HMRC publishes guidance for employers on calculating their claim under the coronavirus job retention scheme

The government has published guidance to help employers calculate claims under the coronavirus job retention scheme. It will also have a calculator available from Monday 20 April (the day the online portal goes live) to assist with this calculation. 

What should be included in the calculation?

The guidance confirms that employers should include regular payments they are obliged to make.  These include:

• Regular wages 
• Non-discretionary overtime
• Non-discretionary fees
• Non-discretionary commission payments
• Piece rate payments

Employers should not include discretionary payments which the employer is under no contractual obligation to pay. These include:

• Tips
• Discretionary bonuses
• Discretionary commission payments
• Non-cash payments
• Non-monetary benefits like benefits in kind (such as a company car) and salary sacrifice schemes (including pension contributions) that reduce an employees’ taxable pay

Holiday pay

The guidance also has a section on holiday pay which at long last confirms that employers can include holiday pay in the sum claimed from the scheme. Employers should pay the employee for any holiday taken at the employee’s normal rate of pay or, where the rate of pay varies, calculate holiday pay on the basis of the average pay received by the employee in the previous 52 working weeks. The grant will only fund 80% of this and employers will have to fund the additional amounts over the grant themselves. The guidance goes on to state that employers will have the flexibility to restrict when leave can be taken if there is a business need, both during the furlough period and the recovery period. It does not deal with whether employers can require employees to take holiday during this time. Click here for further information on using holiday during the pandemic. 

Employees returning from leave

The guidance confirms that:

• Where an employee is furloughed on return from family-related statutory leave (including unpaid parental leave) or sick leave, claims should be calculated against their salary, before tax, not the pay they received while on leave. Claims for those on variable pay, should be calculated using either the:
  • same month’s earnings from the previous year
  • average monthly earnings for the 2019 to 2020 tax year
• Where an employee has been on unpaid sabbatical or unpaid leave, employers should use the amount the employee would have been paid if they were on paid leave

Maximum amounts employer can claim

The maximum wages an employer can claim for each employee is £2,500 per month (or 80% of their usual wage, if less). This equates to £576.92 a week. If the length of time an employer is claiming for is not one week or one month, the guidance sets out the daily maximum amounts as follows:

• March - £80.65 per day 
• April - £83.34 per day 
• May - £80.65 per day

Although the guidance does not reflect the extension of the scheme to June, the daily rate for June should be the same as for April - £83.34.  

Where an employer is claiming for multiple pay periods in one claim, they can calculate the total maximum using a mixture of the daily, weekly and monthly maximum amounts.

Working out 80% of the employee’s usual wage

The guidance goes on to explain that the way an employer works out 80% of their employee’s usual wages differs depending on the way they are paid (regular salary or variable pay) and sets out how each calculation should be done in various scenarios. Employers should choose the calculation they think best fits the way their employees are paid. If they are paid a regular salary, they should use the calculation for fixed pay amounts.  However, HMRC will not decline or seek repayment of any grant based solely on the choice of pay calculation, as long as a reasonable choice of approach is made. 

National insurance contributions 

The guidance explains how to calculate the employer national insurance contributions (NICs), reminding employers that the total grant for employer NICs cannot exceed the total amount of employer NICs they are due to pay. In calculating the total employer NICs paid in any pay period, the employer should subtract any employment allowance used in that pay period. If they have not, or do not expect to pay any employer NICs in a pay period as a result of the employment allowance, they should not claim for employer NICs in that pay period.  Again, the guidance sets out how the calculation should be done in various scenarios. 

If there are no employer NICs due in respect of an employee, then the amount of the grant towards employer NICs in respect of that employee’s wages will be zero. 

Pension contributions 

Employers can claim for pension contributions up to the level of the mandatory employer contribution, even if it is not an auto-enrolment pension. To calculate the pension contribution, they should:

• Start with the amount they are claiming for the employee’s wages
• Deduct the minimum amount their employee would have to earn in the claim period to qualify for employer pension contributions – (£512 a month for periods before 5 April 2020, and £520 a month for periods after 6 April 2020)
• Multiply by 3%

The employer must pay the whole amount claimed into the employee’s pension as an employer contribution. The guidance gives examples of the calculation in various scenarios. 

How to claim

Employers cannot make more than one claim during a claim period – they should make their claim shortly before or during running payroll. They must claim for all employees in each period at one time and cannot make changes to their claim.

Employers can make a claim in anticipation of an imminent payroll run, at the point they run their payroll or after they have run their payroll. Claims can be backdated from 1 March 2020 where employees have already been furloughed from that date. A claim cannot start any earlier than the date the employee was first furloughed.

Employers must pay the full amount they are claiming to the employee. 

By making a claim, employers agree that:

• The grant they receive can only be used to pay their employee’s salary and the employer NICs and employer pension contributions they must pay in relation to the salary paid to their employee
• They will return any grants to HMRC immediately if they are unwilling or unable to use it to for those purposes

Employers must not make the claim if they do not accept they can only use the money they claim for making those payments and that it must be returned to HMRC if they do not.

After the claim

HMRC will check the claim and, if eligible, pay it to the employer by BACS to a UK bank account.

The employer must pay the employee all the grant they receive for their gross pay in the form of money.

Furloughed staff must receive no less than 80% of their reference pay (up to the monthly cap of £2500). Employers cannot enter into any transaction with the worker which reduces the wages below this amount. This includes any administration charge, fees or other costs in connection with the employment.

To see the full guidance, click here