What does furloughed mean?
As an alternative to redundancy, you can temporarily lay off staff (or reduce their working hours, known as ‘short-time’ working). If your contracts allow, you do not have to pay laid off staff. Furloughed is essentially just another word for laid off. If you furlough your employees they can’t do any work at all, so if they are home working or working reduced hours this won’t count as furloughed.
Some FAQs regarding the scheme:
How much can I claim?
HMRC will pay 80% of wages for furloughed employees up to a cap of £2,500 plus Er’s NI and pension contributions.
If your employee is on a regular salary, simply claim 80% of this as per February’s pay.
If the salary varies you should use the highest of:
- Same months earnings from the previous year
- Average monthly earnings for the tax year 2019/20
You can also claim for any regular payments you are obliged to pay your employees. This includes wages, past overtime, fees and compulsory commission payments. Discretionary bonuses (including tips) and commission payments and non-cash payments should be excluded.
If you regularly pay your employees commission we would suggest checking your contracts to ensure these payments are compulsory before making any payments and claims. Other cash payments such as car allowances are usually included and taxed as salary so provided you are obliged to pay them, this should be ok to pay (and reclaim).
However benefits and salary sacrifice amounts are not included.
Who can be furloughed?
HMRC have recently updated their guidance to include those on a payroll reported to HMRC before the 19th March. Originally they said that those employed by 28th February could be included. There is a time delay between commencing employment (start date) and the payroll being submitted to HMRC, so although this is an extension, due to the criteria change, some people may now not qualify.
If you run a weekly payroll, it’s possible this change may have increased the number of employees you can now furlough, those commencing in early March for example. However if you process monthly, this now means that if someone was not on February’s payroll, they are unlikely to qualify for furlough.
How do we get the money?
HMRC will be launching their portal on 20th April and have produced this guide for employers. Accountants will be able to claim as agents or you will need an online PAYE account to file the claim yourself. The claim will be paid within six working days after the claim is filed.
Future claims should be processed during or shortly before payroll is processed. It is not possibly to amend a claim, so do be careful when calculating this amount. If you are a client of Stubbs Parkin we will check this for you and assist you by either claiming the grant or assisting you with making your claim.
Do I have to pay the other 20%?
No, but you can offer to top up your employees salary by paying the remaining 20%. There are lots of factors to consider here, so you will need to make this decision carefully based on your expected cashflow during this period.
How long can I furlough my employees for, and can I bring them back to work?
Employees must be furloughed for a minimum of 3 consecutive weeks. They can be furloughed multiple times but each instance must be for the minimum period.
This makes it easier to make decisions about furloughing your team, if you are not certain about how much work will be coming in, or how long your business can’t operate due to social distancing rules, you can furlough them now with the option to bring them back and leaving open the option to furlough again if the situation continues.
Some businesses (particularly service based) will have a significantly reduced income, but may not be able to completely close. Using furlough periods or rotating employees could be used to ensure vital tasks are carried out, maintaining your business or services, while reducing your costs.
The scheme has now been extended by a month to 30th June.
What if I’m the director of my own limited company, can I be furloughed?
HMRC guidance confirms that if you are a limited company director, whose business has closed or trading has ceased, then you are able to be furloughed by your company and claim 80% of your salary. You can still carry out your statutory duties of being a director but we understand that any income generating activity will mean that you cannot claim that you are furloughed.
For many directors, this will mean claiming 80% of your directors salary of £719 per month, unfortunately dividends paid will not be included in the claim.
The guidance also suggests that the decision to furlough directors should be noted in the company records and communicated in writing to the directors concerned.
Unfortunately, it appears that claims are being blocked for directors on annual payroll schemes. Although the number of directors who can claim furlough is low (because this requires doing no work at all on your business), and the amount available to claim is also low as based on salary not dividends, this is just another disappointment for our limited company clients who were expecting this grant. We have followed this for our clients closely and only after the portal opened and claims were being rejected, has HMRC’s guidance been updated (end of last week) to confirm that payroll submissions from previous years are being ignored and annual payrolls processed for the tax year end are not eligible for furlough claims.
What about the National Minimum Wage increase?
If you have furloughed your employee, you do not have to increase their wage in line with NMW increase as they are not working.
However, if they undertake training whilst furloughed you must ensure that they are paid at least the NMW for their time.
What if I don’t have enough cash to pay them? Can I wait for HMRC to reimburse me first?
The advice here is to borrow the cash using the Coronavirus Business Interruption Loan scheme the government has set up. This is interest free for 12 months and available to those who wouldn’t otherwise get a loan from the bank. You should approach your bank first, or check out the British Business Bank online resources.
What is the HR / legal process for furloughing?
The legislation to enact furloughing has not yet been issued by the government, you should wherever possible seek advice from your employment law specialist. We can recommend good HR people to talk to you if you need assistance. You do need their agreement to furlough employees, and you will have to notify HMRC that they are furloughed.
How do I process someone as furloughed on my payroll software?
You should process the furloughed amount (80%) as a separate line on the payslip, and if you top this up, have a separate line for the 20% (employers furlough contribution).
Most of the payroll software companies have responded to this and have provided a furlough facility for you to use, so hopefully this will do some of the calculations for you. Xero have produced this guidance.
Can I furlough my zero-hour contract staff?
Yes, they will be treated as variable pay workers and an average amount calculated. If you have workers who have not been on the payroll, they will not be able to be furloughed, and will need to apply for universal credit.
Do I still have to pay my workplace pension contributions?
Yes. No deferral for this has been mentioned by the government. The pension contributions are included in the furlough grant though so you will receive this back for any furloughed employees.
Can I choose who to furlough?
Yes, you should furlough staff who do not have work to do, so if you have less work and too many staff, you will need to decide who to furlough. You can also select to furlough your employees who are unable to work due to child care or self-isolation, which allows them to still be paid.
Should I furlough my employees?
We would advise reviewing your capacity to work and bring in revenue (and cash) carefully but quickly, before deciding whether to furlough any of your team. All businesses can apply for this scheme, and as many will be impacted, this measure should be considered by all small businesses. It might be a necessary step to protect your business.
However, for those businesses who can carry on or diversify, you need to consider the long-term implications of putting your business on hold. Can you maintain enough income to keep your business momentum going. Essentially you need to consider what is going to be best for your business in the long term as well as what is affordable now.
Can we stay open? If we close by choice, can I still furlough my employees?
If you have not been ordered to close, and you are able to meet the government’s requirements for keeping your staff safe, you are currently advised to stay open. There are lots of mixed messages around this issue, so it is very confusing.
We are seeing some businesses faced with a workforce who don’t feel it is safe to work, making it difficult to carry on. To be fair, they are receiving this message to stay home constantly, so it does seem conflicting to still go out and work for their employer for what appear to be non-essential tasks. The assumption seems to be that non-essential work can be done from home, but obviously this isn’t always the case.
Choosing to close your business appears to be acceptable, many people are worried that they have to be told to close, but this doesn’t appear to be the case. For many practical reasons, it is becoming difficult to continue to trade in this environment and you may prefer to close now (and hope that you are able to open again soon) and furlough your staff. In this scenario you will need to consider what other costs you will have and whether you will need additional funding to cover them.