Coronavirus Job Retention Scheme (JRS) - Advice for Motor Dealers
Under the JRS, all UK dealers with a PAYE scheme that was created and started on or before 28 February 2020 will be able to access support to continue paying part of your employees’ salary for those employees that would otherwise have been laid off during this crisis and to avoid redundancies.
It is intended for the JRS to run for at least 3 months from 1 March 2020, but it will be extended if necessary. Dealers can use this scheme anytime during this period. The JRS will cover the cost of wages backdated to 1 March 2020 and will be open before the end of April. It will continue for at least three months and can include workers who were in employment on 28 February.
Updated guidance as of 27 March 2020
- Furloughed employees must have been on the PAYE payroll on 28 February 2020, and can be on any type of contract, including:
- full-time employees
- part-time employees
- employees on agency contracts
- employees on flexible or zero hour contracts
- HMRC will pay dealers a grant worth 80% of an employee’s regular wage costs, up to £2,500 a month, plus the associated employer National Insurance Contributions (NIC) and minimum automatic enrolment employer pension contributions on that subsidised wage.
- For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.
- For employees whose pay varies, if the employee has been employed for a full twelve months prior to the claim, dealers can claim for the higher of either:
- the same month’s earning from the previous year
- average monthly earnings from the 2019-20 tax year
- If the employee has been employed for less than a year, dealers can claim for an average of their monthly earnings since they started work
- Employees are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working. Furloughed workers are not working paid the lower of 80% of their salary, or £2,500 even if this would be below NLW/NMW.
- Tax and NICs will still have to be paid as normal
- Dealers are qualifying employers
- The dealer must have a UK bank account
- Dealers should discuss with their staff and make any changes to the employment contract by agreement. To be eligible for the subsidy dealers should write to their employee confirming that they have been furloughed and keep a record of this communication.
- Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.
- A worker must be furloughed for a minimum of 3 weeks for their employer to be eligible to claim under this scheme.
- If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme
- A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of the dealer.
- If workers are required to complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
- If you offer enhanced (earnings related) contractual pay to women on Maternity Leave, this is included as wage costs that you can claim through the scheme.
- HMRC are working urgently to set up a system to pay these grants. We expect the first grants to be paid within weeks, and we’re aiming to get it done before the end of April.
- More guidance on how dealers should calculate their claims for employer National Insurance Contributions and minimum automatic enrolment employer pension contributions will be provided.
- To claim, you will need:
- your ePAYE reference number
- the number of employees being furloughed
- the claim period (start and end date)
- amount claimed (per the minimum length of furloughing of 3 weeks)
- your bank account number and sort code
- your contact name
- your phone number
- You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
- You can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for.
- Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to a UK bank account.
- You should make your claim in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll.
- You must pay the employee all the grant you receive for their gross pay, no fees can be charged from the money that is granted
What we said before
You need to classify employees as a furloughed worker. This would mean that they are kept on your payroll, rather than being laid off.
To qualify the employee should not undertake ANY work for you whilst furloughed, including being required to answer calls, emails etc. In exchange Employers can claim a grant of up to 80% of each employee’s wage for ALL employment costs, up to a cap of £2,500 per month
The employee remains employed while furloughed and you can choose to fund the difference between this payment and their ‘normal’ salary, but you do not have to.
Assuming that notice has not yet been served on “at risk” employees (and even if it has), dealers should discuss the JRS with them as part of the consultation process and agree to either carry on with the redundancy process (recognising the risks associated with this) or agree to use the JRS as an alternative.
Should the dealer decide, at a later point, that redundancies are still necessary, they should take legal advice at that stage on the associated risks.
We do not know whether employees will be restricted from taking on other/new work whilst receiving a salary under the Scheme.
It is likely that the JRS will not interrupt an employees’ continuity of service. Likewise, annual leave will continue to accrue whilst staff remain employed.
The grant is a reimbursement by HMRC of salary costs paid to furloughed workers, so dealers may face cash flow issues in paying these workers. Do let us know if you need financial support for this as there are a number of options that may be open to you, including the Government’s Coronavirus Business Interruption Loan.
Features we expect from the JRS
We anticipate that furloughed employees will be deemed to be taking a leave of absence. On that basis, they would strictly be unpaid and so the Government need to consider how the grant is structured so that it is not ‘pay’ and therefore no PAYE tax/NIC is due and no benefits that are driven from pay. It is normal practice in countries such as the US that already have the status of furloughed worker for benefits like health and life cover to continue whilst an employee is furloughed. However, in our view the JRS should be implemented in such a way that these do not impact on the flow of the 80% from the Government via the employer to the employees.
There could be further complications to this, for example where the employee pays for additional private medical cover as part of an employee benefits scheme.
We also await details on how the JRS will apply to employees within personal service companies (PSCs). We anticipate that PSCs will be eligible in the same way as other employers and subject to the same (expected) rules on the reference salary for the 80% calculation etc. Further guidance now applies.
Directors of their own company paid through PAYE, may be able to get support using the Job Retention Scheme.
Our response to the likely questions
- Set up the payroll with a furloughed pay element to identify the amounts for reclaim
- Calculate furloughed pay based on the 12 weeks up to the end of February. Use the regular basic pay but not overtime or bonuses etc. We have heard that Steve Barclay (Chief Secretary to the Treasury) mentioned February and this could be the link to anti-forestalling measures
- For employees off sick during that 12 weeks, base furloughed pay on the amounts excluding sick pay
- Assume this is still pay and that PAYE tax and NIC deductions will be due, albeit that the payments to HMRC are likely to be deferred
- This is a grant that reimburses the dealer, so cash flow could still be an issue and support may still be needed for bank facility or loan requirements to fund these payments prior to reimbursement
Eligibility and accessing the JRS
All UK businesses are eligible.
Employers will need to:
- Designate affected employees as ‘furloughed workers,’
- Notify those employees of this change - changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation
- Submit information to HMRC about the employees that have been furloughed and their earnings. This will be through a new online portal (HMRC will set out further details on the information required)
- Identify those employees ‘at risk’ and earmarked for lay-off
- Analyse pay from the last 12 weeks up to the end of February. *Note – this is our estimate of the likely period for assessment. Details still to be confirmed by the Government.
- Establish base pay that qualifies for 80% furloughed grant
- Identify employee’s where £2,500 cap will apply
- Calculate additional pay required to get to 80% of ‘normal’ pay if you plan to top up to there
- Model options to manage any top up outside of the grant
- Identify employees required to remain in employ
- Model options to flex remuneration including establishing new ‘base’ pay in line with NMW and employment related loans for those not furloughed
- Commence communication with all affected employees including illustrations of proposed payments
- Obtain employee/union buy-in
- Implement changes to payroll and pay elements etc.
- Prepare application to HMRC
- Register and log-on to new HMRC Portal
- Submit required information to HMRC
- Receive reimbursement via new system
The overall message, however, is that the Government will provide assistance to both employers and employees. They are urging businesses not to make permanent redundancies.
Download a copy of the guide below or contact a member of our specialist team.
Nigel Morris, Employment Tax Director, firstname.lastname@example.org, Tel: 07718 340634
Stephanie Pote or Colin O’Kane, Senior HR Consultants, HRSolutions@mhllp.co.uk