Job Retention Scheme – initial thoughts on the latest employer guidance

by | Mar 27, 2020

The employer guidance published yesterday (26 March 2020) evening is essential reading for all employers.

We have prepared letters for companies to issue to staff covering all of the key points that they need to make to ensure that they are compliant with the requirements of the Scheme.

We are all learning about and trying to understand this Scheme on a day-by-day basis.  So, the following is based on Omer’s understanding and should not be relied upon as advice.

Omer’s thoughts are:

  • The all important 80% contribution is based on an employee’s monthly gross salary payment.  We are awaiting further clarity on the tax treatment and further guidance is promised.
  • Monies paid to staff under the Scheme are subject to employer NICs and employer auto enrolment contributions at 3% (but no more than 3%). It appears that employee income tax, employee NICs and employer pension contributions are not to be deducted by employers.
  • In addition to the monthly wage cap contribution of £2,500, employers can also claim back employer’s NICs plus employer automatic enrolment pension contributions.  This is significant news because it means the maximum grant could be £2,804 (more than we expected):
    • £2,500 per month PLUS
    • £245 (employer NICs) PLUS
    • £59 (auto-enrolled employer pension contribution)
  • Commission and bonuses CANNOT be included in your calculations of ‘salary’ under the Scheme. This will be a huge problem for employees where commission/bonus is a large component in their take-home pay.  I’m going to also suggest that regularly worked overtime should not be included in your assessment of 80%
  • Employers should be aware that even with a lay-off clause in their employment contracts, they should specifically be seeking to change their status to ‘furloughed’ and get consent for a temporary reduction in salary payments under the Scheme.
  • A point that has been overlooked is that employees should also be asked to confirm that they waive any claims for the 20% balance of wages (or more) that they would otherwise have been paid.
  • Employers can apply the Scheme to employees on zero-hour contracts.  This is a huge point for some of my clients. Employers can claim for the higher of:
    • Earnings from the corresponding month in the previous tax year (ie April 2019); or
    • Average monthly earnings in the 2019-20 tax year.
  • Employees with more than one job can be furloughed by each employer.
  • Employers should also note that the monies received as grants under the Scheme, whilst not a loan, must be included as taxable income in your accounts.  However, employment costs would be deductible against your corporation tax.

The new employee guidance clarifies that employees will pay income tax, employee NICs and compulsory employee pension contributions. 

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

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