On 31 October the UK Government announced a national lockdown in England from 5 November to 2 December. It deferred the Job Support Scheme, due to start from November, and has extended flexible furlough support until 31st March. The grant covers up to 80% of capped pay for hours not worked, with employers funding national insurance and pensions. Employers and employees who have not used the scheme before are eligible. Here we explain the impact on workplace pension schemes.
Eligibility and Conditions
All UK employers registered for PAYE with a UK bank account, regardless of whether they have used the scheme before. Employees must have been registered for PAYE with that employer at or before 31st October. From 5 November to 2 December all UK employers may apply. Thereafter it will be subject to higher level restrictions being in place in the area in which the employee works.
Furloughed employees may 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. They can accept alternative temporary employment elsewhere or voluntary work, with the agreement of their employer.
The Job Retention Bonus of £1,000 per employee brought back from furlough and on payroll at 31st January 2021 will no longer be offered.
For November the CJRS grant will increase to 80% of wages for the hours not worked, up to a monthly cap of £2,500. The wage cap on the grant is proportional to the contractual hours not worked. The grant and any additional pay will be subject to income tax deducted via PAYE and employee national insurance. All the grant, net of income tax and NI, must be paid to the employee.
Employers will pay
Employees who wish to benefit from the employer auto enrolment pension contribution must continue to pay their minimum 5% employee contribution. Those 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 within 12 months of opting out. Employers are encouraged to waive this waiting period.
Employers are free to top up wages to full 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. Contributions must return to the full contractual amount when 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 will be based on pre furlough salary.
Staff on full furlough
The reference salary for the purpose of the CJRS grant is based on post sacrifice pay. This will leave a shortfall between the employer pension contribution required and the CJRS grant received. Employers cannot net this off the CJRS grant, all of which must be passed to the employee after PAYE deductions for tax and national insurance. Salary sacrifice pension contributions can be suspended but can only be 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.
Partial return to work
Employees may work part time for the employer and will receive their full contractual pay on a pro rata basis. Correspondingly the grant payable from the CJRS can only cover the hours not worked. Where salary sacrifice is used to pay pension contributions, the sacrificed amount may be deducted from that part of pay for the hours worked. It cannot reduce either the CJRS grant, which must be paid in full, nor leave the employee receiving less than the National Minimum Wage for the hours worked.
Our webinar “The Devil Is In The Detail” explained the issues surrounding furloughed employees and salary sacrifice pension funding and you can access it here. If you would like to receive ongoing updates on the CJRS scheme and pension savings please email JRSupdate@lebc-group.com