Payroll & Furloughed Workers – Coronavirus Job Retention Scheme “CJRS”
The Government has announced that, in order to encourage employers to retain jobs and not make staff redundant, they would allow HMRC to reimburse the cost of a worker’s salary whilst they are placed on ‘Furlough Leave’. This was introduced retrospectively to take effect from 1st March 2020.
What are the rules?
-Monthly reimbursement cap per employee of £2,500 or 80% of their wages (whichever is lower), plus costs of employers NIC & employers pension.
-To be placed on furlough leave an employee must not work for the business. The only exception to this being training that is undertaken whilst on furlough leave.
-The employee must have been on the payroll at 28th February 2020
-If the employee is already receiving SSP whilst sick or self-isolating they must return to work prior to being furloughed.
-An employee with more than 1 job can be furloughed from each job.
-The scheme only covers the basic salary. Commission, fees and bonuses are not covered.
-As the workers are not technically working, National Minimum Wage does not apply. The salary payment will be 80% of the employee’s basic pay, which will already be above National Minimum Wage.
-Tax, National Insurance & Pension deductions will apply as normal.
-An employee must be furloughed for a minimum of 3 weeks. As the scheme stands today, the scheme is set to run to 30th June 2020.
-For your business to quality you must have had a bank account and PAYE scheme at 28th February 2020.
-When HMRC’s application portal is open (not currently online at the time of writing), make an application for reimbursement of 80% of an employee’s basic pay (or £2,500 if paid above this level). Plus, the cost of employers NIC and employers pension.
-You can submit one claim for repayment at least every 3 weeks.
-The income received needs to be recorded as income in the company accounts (or offset against wage costs). This means that in your business Profit & Loss your wage costs will effectively be the net amount that you’ve funded yourself.
-Claims will be reimbursed by Bank Transfer.
What does the employer need to do?
The employer should provide their workers with an agreement to set out the terms of their furlough leave. If you require a template we can provide one, but this should be reviewed by your HR team and customised for your circumstances.
Limited Company Directors
There has been very little guidance specifically aimed at Directors of Limited Companies, which as caused confusion for many. The main issue being that most Directors of small companies take their income as a combination of a small salary, plus dividends.
As things stand, Directors can only make a claim for the salaried element of their pay, which will likely be in the region of 80% of £720 per month.
Please bear in mind that to furlough yourself as a Director you must almost meet the other criteria (primarily not working throughout), however you should be able to continue with your duties as a Director. These duties include (these are stated in the Companies Act 2006):
1. To act within powers
2. To promote the success of the company (!!!)
3. To exercise independent judgement
4. To exercise reasonable care, skill and diligence
5. To avoid conflicts of interest
6. To not to accept benefits from third parties
7. To declare interest in a proposed transaction or arrangement
One of the key takeaways here us point 2. as this would suggest that you can have some form of interaction with suppliers/customers.
In addition, based on various guidance it’s likely that this will include ensuring that company filings are up to date (Accounts, VAT returns, Companies House forms etc) as these will all need to be done on an ongoing basis.
This scenario isn’t going to fit everyone, and you really should assess it based on your own individual circumstances.