Coronavirus Job Retention Scheme Version 2 From 1 July 2020
There is a separate blog relating to version 1 of the Coronavirus Job Retention Scheme, which was in operation from 1 March 2020 until 30 June 2020.
The scheme is designed to preserve the employment of individuals who would otherwise be made redundant. For an employer to be eligible for a grant under version 1 of the scheme, employees were required to be undertaking no work for their employer.
From 1 July 2020 the scheme has become more flexible and is designed to reimburse employers for a proportion of the salary of eligible employees. The relevant percentages are 80% of the normal wages for July and August 2020, 70% for September 2020 and 60% for October 2020. The scheme is due to end on 31 October 2020. In addition employers are able to claim employers National Insurance and employers pension costs in July 2020 in respect of those employees whose salaries are included in the grant.
The grant is based on the difference between normal hours and actual hours worked, where the reduction in hours is as a result of the impact of the coronavirus.
The calculation of normal hours is dependent upon whether employees have fixed or variable hours.
Where the employee’s working hours are fixed, or their pay does not vary with the number of hours worked, the employees normal hours is the hours they were contracted for at the end of the last pay period ending on or before 19 March 2020.
Where an employee works variable hours, employers will use the higher of:
- the average number of hours worked in the tax year 2019 to 2020; and
- the corresponding calendar period in the tax year 2019 to 2020.
HMRC’s instructions for the calculation of normal hours are best explained by the use of an example. For an employee working a 35 hour week, the number of hours per day would be 5 hours (as the calculation includes weekends). This is multiplied by the number of days in the month, so for July the normal hours would be 5 hours for 31 days, which equals 155 normal hours.
For the month of August, where an employee would normally receive £1,000 gross pay, but they only work 50% of their normal hours, the grant would be £400 (50% of £1,000 at 80%). As any money claimed under the grant is required to paid to the employee, the employee would need to receive £500 normal pay plus £400 furloughed pay.
In all months, employees for whom a grant has been claimed, are required to be paid 80% of their normal salary for the period covered by the grant. This means that from 1 September 2020 employers will be financing a proportion of the pay of employees furloughed, as the grant is restricted to 70% or less of the normal pay.
There is not longer any minimum period an employee needs to be furloughed for, in order for the employer to make a claim.
Employers will not be able to make a claim for any employees not previously furloughed under version 1 of the scheme and claims are required to be made for each calendar month.
The amount of the grant claimed for an employee is restricted to a maximum of £2,500 until 31 August 2020, to £2,190 for September 2020 and £1,875 for October 2020.
The grant received by the employer is taxable income for the employer.
Gross pay excludes fees, commissions and bonuses and for those having a standard monthly salary, is the amount of their normal monthly pay as at 28 February 2020.
For those having variable pay it is the higher of:
- The salary for the same month last year and
- Average monthly pay for the 2019/20 tax year.
For those employed less than 12 months, the gross pay is the average monthly salary since they were employed by their current employer.