How your business can apply for the Coronavirus Job Retention Scheme

Faced with the prospect of companies across the UK going out of business, the government has taken unprecedented action, launching the Coronavirus Job Retention Scheme to save the jobs of employees that would have otherwise been laid off, and to keep salaries coming in even when business have been forced to temporarily close.

The scheme was initially due to end on 31 May 2020, but has now been extended to 31 October by chancellor Rishi Sunak.

In a nutshell, the scheme will cover 80% of an employee’s salary, but they cannot do any work during this period.

This guide will break down the Coronavirus Job Retention Scheme in detail, covering how it works, eligibility, how to apply, and some common FAQs.

It is divided into the following sections:

How the Coronavirus Job Retention Scheme works

The basic idea behind the Coronavirus Job Retention Scheme is that, in order to be eligible for the 80% salary grant, employees must be “furloughed”.

This means that they’re placed in a weird limbo zone where they’re still employed but not allowed to do any work.

This salary grant is capped at £2,500 per month, per employee (plus the cost of employers’ National Insurance and the the legal minimum pension contributions on the salary being claimed for).

Income tax and national insurance should be deducted as normal through PAYE.

This salary does not include bonus or commission.

This is the key point:

Employees being supported through the Coronavirus Job Retention Scheme must not do any work whatsoever for the company – this includes answering calls and emails.

The other vital point is that the salary paid will be reimbursed by HMRC – in other words, you’ll need to pay your employees and then claim the money back for those that are furloughed and eligible for the scheme.

Currently, the scheme is expected to run from 1 March 2020 to 31 October, with wages backdated to this date.

It applies to workers who were employed up to and including 19 March 2020.

The minimum period that an employee can be furloughed for is three weeks.

The scheme is currently under development and it’s not clear when exactly businesses will receive payments, with the government having opened for applications by at 7am on April 20th.

Companies (and especially small businesses) may therefore still face cashflow issues in the meantime, and may need to apply for a coronavirus business loan for help with these. For more info, see our page on how to apply for a Coronavirus Business Interruption Loan.

Finally, companies can then fund the remaining 20% to pay employees their full salary, but this is not compulsory.

Who is eligible for the Coronavirus Job Retention Scheme

The official government guidance is that all UK businesses that pay their staff via PAYE are eligible for the scheme.

However, as discussed above, employees must be furloughed to be eligible for the grant, this means they cannot do any work and must officially have their employment status changed.

This change is subject to existing employment law and may, in some cases, require negotiation with affected employees. Employees must be notified of this change, but if the alternative is being made redundant, it’s unlikely that many of them will complain.

This also means that the scheme will not apply to employees who are working from home, as you should be able to pay them without government assistance.

How to apply for the Coronavirus Job Retention Scheme

Once the scheme is up and running, the process is expected to be similar to running payroll – you’ll enter details of any affected employees into an online system set up by HMRC, and be reimbursed appropriately.

One key question mark regarding the scheme is how an employee’s base pay will be worked out. This has not yet been confirmed by the government, but Nigel Morris, tax director at accountancy firm MHA Macintyre Hudson, estimates it’s likely to be based on pay for the 12 weeks up to the end of February (excluding overtime and bonuses).

However, if you expect to apply for the scheme, you should start preparing now by taking the following steps:

• Work out which employees are at risk and would otherwise need to be laid off
• Calculate the monthly pay of those employees – for now, use the Macintyre Hudson 12-week timeframe
• If desired, calculate the additional pay required for ‘normal’ salary
• Inform affected employees of the new arrangements
• Agree new arrangement with employees, and unions where appropriate
• Prepare HMRC submission

If applicable, you may need to consult with employees that your business retains, negotiating to alter pay where necessary.

Coronavirus Job Retention Scheme FAQs

Here are answers to some common queries about the Coronavirus Job Retention Scheme.

How does this affect employees who are off sick?

The current guidance is that employees who are off sick or self-isolating in line with government guidelines are not eligible for the Coronavirus Job Retention Scheme.

They should be, as a bare minimum, paid statutory sick pay, the cost of which can then be reclaimed from the government.

However this is subject to change, especially with the country now having been placed under lockdown, and only a select list of essential businesses allowed to continue operating as normal.

How does this affect annual leave entitlement?

The guidance seems to be that as the employee will effectively remain on the payroll, their entitlement to annual leave and continuous length of service shouldn’t be affected.

Can furloughed employees complete training?

Employees that have been furloughed can complete training, but it must not be anything that results in revenue generation (i.e. makes money for the company). If employees have to complete training when furloughed, they must be paid at least the National Minimum Wage for the time they spend doing training, even if this pay would be more than the 80% of pay that is being subsidised by the government. If training is optional, then these restrictions do not apply.

Can I force my employees to take holiday?

Yes, you can force your employees to use their paid holiday entitlement, but you have to give them notice of twice the length of holiday you are requiring them to take.

So, if you wanted to make your employees take 14 days of paid holiday, you would need to give them 28 days of notice on this.

Summary

• The Coronavirus Job Retention Scheme is designed to support employees who would have otherwise been made redundant
• It will cover 80% of the salary of an employee that is “furloughed”
• Furloughed employees must not do any work for the company – this includes answering calls and emails
• The minimum period that an employee can be furloughed for is three weeks
• The grant is capped at £2,500 per month, per employee (plus the cost of employers’ National Insurance and the the legal minimum pension contributions on the salary being claimed for)
• The salary paid will be reimbursed by HMRC, companies will need to first pay their employees a lower salary and then claim this money back
• This salary does not include bonus or commission
• Income tax and national insurance should be deducted as normal through PAYE.
• The scheme will operate for a minimum of three months, with wages backdated from 1 March 2020
• It applies to workers who were employed on 28 February
• The scheme is open to all UK businesses that pay their staff via PAYE
• Once live, applications will be made via an online HMRC portal
• Companies should begin planning to take advantage of this scheme now, by identifying employees likely to be affected, consulting with them, and maintaining records of which employees have been furloughed and how much they are being paid

Commenting on the scheme, Startups.co.uk editor Bryn Glover stated:

“It’s great to see the government taking this unprecedented step, though a few difficulties remain. A system that requires businesses to pay staff and wait for reimbursement may still be untenable when there is no regular income to front costs.

“While it is certainly positive for some, the introduction of this scheme could also see a huge number of businesses becoming reliant on grants – which they may struggle to access – or more likely on loans, which might put stress on their finances in future months.

“It’s also important to recognise that this scheme is unlikely to provide protection for the contractors or freelancers who work for businesses regularly, but won’t be covered.”