What is the Job Retention Scheme?

Coronavirus Support

The Job Retention Scheme was announced by the government to assist employers retain their staff during the Coronavirus crisis. This document has been updated to show all of the HMRC announcements up to and including 9th April 2020.

To claim the grant available go straight to our step by step guide. It explains the Job Retention Scheme Portal with screenshots on the questions.

The information below contains details on who is eligible and guidance on how to calculate the furlough pay. For information on how to claim please see our separate blog how to claim the job retention scheme grant?

Who is eligible for the Job Retention Scheme?

All organisations within the UK who employ staff. This includes businesses, charities, public authorities and recruitment agencies (if paid through PAYE).

How does the Job Retention Scheme help my business?

The government will provide grants which will cover 80% of the salary of an employee. (Capped at £2,500). This will allow employers to retain staff, which otherwise would have been laid off because of the coronavirus crisis.

How do employers claim the grant available?

The first step is to designate employees as ‘furloughed’. The employee will need to be notified of this change in writing. A record of this must be kept for a minimum of 5 years.

NOTE: Changing an employee to furlough status is subject to their employment contract. Legal advice may be advisable.

The second step is to notify HMRC about the employees who have been furloughed. This will be done through a new online portal. For more information on this see How to Claim the Job Retention Scheme Grant?

What is a furloughed employee?

The definition of ‘furlough’ is to force or allow an employee to take a period of absence. The employee is not made redundant but they are not to carry out any work for the business whilst furloughed.

The employee remains on the employers payroll as an alternative to being laid off.

Which employees can be furloughed?

Only employees which were on the company payroll on or before 19th March 2020 can be furloughed. (NOTE: The original date was 28th February 2020 – this has now been extended to allow for more employees to be covered by the scheme).

Employees which commenced employment after this date are NOT eligible for the scheme.

Do all employees need to be furloughed?

No. Employers must choose which employees are being furloughed.

Can employees on reduced hours be furloughed?

No. The job retention scheme only covers employees who are not working.

If an employee continues to work, be it on reduced hours or for reduced pay, they are not furloughed and are not eligible for this scheme.

A furloughed employee can engage in training but must not carry out any revenue generating work.

Can employees be furloughed if they have more than 1 job?

Yes. An employee can be furloughed for each job. The cap of £2,500 applies to each employer.

Employees, which have been furloughed are allowed to work for another employer. This would depend on their employment contract.

Can employees who are shielding be furloughed?

Yes. Any employee who is unable to work because they are shielding or need to stay at home because someone they live with is shielding can be furloughed.

Can employees be furloughed to look after children?

Yes. Should the employee have any caring responsibilities they can be furloughed. This includes parents looking after their children whilst the schools are closed.

How much of an employee’s salary is covered by the job retention scheme?

The government will provide a grant of up to 80% of the employee’s wage, with a cap of £2,500 per month.

There is no limit that each business can claim.

Does the furloughed salary cap of £2,500 include National Insurance and Pension Contributions?

The cap is £2,500 plus the associated employers National Insurance and minimum employer pension contributions.

As a result the total possible grant per an employee is £2,804. This is calculated as the Gross Salary of £2,500 + £245 Employers NI + £59 Employers Pension.

Does the furloughed salary include bonuses?

The actual salary before tax as of 19th March 2020 is what is used to calculate the 80% claim. Other income such as bonuses, commissions, etc should NOT be included.

This calculation is applicable to full time and part time staff.

Furlough Scheme Extension?

HMRC have changed the dates from 28th February 2020 to 19th March 2020.

IMPORTANT: The calculation to use now is the salary as at 19th March 2020 and not the salary as at 28th February 2020, which was originally announced. Should this change produce a different amount, HMRC have confirmed that the originally calculation based on the February 2020 figure can be used for the first claim.

Do employers need to pay the remaining 20% shortfall to employees?

No. There is no requirement for employers to pay the 20% shortfall, however they could choose to cover the difference if they wished.

How does the job retention scheme work for employees on zero hour and variable hour contracts?

Employees which have remained employed for a full year prior to the claim can use the higher figure of either:
1. the same months earnings for the previous year
2. or the average monthly earnings for 2019/20

Employees who have yet to work a full year can claim an average of their monthly earnings since commencing employment.

From what date does the Job retention scheme commence and how long will it last?

The scheme can be backdated to 1st March 2020 and can include any employees who were in employment on 19th March 2020.

It is due to last for a minimum period of 3 months, with a current end date of 1st June 2020.

Each employee must be furloughed for a minimum of 3 weeks to be eligible for the grant.

When will the Job retention scheme grant be available?

The Government have confirmed that the portal service will be launched on 20th April 2020, with grant payments made by the end of the month.

For more information on how to claim the available grant?.

Should short term cash flow be an issue, businesses are advised to consider the VAT deferral scheme and the Coronavirus Business Interruption Loan.

Can Directors be furloughed as part of the job retention scheme?

Yes. The salary paid to a Director can be covered under the job retention scheme.

Many Directors pay themselves the optimum directors salary topped up with dividends. It is only the salary which is eligible.

It is important to restate that to qualify the Director must be furloughed. That is to say they do no work for the company other than their statutory duties.

Can a single Director only company furlough themselves?

HMRC have confirmed that Directors can be furloughed.

To be eligible for the grant a furloughed Director can only carry out their minimum statutory duties only. They must do no more than what ‘would reasonably be judged necessary’.

We interpret this to mean that the Director should do no work which produces an income for the business. It is as if the business is closed on a temporary basis.

Conclusion of the Job Retention Scheme

The government had no choice but to provide a scheme for employers to retain staff. The alternative was unprecedented job losses.

At Patterson Hall Chartered Accountants we aim to provide our clients with the most up to date advice in this ever changing landscape. As soon as any further announcements are made we will be sure to update these blogs and notify our clients.

For further information on the Job Retention Scheme see the HMRC guidance https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

See below for other Coronavirus support available to small businesses:
Coronavirus Support Summary
How to claim the Job Retention Scheme Grant?
VAT Deferral Scheme
Income Tax Deferral
Business Support Grant & Rates Relief
Self-employment Income Support Scheme

DISCLAIMER – Please note that the content contained in this article is for general information only and is not a substitute for professional advice – read our full disclaimer

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