Covid-19: Employer Guidance - Job Retention Scheme Update

June 2020
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On 29 May Chancellor Rishi Sunak announced changes to the Job Retention Scheme (JRS) which will take effect from 1 July and the scheme will continue till October. 

Eligibility and Conditions

To become or remain eligible for the furlough scheme UK businesses must have been adversely affected by the Covid 19 outbreak, and employees who are furloughed must have been registered for PAYE with that employer at or before 19 March 2020. Employees on parental leave, maternity leave or unpaid leave are not eligible. Employees who are shielding are eligible. 
In the first phase of the scheme a condition of receiving the furlough grant was that employees on furlough could not do any work for the employer.  They can accept alternative temporary employment elsewhere or voluntary work, with the agreement of their employer. From July furloughed employees will be allowed to return to work for their usual employer on a part time basis, to enable firms to phase in full time working while observing social distancing. 
Employers will not be able to furlough any new employees after 30 June and only those already on furlough on or before then will qualify for the JRS grant in future. In the first phase of the scheme employees were furloughed for minimum three-week periods. From July that will be cut to a minimum of one week. Employers may still rotate the employees on furlough to accommodate a phased return to work, providing they have been furloughed before 30 June.  This means that new employees must be on furlough by 10 June to qualify for the grant from 1 July onwards. 
 

JRS Grant

For July the JRS grant will continue at 80% of wages up to a monthly cap of £2,500, employer NI contributions and employer statutory pension contributions (3% of pay between £520 and £2,500 per month). Thereafter it will reduce as shown in the table below with employers asked to make up part of the payment. 

Month

Split ofemployment cost between JRS and employer

August

JRS - 80% of wages up to £2,500 per month
Employer - NICs and pension contributions

September  

JRS - 70% of wages up to £2,187.50 per month
Employer - 10% of wages up to £312.50 per month, employer NICs and pension contributions

October

JRS - 60% of wages up to £1,875 per month
Employer - 20% of wages up to £625 per month, employer NICs and pension contributions

 

Pensions

The furloughed pay will be subject to income tax deducted via PAYE and employee national insurance. Employees who wish to benefit from the employer auto enrolment pension contribution must continue to pay their minimum 5% employee contribution. Employees who seek to reduce this may do so but will have opted out of the auto enrolment pension scheme and will no longer be automatically entitled to an employer contribution. They may request to re-join later, and must be permitted to do so, but may have to wait for 12 months after opting out. Employers are, however, encouraged to waive this moratorium in the circumstances.
As before employers are free to top up wages to the full amount of contractual pay and to continue to provide pension contributions above the statutory minimum where these are part of the benefits offered. Where pension payments are to be reduced to the statutory minimum, furloughed employees need not be consulted, but they must be informed.  Their contributions can only be reduced during furlough, returning to their pre-furlough level once furlough ends.

Salary sacrifice pension payments

Where pension schemes use the salary sacrifice funding method, which saves employees and employers national insurance and provides income tax relief at the full rate at source, the employer is obliged to pay all the pension savings as an employer contribution. Contractual entitlement to pension contributions may be based on pre furlough salary. However, the reference salary for the purpose of the JRS grant will be based on post sacrifice pay. This may leave a shortfall between the employer pension contribution required and the JRS pension grant received. 

Equally, as the employee sacrifices part of their salary for an employer pension contribution whose value (either a percentage of the employee’s pre or post furlough pay, or an agreed figure) remains an employer’s liability as it can’t be netted off from the JRS grant, all of which must be passed to the employee after PAYE deductions for tax and national insurance. Salary sacrifice pension contributions can only be suspended or reduced with employee consent. Employers must avoid putting any pressure on employees to opt out of statutory minimum pension provision as this could lead to censure and fines from The Pensions Regulator. 

Our webinar “The Devil is In the Detail” explained the issues surrounding furloughed employees who save in their pension using salary sacrifice and you can access it here

From August there will be no element of pension contribution in the grant. We believe it will be unlikely that employers can make salary sacrifice deductions wholly from that part of the pay they will be funding from September onwards.  Guidance from HMRC on the calculations required is expected on 12 June and we will provide a further update after then. If you would like to receive this update, please email JRSupdate@lebc-group.com.

Other employee benefits such as life cover, private medical, long term sick pay and voluntary benefits may also continue for furloughed staff but could be subject to conditions. We explore this further in Covid-19: Employer Guidance - Employee Financial Wellbeing.

 

Kay Ingram                                
Director of Public Policy                                    
4 June 2020


Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. A pension is a long-term investment. The fund value may fluctuate and can go down. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.  If you are unsure of the suitability of any investment or product for your circumstances, please contact an adviser. All information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation, are subject to change. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.

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