In what is already a challenging time for business owners, a lot of conflicting information is circulating. We are trying to keep you all as informed as we can but, we ourselves, are still waiting for final confirmation from HMRC on some aspects of the application process for grants and support.

Today, we wanted to focus on The Coronavirus Job Retention Scheme and the process of furloughing employees where the government have proposed to cover 80% of the furloughed employees’ wages.

We’ve broken it down into three straightforward sections.

The Basics

  • Furloughed members of staff must not work for the employer during the period of furlough.
  • Furlough is from 1 March 2020, so can be backdated. It will last for at least 3 months and will be extended if necessary.
  • To qualify for the grant the employee must have been on the payroll at 28 February 2020.
  • If you have already ended an employee’s employment or made them redundant, it is worth considering whether this scheme is another viable option.
  • The scheme pays a grant (not a loan) to the employer.
  • The employer will pay the employee through payroll as normal, using the Real Time Information (RTI) system, as required by the employment contract. This contract may be renegotiated but that is a matter for employment law. So RTI system reporting of payroll will continue as normal.
  • HMRC require that relevant employees must be designated as furloughed employees.
  • Employers will submit information to HMRC through a new online portal.
  • As this will take time to build, businesses should assess their cash flow or look to the Coronavirus Business Interruption Loan for assistance.
  • The way we see it, this scheme would not be suitable for remunerating directors on sole director companies, if the sole director was furloughed, the company would effectively be shut down.

The Calculation

If you are a business owner and considering furloughing employees you should consider the costs to your company, we have summarised the cost for the two options below;

  1. Reducing an employee’s wage by 20% in line with the grant.
  2. Receiving the grant for the 80% of employees wage and topping up the remaining 20%.

Example

X Ltd employs Mr A at an annual salary of £24,000, so £2,000 per month.

Each month, Mr A currently receives net pay of £1,665 which is after deducting PAYE of £191 and employees NIC of £144. On this salary, the employer pays employers’ NIC of £174.

As per HMRC’s guidance, the available grant for the employer is the lower of;

  • 80% of (£2,000 + £174), or
  • £2,500.

So a grant of £1,739 (£2,174 x 80%)

The monthly cash impact for X Ltd:

  • Option 1 (Reduced Wage) – £0
  • Option 2 (Wage Top Up) – £435

 

As the business owner, what do I need to do?

  • First of all, seek advice from a HR advisor or employment lawyer, there will be contractual requirements between you ‘the employer’ and the employee and an agreement will need to be signed.
  • Agree the contract and pay proposal with the employee.
  • Speak to our payroll team about what you wish to do as soon as possible, we are approaching the RTI filing deadline.
  • Make the relevant payments and await updates from us on applying for the grant.

As always, if you would like any further information on your options or any of the other changes announced, please contact your usual Williamson & Croft contact. Otherwise feel free to contact our offices on 0161 399 0121 / 0151 303 3112 or by email info@williamsoncroft.co.uk