Q&A: THE CORONAVIRUS JOB RETENTION SCHEME (CJRS)
Harwood Hutton partner Adam Stronach provides an introduction to the most common questions we are fielding from business owners on the Government’s key financial support measure for PAYE employees. Please note, this article is not comprehensive or exhaustive and is for general information only. It does not constitute professional advice which may or may not apply to your specific circumstances. Neither Adam nor Harwood Hutton are responsible for any actions you decide to take or not to take as a result of reviewing the points set out below.
Q. What is the Coronavirus Jobs Retention Scheme (CJRS)?
A. It is available in respect of employees on the payroll as at 28 February 2020 and is designed to help employers retain payrolled employees during the Covid-19 crisis. HMRC will reimburse 80% of the wage costs of designated ‘furloughed workers’, up to a cap of £2,500 per month.
Q. What does ‘furloughed’ mean?
A. ‘Furloughed workers’ are employees who have been asked to stop working, but who are being kept on the payroll. The CJRS applies to those who would otherwise have been laid off during this crisis where you as their employer do not have any work for them to do. ‘Furloughed’ members of staff must do not work at all for you during the furlough period.
Q. How is the £2,500 limit to be measured?
A. The notes the Government has published use the phrase, ‘wage for all employment costs up to a cap of £2,500 per month’ which would seem to include employers’ National Insurance Contributions and pension contributions. Wages will be measured by reference to a defined period but, as we note below, how that defined period will be determined is yet to be clarified.
Q. What businesses are eligible?
A. The scheme applies to all UK-based businesses. Eligible businesses include charities and not-for-profit organisations and single director companies, with the rules applying as to other businesses. Many owner-managed company director / shareholders pay small salaries and the balance of income as dividends. The scheme does not extend to dividends. Only salary is relevant for the scheme. Remember that those furloughed must do no work at all for the employer during the furlough period. Expect HMRC to apply particular scrutiny to this aspect, especially for owner manager directors / shareholders who are ‘furloughed’.
Q. When will it apply?
A. The Government has announced the Scheme will initially run for three months but may be extended and will cover backdated wages from March 1, 2020. However, it is likely to be some time before businesses start receiving financial support. The reporting mechanisms needed prior to any cash payments being approved are themselves only expected to be available some time in April.
Q. What if employees have more than one employment?
A. While an employee who is furloughed can do no work at all for that employer, it appears the employee can have a separate employment with a different unconnected employer which will be unaffected.
Q. How do I put employees on furlough?
The Government has been clear the CJRS does not create a legal right to place employees on furlough leave. The employee’s status will continue to be subject to employment law and existing contracts of employment. So, unless your contracts of employment have what is called a ‘lay-off clause’, which allows you to send employees home without pay, you need to proceed with caution. Take advice from HR and employment law specialists.
Q. How will the administration of the scheme work in practice?
A. Employers will pay the contractually agreed wages or salary in the usual way through the payroll i.e. they will pay the employee and will pay HMRC the PAYE, and primary and secondary National Insurance Contributions, with the Real Time Information (RTI) system of payroll reporting continuing as normal. The reimbursement of the grant under the scheme will be paid directly to the employer. Employers will claim the grant through a new separate portal to be built by HMRC.
Q. What would the impact be of increasing salaries for employee and business owners over the following months?
A. Salary will be determined by reference to a defined period, and we are awaiting clarification as to what that defined period is. HMRC will already have RTI reporting up to February 2020 in its files and the expectation is that the reference period is likely to relate to the past i.e. prior to 1 March 2020, in which case increasing salary in the following months will have no impact on the level of the grant. Options for the base line could include averaging salary for period of time (a month, or three months or a year) prior to March 1, 2020.
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