Covid-19 Payroll guidance – what do employers need to know?

New information is being released every day regarding the Coronavirus Job Retention Scheme (CJRS), however we have compiled a summary of the key areas to be aware of.

This article focuses on:

  1. An update on the Coronavirus Job Retention Scheme and how payroll is calculated
  2. SSP

Payroll and the Coronavirus Job Retention Scheme (CJRS)

Information correct as at 16/04/2020

The latest news from HMRC is that:

  • A portal will be available for businesses or their advisers, to submit claims on Monday 20 April 2020
  • HMRC’s aim is for claims to be dealt with and grants issued towards the end of the month
  • For a claim to be made, in addition to the amount, details must also be provided of:
    • Employer PAYE reference number and UTR’s
    • Employee names, national insurance and payroll numbers which must match with the payroll scheme
    • Details of the business bank account in which to pay the grant
    • Details of furlough dates, pay periods and claim periods
  • Although the ‘headline’ was that 80% of wages is claimable it is now clearer that a number of calculations must be evidenced in support of the claim, the complexity of such calculation depends on a number of factors:
    • Frequency of pay
    • Whether staff are salaried, work regular hours or have a more variable work/pay pattern
    • Their current, historic and average pay levels
    • What constitutes ‘normal’ pay and whether certain bonuses/commissions etc are contractual or discretionary
    • And ultimately how any claim compares with the maximum grant level of £2,500 per month
  • What can also be claimed are amounts for Employers National Insurance and pension contributions (again these are to be calculated separately and be within certain limits)
  • How any Employment Allowance claim affects the grant level
  • Originally individuals had to be on PAYE from the 28 February 2020, however new guidance confirms that the eligibility date has been extended to 19 March 2020; the day before the scheme was announced. Employers can claim for furloughed employees that were employed and on their PAYE payroll on or before 19 March 2020.
  • Previously it was suggested that the scheme will end on 31 May 2020, but this has been extended until the end of June.

We expect further guidance to be issued in the coming days along with clarification of certain areas of the draft legislation, and more information on how to use the portal. We will update our website with the information as soon as we receive it.


Who can be furloughed?

All workers can be furloughed (inc office holders, part time, agency, flexible or zero-hour contract). 

Anyone made redundant after 28 February as a result of Covid-19 but before CJRS was announced can be reinstated; this is an employer decision and not an employee right.

HMRC has stated that for an employee to be furloughed and monies claimed under CJRS:

  • an employee cannot undertake work for, or on behalf of, the organisation
  • this includes services or generating revenue
  • employees who are shielding in line to public health guidance or are staying home with someone who is shielding (and they cannot work from home)
  • employees with caring responsibilities (i.e. caring for children not at school)
  • employees with second jobs (they are allowed to continue to work on the second job, or even be furloughed from multiple jobs)
  • they must be furloughed for a minimum 3 consecutive week periods

Who cannot be furloughed?

  • employees working reduced hours
  • employees receiving SSP
  • employees working for the business, even if on reduced hours

Can directors be furloughed?

Yes, but they can only carry out their statutory duties. Further information on this can be found here.


What if an employee is self-isolating and claiming Statutory Sick Pay?

Employees will be required to remain on SSP until their self-isolation period ends.

The Government’s guidance released on 26 March states that if a worker is on sick leave or self-isolating because of coronavirus, they should speak to their employer about whether they’re eligible for furlough. The guidance states that an employee should get Statutory Sick Pay (SSP) while on sick leave or self-isolating but can be furloughed after this.

The government’s guidance goes on to say that employees who are shielding in line with public health guidance can also be placed on furlough.


What if an employee is currently on Maternity Leave, contractual adoption pay, paternity pay or shared parental pay?

Employees must take at least two weeks of Maternity Leave (four weeks if they work in a factory or workshop) immediately following the birth of their baby. This is a health and safety requirement. In practice, most women start their Maternity Leave before they give birth and they may want to do this.

If they are eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply, and they will be entitled to claim up to 39 weeks of statutory pay or allowance.

If they qualify for SMP, they will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is currently £148.68 a week, rising to £151.20 a week from April 2020.

Some employers ‘top-up’ Statutory Maternity Pay and their employees are eligible for an enhanced, earnings-related rate of pay. If an employee is eligible for enhanced (contractual) maternity pay from their employer, this is included within the wage costs that the employer can claim through the scheme. The same principles apply if a worker qualifies for contractual adoption pay, paternity pay or shared parental pay.


What if an employee is currently pregnant and due to start Maternity Leave?

The government confirmed on 26 March 2020 that employees will start Maternity Leave as usual.

If their earnings have reduced due to a period of furlough or SSP prior to Maternity Leave starting, then this may affect their SMP entitlement.

The same principle applies to contractual adoption pay, paternity pay and shared parental pay.


What is the guidance for apprentices?

The government issued guidance introducing flexibilities to “allow furloughed apprentices to continue their training, as long as it does not provide services to, or generate revenue for, their employee.” There are other stipulations around this, more information can be found here.


