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COVID-19 How to furlough your employees

As responsible employers we all want to do what we can for our employees in these difficult times but what do you do if your business income has taken a hit and you don’t have enough work for your employees to do? Or, worse still, you are one of the businesses that the government has told to close?

The chancellor announced a Coronavirus Job Retention Scheme (CJRS) whereby a UK employer can claim back 80% of the pay of employees they have placed on furlough, who would otherwise have been paid-off.  The amount will be reimbursed to a cap of £2,500 per month.

There has been a suggestion that if your business has ceased to trade then you may be able to place a Director on furlough and claim the 80% CJRS. This in essence, would mean that you are temporarily suspending the business due to Coronavirus. In this eventuality you would need to inform both your debtors and creditors and we would suggest taking legal advice from a Corporate Lawyer.

Let’s drill this down a little more:

What does furlough mean?

In this instance putting an employee on furlough means that they are still employed by you, but they cannot attend the workplace nor can they undertake any work on your behalf. You can place your employees where otherwise you would be laying them off.

How do I access the scheme?

HMRC are working very hard in the background to create a portal where you can allocate an employee as on furlough – but as you can imagine, there isn’t currently a system set up to make payments to employers. If you outsource your payroll to your accountant, maybe ask them if they are going to be able to make the claims for you once there is a facility.

Do I have to pay my employees first?

Unfortunately, yes you do.  The furlough payment must be run through your normal payroll as it is subject to tax, NICs and pension contributions.  This is of course a concern for employers whose income has reduced to almost nil.

The government guidelines are for employers to access the Coronavirus Business Interruption Loan Scheme (CBILS) to arrange an overdraft or loan to use during this period.

How do I calculate the pay?

You need to establish a a base pay that qualifies for 80% furloughed grant but it cannot include overtime or bonuses. To do this you add up the hours paid for working in the 12 weeks up to the end of February and calculate the average. It is 80% of this you pay, and therefore claim.

How should I inform my employees?

There are several things you must do before placing your employees on furlough:

  • You must have a conversation with them and explain why you are having to place them on furlough, you need to reassure them you are doing this to safeguard their jobs for the future
  • You must agree a date from which they are being placed on furlough
  • You must provide them with a letter and if you outsource your payroll give a copy of this letter to them so they can calculate the payroll as normal, calculating the furlough pay.  You can get a copy of a template letter from Pitstop.
Can a director be placed on furlough?

Theoretically a director can be placed on furlough in the same way as your employees BUT the conditions of the CJRS scheme is that the person on furlough cannot undertake any work on the behalf of the company during this time. How would a director justify that, especially if they are a sole director?

If you decide to take this path it will be necessary for you to contact your suppliers and customers to tell them that you are suspending the company until the end of the Coronavirus crisis. We would suggest that you get some legal advice from a Commercial Lawyer before making this decision as it could have a huge impact on your contracts.

It’s also likely that directors would want to use this time to work on their business rather than in it, putting new systems and processes, streamlining operations and improving the general state of the business, would this constitute as work and therefore not be permitted?

And of course, don’t forget if you place yourself on furlough you will only get 80% at the pay you put through your payroll and it does not relate to dividends.

AND someone needs to run the payroll to process the furlough pay, this constitutes work. You may want to consider outsourcing this function to remove this burden.

For more guidance on the impact of coronavirus in the workplace, check our Employers’ duty of care page.

And for more around self-isolation and absence issues, click to our Self-isolation and absence page.

If you are concerned about laying off staff, check the advice on our What if I need to lay off my employees? page.

Want to know more about financial support during the coronavirus disruption? Then click to read the Financial Help for Businesses page.

The content contained within this document has been obtained from information gathered from GOV.UK with the help of Pitstop and their team and may have changed since publication and has been provided as a guide only.  You should always seek professional advice pertaining to your own individual circumstances.

 

Do you want to know how we can help you?

We would be happy to discuss your requirements and put the most appropriate package together for you.

 
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