Furlough and your employees

Further detail regarding the Coronavirus Job Retention Scheme

We understand that the Covid-19 Pandemic is a significantly worrying time for all. At Cowgills we want to assure our clients that we are doing everything possible to navigate this unchartered territory and to advise accordingly.

In order to avoid the need to make redundancies, as previously announced, businesses can look into adopting the government’s Job Retention Scheme which is also known as “Furlough Leave”.

Furlough Leave means that employees who are selected will not be required to attend work for a period of potentially up to three months but, will receive during this time 80% of their current salary up to a cap of £2,500 per month. This sum (plus any Employer’s National Insurance and Auto Enrolment Contributions up to the 3% statutory minimum) will be reimbursed to employers. Employees will continue to remain employed by the business during this time but will not be allowed to work for the business.

It is imperative that companies deal with Furlough Leave in accordance with the guidance so as to avoid any issues or future liabilities or penalties. In all cases the correct legal advice should be sought when looking to vary contractual payments to employees.

Calculation & refunds

The 80% payment is based on the higher of either (a) the earnings in the same pay period in the previous year or (b) the average earnings in the previous 12 months (or less if they’ve worked for less). Fees, commission and bonuses should not be included.

The employer can top up this payment if they wish but will only be able to claim back the lower of the 80% or £2,500 cap (Plus Employer’s NIC + Auto Enrolment pension contributions).

HMRC has not yet set up their portal for clients to submit their details and obtain refunds. We will provide more information once further guidance is issued on this.

It is likely that we will offer a supplemental service to assist clients with recalculating furloughed employees pay and obtaining refunds via the HMRC portal once this is available. Please contact your Relationship Partner should you require further details.

We have provided some illustrations on how the calculations will work for the 2020/2021 Tax Year below.

Illustration one

A Company Limited employs Mike who earns a salary of £17,000 a year which works out at £1,416.67 a month. Mike has opted out of Automatic enrolment.

80% of £1.416.67 is £1,133.33 which is lower than the cap of £2,500 per month.

Mike will receive a gross salary of £1,133.33, his employer will not be topping up the monthly payment.

A Company Limited can claim back the Gross Wage of £1,133.33 and the Employer NIC on that of £55.38 for a total claim of £1,188.71.

Illustration two

Another Company Limited employs Alex who earns £24,000 a year / £2,000 a month. Alex has not opted out of Automatic Enrolment.

80% of £2,000 is £1,600 which is lower than the cap of £2,500 per month.

Alex will receive their normal gross salary of £2,000 which Another Company Limited has agreed to pay them during their Furlough Leave.

Another Company Limited can claim back £1,600 in Gross Wages plus the Employer’s NIC on that amount £119.78 and the Auto Enrolment Contribution of £32.40 – a total claim of £1,752.18.

Illustration three

Company Three Limited employs Lucy who earns £45,000 a year / £3,750 a month. Lucy has opted out of Auto Enrolment.

80% of £3,750 is £3,000 which is higher than the cap of £2,500 per month.

Lucy will receive a gross salary of £2,500, her employer will not be topping up the monthly payment.

Company Three Limited can claim back £2,500 in Gross Wages plus the Employer’s NIC on that amount of £243.98 for a total claim of £2,743.98.

These illustrations are for the purpose intended and are relied on in good faith. However, we cannot accept any responsibility or liability for any loss or damage caused to any recipient as a result of any reliance being placed on them.

Please do contact us for any further clarification or information regarding this – we are here to help.