Smarter accounting

Furloughed workers

23 March 2020, Companies, Creative Industries, Employer, Sole Traders

Furloughed workers and the Coronavirus Job Retention Scheme

All UK employers will be able to access support for furloughed workers who would otherwise be laid off during the COVID-19 emergency.  Details have now been provided by the UK Government.  An online portal will be made available to claim funding from the Coronavirus Job Retention Scheme, which will backdate funding to 1st March 2020.
Empty office due to furloughed workers

What are furloughed workers?

The word furlough was not in common use in the UK until It was mentioned in the statement from the UK Chancellor on 20th March.  The concept of a furloughed worker refers to employees who are kept on the payroll and therefore remain as employees, but have no work to do.

A furloughed worker can’t undertake any work for their employer while on this special leave of absence.  It is still unclear how the finer details of the scheme will work.  The employee is likely to be prevented from taking other employment or starting their own business.  The whole purpose of the scheme is to keep jobs open for the time when a business can return to trading.

If your contract of employment includes a clause to lay off staff or reduce hours of work, no consent is required by employees e.g.

We reserve the right, on reasonable notice, to change your normal hours of work in order to meet the needs of the business, on a temporary or permanent basis and to adjust salary accordingly.  We also reserve the right to lay staff off without pay if required as a result of any downturn in work.

If your contract has no lay off clause, consent would be required to comply with employment law.  If an employee refuses consent, then they risk being made redundant.  In this case it would appear that no funding would be available from the Coronavirus Job Retention Scheme.

What do furloughed workers get?

HMRC will reimburse 80% of wage costs for furloughed workers up to a maximum of £2,500 per month.  It is understood that HMRC will pay the employers directly and employers will continue to process payments of wages after deduction of tax and National Insurance to their employees.

What do employers have to do?

At the time of writing, the online portal for claiming funding for furloughed workers has not been released.  It is important for employers to continue reporting accurate payroll information to HMRC.  This payroll information will trigger any funding under the Coronavirus Job Retention Scheme and also allow staff to claim benefits through the welfare system including Universal Credit.

If you are not sure that your contract allows you to furlough workers, please take legal advice.  You can’t apply a lay off clause retrospectively to an employment contract.  The wording of the lay off clause above does not constitute legal advice and should not be relied on for your own contracts.

Employers will still be responsible for deducting tax and National Insurance from employee wages.  Employers will also need to calculate and pay any Employer’s National Insurance contributions.

At the time of writing no official relaxation has been announced for the payments of PAYE in line with Income Tax for the self-employed and VAT.  If you are not able to pay your PAYE, please call the HMRC COVID-19 helpline.

What if I am a freelancer working for a company?

Only employees can be recognised as furloughed workers.  Any freelancers will not be eligible for the 80% guarantee from HMRC.  If you are self-employed, you may be able claim Universal Credit.

Can I claim as a company director?

No details are available regarding company directors.  It is common practice for company directors not to have a contract of employment.  Where director remuneration is not subject to a contract of employment it is likely that the Coronavirus Job Retention Scheme would not apply.  Since this post was orginally published, further details have been released – see here.

What if I don’t have a payroll administrator?

If you don’t have an in house payroll service or you no longer have support from an external payroll bureau, please contact Alterledger using the form below to see how we can help.  All our systems are online, including the client sign up process, so we can provide the support you need wherever you are based.

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