COVID-19 continues to cause significant disruption as we near the peak of cases in the UK and lockdown is extended for “at least” three weeks.
This week in our Information Hub we look at a payroll perspective on furlough, employment law and business continuity.
As always, we welcome questions and ideas on what to cover, please email Jennifer Macfarlane.
Business Continuity Planning (BCP) is the process a company undergoes for mitigating disruption to business continuity from potential threats such as natural disasters or cyber-attacks.
Business protection refers to strategies for mitigating disruption to business continuity; this could be the death or incapacity of a key employee or the foreclosure of a business loan; succession planning with regards to the redistribution of shares following the death or incapacity of a partner or director. Business protection is essential for businesses of all sizes but it could be argued that smaller firms are typically more vulnerable because they tend to rely on the skills and input of a relatively small number of key individuals, in some cases just one individual.
Many businesses across the UK take the time to consider employment benefits, pension schemes or staff protection, yet the business itself can be overlooked. However, the business is pivotal to everything else. Typically the focus of a business will be on other types of insurance to ensure business continuity; Public liability insurance, professional indemnity insurance, credit risk insurance or cyber insurance. These are all needed, and with many a requirement to trade, whereas business protection is an optional extra many ignore or are simply not aware of. According to the Department for Business, Energy & Industrial Strategy, in 2018 there were 5.5 million private sector businesses in the UK, with 95.6% having fewer than 10 employees.
Ensuring continuity of the business covers many different solutions, not forgetting of course Business Wills and Business Lasting Power of Attorneys (LPAs). We are available to discuss any questions you may have, be this for either existing or new clients, and discuss the range of business protection strategies a business can consider. Please call or email us to discuss.
A Payroll Perspective on Furlough
The Job Retention Scheme has today been extended until the end of June 2020. Its aim is to provide support to employers that would have to make redundancies because their operations have been affected by coronavirus.
Employees you can claim for
Employees can be on any type of employment contract, including full-time, part-time, agency, flexible or zero-hour contracts. Employees must have been on your payroll on or before 19 March 2020, recently extended from 28 February 2020.
When on furlough, an employee cannot carry out any work for your business. This includes providing services or generating revenue.
Can apprentices be furloughed?
Yes, however whilst furloughed apprentices or those on training contracts must be paid the current minimum wage when studying. This means you must cover any shortfall between the amount you can claim for their wages through this scheme and their appropriate minimum wage.
What about Company Directors?
As office holders, salaried company directors are eligible to be furloughed are eligible to be furloughed. This should be agreed by the board, noted in the company records and communicated in writing to the director(s) concerned.
Whilst furloughed directors can carry out duties to fulfil their statutory obligation. They should not do work to generate commercial revenue or provide services to or on behalf of their company.
Directors can claim back on their salary submitted through PAYE only, not the dividends.
What can you claim?
You can apply for 80% of an employee’s usual gross pay, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage (3%).
You can choose to top up your employees pay to 100% however there is no obligation to do so under the scheme.
How to calculate an employee’s pay?
Claim for the 80% of the employee’s salary, as in their last pay period prior to 19 March 2020.
If, based on previous guidance, you have calculated your claim based on the employee’s salary as at 28 February 2020 (and this differs from their salary in their last pay period prior to 19 March 2020) you can choose to still use this calculation for your first claim.
If the employee has been employed for 12 months or more, you can claim the highest of either the:
• Same period earnings from the previous year
• Average monthly earnings for the 2019/20 tax year
For employees employed for less than 12 months, claim for 80% of their average monthly earnings since they started work until the date they are furloughed.
You can claim for any regular payments you are obliged to pay your employees. This includes wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments should be excluded.
Salary exchange payments should not be used when calculating an employee`s regular pay.
HMRC have agreed that COVID-19 counts as a life event that could warrant changes to sacrifice arrangements if needed.
Working for a different employer
If contractually allowed employees are permitted to work for another employer whilst you have placed them on furlough.
For any employer that takes on a new employee, the new employer should ensure they complete the starter form correctly and apply the correct tax code.
Can you rotate staff?
Yes, however the minimum furlough period is three consecutive weeks.
This scheme along with other grants will count towards state aid and as such this may affect your position on claiming the employment allowance.
Help and advice is available if you have questions or queries on the above and we can signpost you to the best support.
The UK Treasury has published the formal rules of the Coronavirus Job Retention Scheme in the form of a Treasury direction, as well as announcing that the scheme will run until at least 30 June 2020.
Employers may claim 80% of the normal pay of furloughed employees up to a cap of £2,500, plus the employer’s National Insurance contributions and minimum auto-enrollment employer pension contributions on that 80%.
Employers will need to continue to pay furloughed employees on their normal payroll dates, and will not wait for receipt of the grant before making payments. This pay must be taxed as normal. The period of furlough must last 21 days in order for the pay to be reclaimed from HMRC.
To claim under the scheme employers will therefore need to firstly select and designate affected employees as ‘furloughed workers’ and notify employees of this change. Changing the status of an employee remains subject to existing employment law and, depending on the employment contract, may be subject to consent and/or negotiation.
Summary of employer’s considerations:
1. Decide which employees to designate as furloughed – there must be a fair and lawful selection to avoid the risk of grievances and/or employment claims.
2. Notify those employees of the intended change – be careful with the wording!
3. Consider whether it’s necessary to consult with employees – either individually or in some cases employee representatives or trade.
4. Agree the change with the furloughed employees – most employment contracts will not permit an employer to reduce an employee’s pay, provide them with no work and change their employment status without agreement and consultation. Consent may therefore be required.
5. Confirm the employees’ new status in writing – You must have agreed in writing that the employee is to cease all work. Employers may wish to put employees on furlough leave for an initial period, subject to review.
6. Submit information to HMRC – about the employees that have been furloughed and their earnings through the new online portal via HMRC.
7. Ensure that the employees do not carry out any further work – whilst they are furloughed. This is important as HMRC will not consider an employee furloughed if they are found to have worked for the employer or anyone connected with the employer and will recover sums paid out if an audit reveals this.
Down the track
From an employer perspective, after this crisis there is likely to be an increased focus and desire to update contracts of employment and staff handbooks. This may include introducing express furlough leave clauses and related conditions to pay and benefits, such as holiday accrual and pay. They may also wish to introduce or enhance express lay off, short time working clauses, by way of example.
Home working policies are also an option to consider in terms of making them more robust.
Unfortunately, we are seeing redundancies as a result of coronavirus and we expect these to continue, alongside restructuring. For any advice on employment matters in relation to COVID-19, if you encounter difficulties with employees in this situation, please contact us and we can signpost you to the best support.