HM Government have announced that under the newly created Coronavirus Job Retention Scheme, all UK employers will be able to access financial support to continue paying up to 80% of their employees’ salary for employees who would otherwise have been laid off or made redundant during the Covid-19 crisis.
However, you can only claim for ‘furloughed’ employees who were already on your payroll on or before 19th March 2020 and who had been included in the Full Payment Submission on or before 19th March 2020.
How does the Job Retention scheme work?
If you are unable to cover staff payroll costs due to the effects that Covid-19 has had on your ability to carry on trading in the same way and have to ask your employees to cease working, but have not made them redundant, then you can make an application via the new Job Retention Scheme when it becomes available to help towards wages/salaries. The latest advisory from HMRC says that the new portal should be available from 20th April 2020.
You should be able to reclaim up to 80% of wages/salaries capped at £2,500 per month and the scheme will run for at least three months but could be extended.
What is the definition of ‘Furloughed Employees’?
‘Furlough leave’ is offered to employees so that they remain on your payroll without them having to report for work. As they will be kept on the payroll, this is different to being laid off or being made redundant with no pay.
Employees who are on furloughed leave must not work for your business during the furlough period and are expected to return to their job afterwards unless redundancies have to be made, but they are able to work for other businesses and get paid if temporary work is available.
To become eligible, an employee must have been employed by your business on or before 19th March 2020 and have been included on your Full Payment Submission on or before 19th March 2020.
How the Job Retention Scheme works for Salaried employees
If your employee’s pay is static and they work full-time, you should pay them the lower amount of either 80% of their salary before tax as of 28 February 2020 or up to £2,500 if they are on a higher salary. Fees, commissions and bonuses must not be included unless they form part of their original contract of employment.
For weekly paid employees, the same rules apply. Pending confirmation from HMRC, the maximum weekly amount you can claim per employee is £576.92.
For example, £2,500 multiplied by 12 (months) divided by 52 (weeks).
In addition to providing your business with a grant for cover the actual salary, the grant you are able to claim will also cover the employer’s National Insurance Contributions and the employers statutory minimum Auto-Enrolment pension at 3%.
Employers can use their discretion about the amount they pay to a furloughed worker but for anything paid above 80% of their normal wage/salary or over £2500.00 per month, you are unable to reclaim employers National Insurance Contributions and Auto Enrolment pension contributions on the discretionary pay.
Pay variations
If an employee has been employed for a full 12 months prior to the claim, you can reclaim the higher of either:
- The same month’s earnings for the previous year
- The average monthly earnings for the 2019/20 tax year
The upper limit of £2,500 per month and the weekly equivalent will still apply.
If the employee hasn’t been paid for a full 12 months, you can claim for an average of their monthly or weekly earnings since they started work and pro-rata their earnings so far this year to be able to claim.
For weekly paid employees, to work out the same month’s earnings from the previous year, divide the total amount paid in that month, by the number of weekly pay dates, to obtain an average. You can then use this average or the average weekly earnings for the 2019/20 tax year, whichever is higher, to work out the 80% you can reclaim under the scheme.
Should I write to my employees?
You can create a letter for your furloughed employees directly from Sage 50 Payroll.
How do I process a furlough payment in Sage 50 Payroll?
The best way to process and track a furloughed payment is to create a new pay element for it. Then calculate the 80% payment and enter this as the rate per employee.
If you decide to top-up the employee’s wage/salary to 100% you can pay the extra 20% using the employee’s existing pay element.
To keep track of furloughed payments that you have paid to your employees, run the ‘Payment Type History report from Sage 50 Payroll.
For any advice on how to implement these changes, please email info@sageaccountstraining.com