HR ISSUES, WHAT DOES THE £2500 SUPPORT COVER AND HOW TO CLAIM

Background

Last week, the government announced its plans for financial assistance to help employers retain employees who would otherwise be laid off or made redundant during the Coronavirus crisis. It is called the Coronavirus Job Retention Scheme. Little information has so far been published as to how it will work, but we have set out below what we do know so far.

Employee status

The scheme involves employers placing their employees on ‘furlough’. This essentially means putting employees on a temporary leave of absence where they do no work but they are retained on the company’s books to be brought back into the business when needed. Employers who furlough employees will be able to obtain a grant from the Government to cover 80% of furloughed employees’ wage costs up to a maximum of £2,500 per employee per month.

Employers entitled to claim

All employers can access the scheme. There is no restriction on size or type. The guidance states that employers will need to designate which of their workforce will be furloughed employees and will need to notify employees of this change. Changing the status of employees is subject to existing employment law and, depending on the employment contract, may be subject to negotiation.

The employer must use a new online portal to submit this information to HMRC, along with the employee’s earnings. Following this, they will receive a grant to cover 80% of wage costs up to a cap of £2,500 per employee per month. Employers can choose to make up the remaining 20% but they do not have to. The online portal has not yet been built so it is likely to be some time before any claims can be processed.

Which employees are excluded?

Theoretically, any employee can be furloughed as long as they are paid through the PAYE system. However, if the employment contract includes a right for the employer to lay off employees on no pay then they could be excluded. It is not yet clear what happens on zero hour contracts.

How do I claim and submit data and when can I expect payment?

The online portal has not yet been built so you cannot submit your claim yet and we do not yet know what other details will need to be submitted with the claim. The first grants are expected to be paid by the end of April 2020. They can be backdated to 1 March 2020. The scheme is initially intended to run for three months but may be extended.

What does the £2,500 cover?

The maximum grant will be calculated per employee and is the lower of 80% of wage costs and £2,500. The notes published so far, use the phrase ‘wage for all employment costs up to a cap of £2,500 per month’. It is our understanding that employers’ NIC and minimum automatic enrolment employer pension contributions can be claimed on top of this. Wages will be determined by reference to a defined period.

Illustration

X Ltd employs Mr A at an annual salary of £24,000, equating to £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, being £1,600, and

(b) £2,500

So, the grant is £1,600, with an additional grant to cover the employer’s NI and minimum automatic enrolment employer pension contributions on this amount.

The cash required by X Ltd to furlough based on maintaining the existing salary is £400 per month (£2,000 less £1,600 grant), plus the associated employer’s NI and minimum automatic enrolment employer pension contributions on this amount. The employer can decide whether or not to top up the employees salary to 100% of their normal pay.

Interaction with Employment Contract
We understand that the rules for the scheme are being designed with underlying reference to employment law. If the individual is still under his initial contract, Mr A can expect to receive his salary in full. In the illustration above, the £1,600 grant paid to X Ltd should not be taken as the new maximum cost of employment to the employer, unless the contract has been redrafted.

PLEASE NOTE

The information given above is based on the latest information available. This is subject to change on a daily basis. S4B(UK) Ltd will not be held liable for errors or omissions. You should consult an up to date professional before any decision is made. If you wish to contact us email

[email protected] or ring 07813-915038