COVID-19 – Advice for Employers & Furloughed Employees
These are confusing times for us all, with panic circulating and a lot of uncertainty in the media. The government has been forced to take immediate action in light of the COVID-19 outbreak emergency, and is currently working to address issues across several sectors, including Public Health, Housing and Employment.
Regarding the latter, the government recently announced the Coronavirus Job Retention Scheme, which is one of the schemes most commonly discussed in the media.
Whilst we still await confirmation on several points from HMRC, we have compiled a brief overview of the scheme so that you can stay informed on any changes and developments.
The Coronavirus Job Retention Scheme involves the furloughing of employees. Under such circumstances, the government have proposed to cover 80% of the furloughed employees’ wages.
Several rules surrounding eligibility for this grant, as well as some restrictions, have been put into place since the announcement of the scheme.
A brief overview of the Coronavirus Job Retention Scheme:
- Those furloughed must not work for the employer during the period of furlough
- The scheme is active from 1st March 2020, and can be backdated for those whose income and employment was affected prior to this date. It will last for at least three months and will be extended beyond this period if necessary.
- Employees are only eligible for the grant if they have been employed by the company on or before 28th February 2020. Any employee added to the payroll after this date unfortunately will not qualify to receive the grant.
- Payments will be made to the employer, who will then be responsible for distributing the funds accordingly through payroll as normal (using the Real Time Information (RTI) system)
- Employers will be required to submit information regarding their furloughed employees to HMRC via a new online portal. As this will take some time to build, business owners should try to assess their cash flow as soon as possible and may wish to look to the Coronavirus Business Interruption Loan if they require some assistance.
- It’s important to note that this scheme is not suitable for remunerating directors in sole director companies as, if the sole director was furloughed, the company would effectively be shut down.
Calculations for Business Owners
If you currently own your own business and are considering furloughing employees, it’s wise to evaluate the costs associated with doing so. At this present time, there are two options:
- Reduce an employee’s wage by 20% in line with the government grant
- Receive the grant which covers 80% of the employee’s wage, and commit to paying them the remaining 20%
A company employs Mr Smith and pays him an annual salary of £24,000 per year (£2,000 per month). Each month, after the reduction of PAYE and NIC, Mr Smith receives a net pay of £1,665, and on this salary, the company will pay £174 in NIC for Mr Smith each month.
The government have offered to provide a grant to cover 80% of an employee’s wage per month, to a maximum of £2,500.
For Mr Smith, the government grant would award 80% of his wage (£2,000 + £174 NIC), which would provide a monthly payment of £1,739.
The financial impact for the company when considering both options would be:
- Reduce the employee’s wage by 20% – £0 cost (per month)
- Top up the remaining 20% of the 80% government-funded wage – £435 (per month)
We would advise business owners to seek advice as soon as possible in order to set the necessary agreements in place.
DRN employs a highly experienced team of solicitors proficient in the practice of Employment Law, who are available to provide advice and guidance to business owners and employees regarding the recent government grant announcements relating to the Coronavirus outbreak. Working remotely, our team can be contacted during normal business hours to discuss and assess your situation and provide reliable advice on how best to proceed. Call 01282 433241 or email firstname.lastname@example.org