What if someone has an attachment of earnings – what will happen to these deductions, will they continue if someone furloughs and is on 80% earnings?

It is our understanding that such deductions will still need to be made from employees. If the order is based on the level of pay, we expect that the deduction will reduce if the employee is receiving less pay under their revised contract.


Do I pay employees their full salary when they are furloughed?

If you haven’t entered into a formal variation to an employment contract with an employee, then you should pay them their normal salary and benefits package throughout the furlough period.

The Government’s Guidance for Employers makes it clear that this change to an employee’s status (of not being at work) is subject to existing employment law. What this means in practice is that you will have to immediately try to get an agreement with employees to place them on furlough, either by asking staff to indicate if they are agreeable to it or by asking for volunteers.

Once agreed you must write to your employee confirming the furlough to be eligible to claim relief under CJRS.

If you intend to change your employees’ entitlements in any way, then you will need to formally vary their employment contracts.

Employers will need to ensure that employment contracts are updated, and employees are properly consulted on the changes to their contract to be able to take advantage of the CJRS.

We recommend that employment law advice is sought if you intend to make any changes to your employees’ pay. Contact details of local employment lawyers are included at the end of this note.


How are furloughed employees paid?

The employer will continue to pay the employee through payroll as usual on the normal payday using the Real Time Information (RTI) system. The employee will pay tax and NIC on payments made as normal. We also understand that employees will still be required to pay student loans and employee pension contributions during the period of furlough.

Payment of PAYE and NIC should be made to HMRC and the RTI filing requirements continue to apply. In addition, pension uploads, along with payments, should continue to be made to the pension provider.


What is the impact on the National Minimum Wage?

We do not expect the National Minimum Wage (NMW) legislation to apply to furlough payments, as the employee will not be allowed to work. As NMW is based on working time, no work must mean that any payment made will be outside the scope of NMW.


What about benefits provided to employees?

We do not expect benefits provided to an employee to qualify for CJRS relief unless they are provided to meet minimum legal requirements e.g. automatic enrolment pension contributions.

If the employee’s salary entitlement reduces whilst they are furloughed, then benefits based on the level of salary will also decrease e.g. employer and employee pension contributions.

Employers will need to determine whether they continue to provide other benefits or enhanced benefits (i.e. above the minimum legal levels) as part of any furlough discussions with employees.

You must not encourage an employee in any way to “opt-out” of an automatic enrolment pension scheme. Doing so could cause the employer to be in breach of the existing regulations relating to Workplace Pensions. 


Salary sacrifice schemes

Where a furloughed employee is a participant in a salary sacrifice scheme then, unless the employees’ contractual terms are varied, the salary sacrifice is likely to continue from the furloughed pay and the benefits available to the employee are likely to continue as current guidance does not specifically refer to this.

However, it may be possible to cancel the salary sacrifice and associated provision of a benefit as part of a contractual variation. As with all contractual variations, this should be discussed and agreed with the employee and, if necessary, employment law advice taken by the business. 


Can CJRS be backdated?

CJRS relief can be backdated to 1 March, but claims will be limited to being backdated to the day the employee completely stopped undertaking duties of employment (i.e. those who have already been made redundant as a result of coronavirus).

If businesses re-employ staff that have been made redundant since 1 March, these employees are eligible for furlough and the employer can apply for the CJRS grant.

CJRS will not apply to employees who have been put on reduced hours.

This means that if an employee worked reduced hours because of Coronavirus from 12 March and became completely inactive on 26 March, CJRS relief could only be claimed from the government from 26 March.


What happens to annual leave and bank holidays?

Staff will continue to accrue holidays whilst on furlough leave.

Those furloughed employees can be on holiday for these Bank Holidays, and it would be reasonable to top up the employees pay to 100% Alternatively, the days holidays could be added to their holiday entitlement when they return off furlough. Further information is available on the ACAS website.  


Statutory Sick Pay (SSP)

The government will bring forward legislation to allow small and medium-sized businesses (SMEs) and employers to reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19. The eligibility criteria for the scheme will be as follows:

  1. This refund will cover up to two weeks’ SSP per eligible employee who has been off work because of COVID-19.
  2. Employers with fewer than 250 employees will be eligible. The size of an employer will be determined by the number of people they employed as of 28 February 2020 and connected company rules apply.
  3. Employers will be able to reclaim expenditure for any employee who has claimed SSP (according to the new eligibility criteria) as a result of COVID-19.
  4. Employers should maintain records of staff absences, but employees will not need to provide a GP fit note.
  5. The eligible period for the scheme will commence the day after the regulations on the extension of Statutory Sick Pay to self-isolators comes into force.
  6. The government will work with employers over the coming months to set up the repayment mechanism for employers as soon as possible. Existing systems are not designed to facilitate employer refunds for SSP.

If you would like specific information about your own circumstances, or help with implementing the furlough calculations in to your payroll function, then please contact Tracey Simpson on 01772 821021 or email cjrs@mooreandsmalley.co.uk

To read our update on the areas of concern in clients’ payroll processes and the actions that can be taken to help mitigate them, please click here.