Calculating what an employee on furlough needs to be paid has led to a number of queries. Guidance has been issued and a summary might help.
Only employees which were on the payroll on 28 February 2020 can be furloughed. This is the first condition to apply.
Where an employee is on a fixed salary, the salary before tax at 28 February is used as the basis of calculation. Commission, bonus and fees should be ignored.
An employer can claim up to 80% of the fixed salary. The employer only has to pay the 80% but can, voluntarily pay more, although anything above 80% is at the employer’s cost and cannot be reclaimed.
Note that the RTI (Real Time Information) submission should have been made by 5 March so HMRC will know what the February salary was (and will check prior months for sudden claimed increases).
Many employees are paid hourly and earnings can vary so the calculation used for salaried workers can’t really be used.
If the employee has been employed for 12 months at 28 February 2020, there are two options – and the higher of the two can be used as a basis for the claim:
- The same month’s earnings from the previous year
- The average monthly earnings for the 2019/20 tax year. This will be total earnings for the 11 months up to and including February 2020 divided by 11
Since the higher of the two can be used, and nothing we have seen says the same calculation must be used every time, there may be situations where an employee changes from one to the other month by month.
If an employee has not been employed for a full year, the claim will be based on an average of the monthly earnings since he/she started.
There may be situations where an employee only started during February. In this case the basis of the claim is a pro-rated figure based on earnings for the period worked.
In all cases, the amount which HMRC will refund is 80% of the calculated pay.
In addition to refunding 80% of the pay, HMRC has said they will also refund Employer NI (National Insurance) contributions and contractual Auto Enrolment pension contributions. We assume that the £4,000 Employment Allowance (reduction in Employer NI) will be taken into account when assessing NI refunds.
No appeal mechanism has been mentioned but we can see situations where the calculation could produce an unfair result. The most obvious examples of this are where an employee has been on SMP (Statutory Maternity Pay) – or some other maternity related benefit – or has been on long term sick during the preceding year. Maybe something will be done to boost the amount claimable in these situations – but it hasn’t been announced yet.
You may find some of our other posts about Coronavirus and its effects useful. Please have a look:
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Another informative article to read through – click here