COVID-19). This replaces the previous Furlough scheme, the Job Support Scheme has been deferred
The scheme is open to all UK employers. Employees must be on an employer’s PAYE payroll by 23:59 30th October 2020. This means a Real Time Information (RTI) submission notifying payment for that employee to HMRC must have been made on or before 30th October 2020.
Who can claim?
Any UK organisation with employees can apply, including:
- businesses
- charities
- recruitment agencies using PAYE agency workers
- public authorities
You must have created and started a PAYE payroll scheme on or before 30th October 2020, complied with RTIs on/before that date, and have a UK bank account.
Eligible employees
A wide category of employees are eligible, including
- full-time employees
- part-time employees
- employees on agency contracts
- employees on flexible or zero-hour contracts
Directors
Company directors can be furloughed, even if your company only has one director. If you are a sole director, being paid via PAYE, you can furlough yourself. Conditions still apply, for example no work being undertaken, minimum period of time.
If you are a director you wear two hats, one as an employee, and one as an officer of your company. The Companies Act blows a big raspberry at you furloughing your duties as an officer of the company. Those statutory duties include filing statutory returns, filing of accounts, bookkeeping. banking and filing tax returns.
A sole director, if they only carry out statutory duties can be furloughed.
Conditions
As with any financial support scheme, there are conditions, these are
- Your furloughed employees cannot do any work for your business. This includes providing services or generating revenue. It’s one thing or another, working or not working, no half way house.
- The minimum period of being furloughed is three weeks, lots of Daytime TV and gardening Your furloughed employees must have been on your payroll on 28 February 2020
- It’s not unusual for people to have more than one job. COVID 19 furlough applies to each job. Each job is separate, and the cap applies to each employer individually.
- Paperwork, processes and evidence. If you ignore this then you haven’t followed the rules, and it’s in eligible clams an pay back back money time
If you’re cool with it, your furloughed employees can work elsewhere while being furloughed.
A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for your business.
Procedures
Dialogue and agreement are the order of the day. Discuss with and agree with your staff any changes to their employment contract. Equality and discrimination laws apply in the usual way.
Employers should write to their employee confirming that they have been furloughed, make sure you keep records
Employees not eligible for Covid 19 furloughing
- Those hired after 30th October 2020.
- Your employees who are on unpaid leave after 30 October 2020.
- Any employees on Statutory Sick Pay
How much you can claim?
- The lower of 80% of an employee’s regular wage or £2,500 per month
- Fees, commission and bonuses aren’t claimable
Let’s talk numbers
The November 2020 Furlough scheme is based on the previous one, and on line with August 2020. Until we get detail, let’s see how the previous one worked, it’ll be similar.
The grant is based on your regular, contractual pay, such as wages, compulsory commission and past overtime.
For your salaried employees use the actual gross salary, as of 28 February to calculate the 80%.
For your employees, where their pay varies, well that depends
Where the employee has been employed for a full twelve months prior to the claim, then you claim for the higher of either:
- the same month’s earning from the previous year
- average monthly earnings from the 2019-20 tax year, paid up to 28 February 2020
If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
| COVID 19: VARIABLE PAY ILLUSTRATION & OPTIONS | ||
|---|---|---|
| Employed | Employed | |
| > 12 months | < 12 months | |
| Earnings to Feb-20 | 18,000 | 15,500 |
| No. of months | 11 | 8 |
| Average | 1,636 | 1.938 |
| Claim: 80% | 1,309 | 1,550 |
| Earnings Feb-19 | 15,000 | |
| Claim: 80% | 12,000 |
Paying furloughed workers
It may seem strange to pay your staff team when they’re not working. However, you are getting some, or all this reimbursed. It’s a cash flow and timing challenge.
Furloughed workers must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours
What you’ll need to make a claim
Employers should discuss with their staff and make any changes to the employment contract by agreement. Employment, equality and discrimination law still stands.
You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
Timings and claim
Your business submits claims.
- The online portal is due to come online on/around the start of December 2020.
- You will need to report and claim for a minimum period of 7 consecutive calendar days.
- Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to a UK bank account.
- As we have been doing for our clients, your accountant can prepare and submit claim on your behalf
Employees that have been furloughed have the same rights as they did previously. Those rights includes SSP entitlement, rights against unfair dismissal and to redundancy payments.
Once the scheme has been closed by the government, HMRC will continue to process remaining claims before terminating the scheme.
Tax
Grants are very rarely tax free, COVID 19 Furlough Relief is no exception
- Tax, NIC and pension costs will still apply to furloughed wages.
- Grants will be treated as income, and subject to Corporation Tax
- Furloughed wages are still tax deductible as costs
Conclusion
Furloughing staff is an option, and options are best consider when you talk to your best business friend, your Numbers. You can figure out what financial support your business needs
We hope you found this useful, we’ll keep you posted.
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