Following the announcement of the Corona Job Retention Scheme by the Government on Friday 20th March 2020 we present our current (as of 21st March 2020) understanding of the Scheme to try to assist you to understand what it might mean for your business.
We caution that detailed guidance has not yet been published by the Government and there remain a number of uncertainties in relation to the announcement. We would caution the reader accordingly to await more detailed information from Government that will follow in the next few days before implementing any plans.
1. What Is It?
The Chancellor has introduced the Coronavirus Job Retention Scheme, a new Government plan designed to support employer‘s to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.
This means workers in any part of the UK can retain their job, even if their employer cannot afford to pay them and be paid at least 80% of their salary.
The Coronavirus Job Retention Scheme will cover the cost of wages backdated to March 1st and will be open initially for at least three months – and the Chancellor announced that it would extend for longer if necessary.
The Chancellor indicated that HMRC are working night and day to get the scheme up and running and it is expected that the first grants will be paid within weeks – with the aim being to get the Scheme fully functional before the end of April.
2. How Does The Scheme Support Employers?
Employers will be able to contact HMRC for a grant to cover most of the wages of people who are not working but are furloughed and kept on payroll, rather than being laid off.
HMRC have announced that they will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. Employers can top up salaries further if they choose to.
HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers yet.
3. What Is a Furloughed Worker?
The definition of a furlough is to allow or to force someone to be absent temporarily from work.
Being classified as a Furloughed Worker means that the employee is kept on the employer’s payroll, rather than being laid off. The employee should not undertake work for you while they are furloughed.
4. Am I Eligible?
All UK employers will be able to access support to continue paying part of their employees’ salary for those designated Furloughed Employees that would otherwise have been laid off during this crisis.
5. How Do I Access the Scheme?
You will need to:
- designate affected employees as ‘furloughed workers,’ and notify your employees of this change – the Government are currently warning employer’s that changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation;
- submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required in due course)
6. So What Can I Do To Prepare To Make My Claim?
Like many announcements from Government, you will not be able to immediately make your claim, there is still much to be undertaken by HMRC to develop:
- what information they will require from you;
- a system to both receive the information and, presumably, verify the amounts claimed against data already held as part of the Real-Time Information filing system; and
- a mechanism to reimburse any grants awarded
This is likely to take some time, and certainly, the Government has announced that payments are unlikely to arise within the next few weeks, and so we are recommending that in the interim you commence your planning and assessment of who is / might be proposed to be a Furloughed Employee by you.
Remember full particulars are yet to be clarified and any actions that you take may pre-empt the actual legislation that will be implemented in due course. Based upon the interim announcements made to date it would appear:
- Furloughed employees are not expected to work for you to qualify for the grant
- For each individual to be eligible for the Grant it may be necessary to demonstrate that you have already made your assessment, and designated relevant status before you are able to claim – this in a scenario where you need to reduce your employment costs rapidly you need to act as quickly as you can whilst taking relevant professional advice;
- It is also intimated that re-engagement of staff that you have already laid off in March, such that the employee would appear on a pre-month end pay date, would render those employees capable of being designated Furloughed Employees and thus eligible for 80% of their gross pay.
- How will you select from your employee pool?
- Given that the Government website refers to the need to respect employment legislation, you will need to develop a fair and equitable means of selection potentially
- Your staff will want to know whether you intend topping up the Grant to current levels of earnings or not; your higher-paid staff may be more substantially affected by the maximum payable under the cap falling well below 80% of current earning levels
- Furloughed employees are not expected to work for you to qualify for the grant
7. Are There Any Issues That Need Clarification?
Before you make any binding announcements or decisions, there remains a lot to be clarified by Government for you to be confident of the implications of any decision that you make immediately and how such decisions may impact upon the Grant that you may be eligible for, and the wider cost implications that could materialise once the legislation is clarified. Proceed with caution before finalising your plans (await further announcements and clarifications ideally) and in the interim consider:
- Designated employees are only eligible for a maximum grant of
- £2,500 per month (equivalent to an annual salary of £37,500);
- So long as the Government is not capping the maximum salary at £2,500 per month and only intending paying a Grant at 80% of that number (meaning the equivalent salary reduces to £30,000 per annum).
- The grant is based upon 80% of gross pay
- Until further clarity, this may imply that the employer will remain responsible for full employer national insurance and Auto Enrolment pension contributions based upon the employee base salary;
- How will gross pay be defined – will it be base salary, contracted hours, inclusive of an element of historic averaged earnings and bonuses
- Designated employees are only eligible for a maximum grant of
8. Barrons Immediate Thoughts
The Government has moved swiftly to try to make an announcement that provides comfort to all employers, this has to be applauded.
- It was imperative that business is provided with some urgent support in the form of cash injections that were not founded upon the taking on of more debt.
- However, the cash needed to support current deteriorating cash flows generally is not coming immediately;
- If you are already experiencing cash difficulties you will need to implement other forms of short term measures to protect cash balances, maybe in the form of negotiating capital repayment holidays, supplier extended payment terms, time to pay arrangements over PAYE / NIC, etc
- The scheme is founded upon designating Furloughed Workers
- To do so, you must ensure compliance with relevant employment legislation – we would have hoped that the urgency with which employers need to react would have led to such actions being exempted;
- Based upon the limited information available to date it appears that you have to select who remains on full pay, and who is selected to receive reduced pay
- Many employers might have preferred the flexibility of being able to share whatever work there is evenly around the employees;
- There has to be a danger that the selection process provides damaging HR relations between employees themselves as well as the employer
- We need to understand how the eligible gross pay is to be calculated;
- We need an urgent release of the exact particulars of the plan
- It was imperative that business is provided with some urgent support in the form of cash injections that were not founded upon the taking on of more debt.
9. Do You Intend Seeking Assistance?
Barrons have moved swiftly to focus upon the immediate needs of our clients, and future clients, to facilitate the availability of a range of support services in these critical times:
- Short term cash projections;
- Longer-term profit projections, cash forecasting and sensitivity analysis;
- Payroll support;
- Advisory services generally
Please do not leave contact to the last minute – early support and advice is always to be recommended; and given the expected increase in demand for the services we offer we anticipate that however hard we try, we will not be able to meet everyone’s desired turnaround times as the cash pressures created from falling demand and increasing debtor collection issues materialise.
If you wish to start preparing to maximise the speed by which we can facilitate and support you to make a Coronovirus Business Interruption Loan (CBIL) application, please make urgent contact with Jason Michelow (jasonm@barrons-bds.com) who will commence advising how we can assist you maximise the quality of your application.