The total maximum grant available to the employer will be higher than the £2,500, as it will also cover the employer’s national insurance and employer pension contributions (capped at the minimum 3% based on qualifying earnings) for furloughed employees, but the contributions will be limited to the amounts due on the gross salary payable for the employee by the grant.
While the grant covers the cost of the employer national insurance and minimum pension contributions, it doesn’t appear to provide relief for the apprenticeship levy payments, so this will be an ongoing cost large employers will continue to need to meet.
If you decide to top up an employee’s pay, any additional national insurance or pension contribution payable, will not be funded by the grant. Similarly, if you pay an employer pension contribution above the minimum qualifying earnings requirements, the excess contributions will not be covered by the grant.
Based on our initial calculations, we believe the maximum claim available for a furloughed employee for a month during 2020/21 will be as follows:
|Total grant available||£2,803.38|
Employees will remain liable to PAYE, employee national insurance and any other usual payroll deductions (such as student loan repayments) on the furloughed payment made to them by their employer. The employer may choose to pay more than the amount of the grant paid to them by the Government.
For those who employees who are salaried, the grant will be equal to 80% of the salary as at 19 March. If, based on the previous guidance, the calculation of the claim is based on the employee’s salary as at 28 February (and this differs from their salary in their last pay period to 19 March) the calculation can used from the first claim.
The guidance only talks about grant for salaried employees covering 80% of salary. This seems to limit the claim where a salaried employee may also have variable elements of pay. In such circumstances, it would be hoped that these salaried employees can be treated in the same way as those who have varying pay (see below) and the grant isn’t limited to their basic salary alone.
For those with variable pay, the calculation of the grant entitlement is split into three categories;
- Employees with more than twelve months service
- Employees with less than twelve months service
- Employees who have been employed for less than a month
For the employees who have more than twelve months service, the grant is calculated as the higher of:
- The same month’s earning from the previous year
- Average monthly earnings for the 2019/20 year
For employees with less than twelve months service, the grant is calculated as an average of their monthly earnings since the start of their employment. For employees who have been employed for less than a month, the grant can be based on a pro-rata of their earnings so far and claim 80%.
The wording from the latest guidance suggests an employer doesn’t have to pay the 80% restriction to an employee with varying earnings. I believe this is an oversight in the guidance, and further guidance will likely correct this oversight. While we wait updated guidance, I would strongly advise employers to consider the spirit of the policy intention here and not assume it will be okay to pay 100% of the average on account of the guidance not restricting it to 80%.
If an employer decides to furlough an employee who is returning from statutory leave (which includes maternity leave, paternity leave and parental bereavement leave), claims should be calculated against their salary, before tax, not the pay they received whilst on statutory leave. If the returning employee was on variable pay, then the claim should be calculated using either the:
- same month’s earnings from the previous year
- average monthly earnings for the 2019-20 tax year
The guidance does not yet cover returning employees who are returning from long-term sick, which preceded the 2019-20 tax year. For the salaried the calculation will be based on the pre-sickness salary, and for employees with varying pay it may be possible to use average earnings from a prior tax year, although we wait for guidance to confirm this.
There have been lots of questions about what elements of pay the grant will be made up of, as well as about furloughing for part of a month and whether the grant is then apportioned. The grant claim is based on any regular payments that the employer is obliged to make. This includes wages, past overtime, fees and compulsory commission payments.
The scheme will not cover discretionary bonus (including tips) and commission payments and non-cash payments. It does not include any benefits in kind or any benefits provided through salary sacrifice (including pension contributions). With regards to salary sacrifice, you can normally change or cancel this because of a life event. HMRC has confirmed that Covid-19 is such a life event that could warrant a change.
Grants will be pro-rated if your employee is furloughed for part of a pay period, with the claim being made from the start date of the furlough and not the date that the negotiations started.