Last week the Government announced its Job Retention Scheme to ensure significant numbers of jobs are not lost during the coronavirus pandemic. Nigel Morris, tax director at MHA MacIntyre Hudson, explains how it will work.
Last week the Government announced a new job retention scheme for employees. Those who would have lost their jobs due to coronavirus will be considered ‘furloughed’ workers and employers will be able to claim grants from the Government to cover most of their salary.
Nigel Morris, tax director at MHA MacIntyre Hudson, gives his assessment of the main issues below:
The Job Retention Scheme (JRS) is a huge incentive for companies to keep employees on payroll. To access the support companies need to classify employees as a furloughed worker, which means they should not undertake any work for the company while furloughed, including answering calls or emails. In exchange employers can claim a grant of up to 80% of each employee’s wage for all employment costs, up to a cap of £2,500 per month.
The employee remains employed and their employer can choose to fund the difference between this payment and their usual salary, but it’s not compulsory. Assuming notice hasn’t yet been served on ‘at risk’ employees, and even if it has, employers should discuss the JRS with them as part of any consultation process and agree to either carry on with the redundancy process, or agree to use the JRS as an alternative. Should the business decide, at a later point, that redundancies are still necessary, they should take legal advice at that stage on the associated risks.
We don’t yet know whether employees will be restricted from taking on other/new work while receiving a salary under the scheme, but government advice is being updated on a daily basis. It’s likely that the JRS will not interrupt an employees’ continuity of service. Likewise, annual leave will continue to accrue while staff remain employed.
The grant is a reimbursement by HMRC of salary costs paid to furloughed workers, so businesses may face cash flow issues in paying these workers. A number of options may be open to businesses, including the Government’s Coronavirus Business Interruption Loan.
JRS is intended to run for at least three months from 1 March 2020, but it will be extended if necessary. The JRS will cover the cost of wages backdated to 1 March 2020 and will be open before the end of April. It is open for workers who were in employment on 28 February.
We anticipate furloughed employees will be deemed as taking a leave of absence. On that basis, they would strictly be unpaid. The government needs to structure the grant so it isn’t ‘pay’, and therefore no PAYE tax or national insurance contributions (NIC) are due, and no benefits driven from pay are applicable. It’s normal practice in countries such as the US, that already have the status of furloughed worker, for benefits like health and life cover to continue while an employee is furloughed. However, in our view the JRS should be implemented in such a way that these do not impact on the flow of the 80% from the government via the employer to the employees.
There could be further complications, for example, where the employee pays for additional private medical cover as part of an employee benefits scheme.
We also await details on how the JRS will apply to employees within personal service companies (PSCs). We anticipate that PSCs will be eligible in the same way as other businesses and subject to the same expected rules on the reference salary for the 80% calculation.
All UK businesses are eligible as long as they:
This is a grant that reimburses the business, so cash flow could still be an issue. A bank facility or loan may be required to fund these payments prior to reimbursement.
When are employees entitled to SSP?
If an employee is displaying coronavirus symptoms, they should stay home and will be eligible for SSP; this will be for the whole 14 days and not from the fourth day onwards as is usually the case for SSP.
If an employee is in a vulnerable group, has returned from high risk country or been in contact with a confirmed case or person displaying symptoms, they should stay home or be sent home and will also be entitled to SSP.
If an employee is in the same household as someone who is displaying symptoms, they should stay home for 14 days and will be entitled to SSP.
If an employee chooses to self-isolate and does not fall into any of the above categories, the employer does not have to pay them as this is a personal decision the employee is making.
If an employee is not displaying symptoms, in a vulnerable group or living with someone displaying symptoms, but is told to go home or not come in, for example, because the whole business is shutting temporarily, they are entitled to full pay unless the employer has a short time working/lay off clause in their contracts, as this is a business decision the employer is making.
If the employer shuts the business and tells staff who are ready and able to work not to come into work, it is the employer that is not providing work for them. The employer would have to continue to pay them in full pay unless there is a shortage of work/lay off clause in their contracts and the employees have signed their contracts.
Businesses are permitted to require employees to take any paid holiday entitlement they have, but must give notice of twice the length of the period of holiday they are being required to take.
*More information can be found here.
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