Coronavirus Job Retention (CVJR) Scheme Employee Furloughs and Payroll

Below are the steps that employers must take if you plan to utilize the CVJR to furlough employees. This is based on the latest information available from HMRC.  Though the furlough process is not complete, there are steps that employers can start taking now.

Key points:

1. We can help with your furlough gross pay calculation.  This is especially relevant for hourly or variable paid staff.
2. You will need to keep furloughed employees on payroll.
3. We will need to set-up your furloughed employees on the payroll.
4. There will be documentation that you will need to keep.
5. We can help with the filings with HMRC when it is time to reclaim the grant.

Step 1:  Notification

Key points:

1. Discuss
2. Put it in writing
3. Keep this record for five years
4. Furlough for a minimum of 3 weeks
5. Top up the salary if you wish

Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding to whom to offer furlough, equality and discrimination laws will apply in the usual way.

To be eligible for the furlough grant, employers must communicate in writing to their employee confirming that they have been furloughed. A record of this communication must be kept by the employer for five years.
Any employees you place on furlough must be furloughed for a minimum period of 3 consecutive weeks. When they return to work, they must be taken off furlough. Employees can be furloughed multiple times, but each separate instance must be for a minimum period of 3 consecutive weeks.

Remember that you do not need to place all your employees on furlough, and you can choose to top up your employee’s salary (but you do not have to).  However, those employees who you do place on furlough cannot undertake work for you, even if they receive a salary top-up.

Step 2:  Calculation

Key Points

1. Carefully calculate the gross pay.
2. Hourly or variable pay employees are calculated differently from salaried staff.
3. Salaried employees:  80% of pay as on 28 February 2020.
4. Hourly or variable pay: check the details below.
5. Employees with you less than 12 months may also be different.

For each employee to be furloughed, the employer must know the gross pay figure which is to be paid to each employee.  This figure will be used in the payroll process for the first payment and all subsequent payments under the CVJR scheme.  Please note that the calculation method is different for salaried versus variable paid employees. For full or part time salaried employees, simply claim 80%of the employee’s salary (before tax) as of 28 February. However, fees, commissions and bonuses should not be included.

For employees whose pay varies, if the employee has been employed for 12 months or more, you can claim the highest of either the:

• Same month’s earning (before tax) from the previous year or
• Average monthly earnings (before tax) for the 2019-2020 tax year

If the variable pay employee has been employed for less than 12 months, claim for 80% of their average monthly earnings (before tax) since they started work.  If the employee only started in February 2020, work out a pro-rata for their earnings so far, and claim for 80%.
Most employers will complete this activity themselves, however if you would like us to do this on your behalf, please ask us.  Please note that, depending on the size and complexity of your payroll, there may be a charge for this service.

Step 3:  Payroll Processing

Key points:

1. Furloughed employees must still be paid through payroll.
2. You will have to fund the furlough salaries until the grant is paid.
3. The time delay between application and receipt of the grant is unknown.
4. As your payroll provider, your TopSource Group company (TopSource, Epsilon, Payroll Bureau) will need to set-up the furlough process in payroll for you.
5. PAYE and NI taxes are still due on furlough income.

Critically, employers must still pay furloughed employees via the existing payroll process.  As such, there will be an impact to employer cash flow.  The time delay from when you pay your furloughed employee to when you receive your CVJR grant is currently unknown.

As your payroll provider, we will continue to process your payroll as per normal for all employees (both regular and furloughed).  As such, the charge for payroll processing will be unchanged.

Also, employees will still pay the taxes they normally pay out of their wages via the existing payroll process.  This includes existing pension contributions (both employer contributions and automatic contributions from the employee).
As your payroll provider, we will be required to undertake a one-time set-up for every furloughed employee.

Step 4:  Claiming the Grant
Key points:

1. Reclaiming the grant will be done via the HMRC online portal.
2. Details are not yet available for this.
3. You will need a set of information to ensure you are ready to reclaim the grant.
4. This includes the timing of the furlough for each individual employee.
5. When the furlough portal is ready, we will provide you updates for navigating this process.

Employers must make their claim for the CVJR grant via an HMRC on-line portal (details of which are not yet available).  The information an employer will need is:

• ePAYE reference number
• number of employees being furloughed
• claim period (start and end date)
• amount claimed
• bank account number and sort code
• contact name
• phone number

Claims should be started from the date that the employee actually finishes work and starts their furlough, not when the decision is made, or when they were written to confirming their furloughed status.
Remember that HMRC retains the right to retrospectively audit all aspects of your claim.

After submission, HMRC will check the claim and, if deemed eligible, pay it to the employer UK bank account by Bacs.  Remember that employers must have paid their employees all the grant received (no fees can be charged by the employer).

We are here to help you.  As such, please contact your payroll manager with any questions that you may have.