29 Mar 2020 3:33 PM

Here we provide details of the operating mechanism for the Furlough scheme, also referred to as the Coronavirus Job Retention Scheme.

Further information is available on our blog FAQs The Furlough Scheme

There have been further important developments which we published on 6 April 2020,to the scheme please read them here 

Check who is eligible  

The employer has agreed with the employee that they will be Furloughed, and the employer has written to the employee confirming this (the agreement between and employer and employee must be in place for the employer to claim from the Coronavirus Job Retention Scheme).

Any UK employer with a UK bank account will be able to claim. Your employees must have been on the payroll from 28th February 2020. Employees can have any type of contract, including Zero hours or temporary.

This scheme does not apply to self-employed or to any income from self-employment.

Employees who are currently on sick leave, or those self-isolating claiming Statutory Sick Pay (SSP) can be Furloughed after the period of leave.

How much will you get back from the Coronavirus Job Retention Scheme (CJRS)?

You will get back 80% (to a maximum of £2,500) of the monthly earnings plus employers’ NIC, and statutory minimum qualifying earnings employers’ pension contribution of 3%.

You can claim this for a minimum period of 3 weeks up to 3 months (but this pay be extended)  

As an employer you may choose to pay more than the grant, but this will not be repaid as part of the CJRS.

How do I calculate the grant I may receive?

First you look at the current salary being paid to your employees, and if this is not a regular amount how to calculate this salary (see examples below).

Employees’ calculations:

For example

If you’ve been employed (or engaged by an employment business in the case of agency workers) for a full year, employers will claim for the higher of either:

  • the amount you earned in the same month last year

  • an average of your monthly earnings from the last year

If you’ve been employed for less than a year, employers will claim for an average of your monthly earnings since you started work. The same arrangements apply if your monthly pay varies such as if you are on a zero-hour contract.

If you started work in February 2020, your employer will pro-rata your earnings from that month.

Bonuses, commissions and fees are not included as part of your monthly earnings.

Employers’ calculations.

When you have determined the usual monthly gross salary you can calculate the expected grant to be claimed.

An example (using PAYE rates and allowances for tax year 19/20).

Miss Sarah Jones currently earns a salary of £55,000 per year and her employer pays employer pension contribution of 10%

  • Usual monthly Salary = £4583.33
  • Employers’ NIC £4583.33- £719.00=£3864.33 x13.8%= £533.28
  • Employers’ Pension contribution £4583.33x 10%= £458.33
  • Total current on costs for 19/20 tax year per month = £5574.94

The CJRS Calculation is as follows

  • 80% of usual salary = £2500 (maximum allowed under the scheme)
  • Employers’ NIC (£2500-£719=£1781*13.8%) = £245.78
  • Employers’ pension at the lower QE rate will be (£2500-£512=£1988 x 3%) = £59.64
  • Employer’s Reclaim = £2805.42

What you now need to decide is what you are going to pay Sarah Jones through the payroll.

Are you going to pay the full 100% salary, but only be reclaiming 80% from the government? To a maximum of £2500 per month as detailed above.

What pension are you going to pay, the usual as contractually expected 10%? Or the minimum on Qualifying Earnings as per the government grant will refund you? 

Please note if you are not currently calculating pension using QE (Qualifying Earnings) you may need to inform your pension company accordingly.

If you have any questions on the Furlough Scheme and how the mechanism operates please email your usual Alliotts partner or contact me.

Further information on our blog FAQs The Furlough Scheme

For more information relating to COVID-19, please view our COVID-19. Information Quick Find page