Job Retention Scheme - furlough and pay employees

UPDATED 20 December 2021

This scheme ended on 30 September 2021. The final date to make a claim was 14 October 2021.

You can view a previous claim via Gov.uk here - https://www.gov.uk/guidance/check-a-previous-coronavirus-job-retention-scheme-claim

This explains how to furlough and pay your employees under the scheme

  • Use the criteria set out by the government to decide which employees can be furloughed.
  • For employees that meet the criteria and you want to place on furlough, confirm this to them in writing.

  • Establish the employee’s reference salary.

  • Calculate 80% of reference salary (capped at £2,500 per month).

  • Work out their usual hours and furloughed hours.

  • Calculate furlough payments for hours not worked.

Latest information from Government

Variable paid employees

HMRC have updated details in regards to the method for calculating the reverence salary for employees on variable pay, also known as 'Calendar look back method'. For some employees, the reference salary should be calculated using the amount paid in March and April 2019 and not March and April 2020. Further details can be found here https://www.gov.uk/guidance/steps-to-take-before-calculating-your-claim-using-the-coronavirus-job-retention-scheme#usual-hours

Other Govt. information

Whilst every effort has been made to keep this topic up to date, we advice you to check the official government website to keep up to date with the latest changes to the financial support relating to Coronavirus available from the Government and for useful tools.

Extension of the Coronavirus Job Retention Scheme

Job Retention Scheme Calculator

Furlough your employees

The criteria for which employees can be furloughed is set out by the government here: https://www.gov.uk/guidance/check-which-employees-you-can-put-on-furlough-to-use-the-coronavirus-job-retention-scheme

If an employee meets the criteria and agrees to be furloughed, you must confirm this to them in writing.

For help with this, a template letter can be found on ACAS website ACAS furlough letter template.

Calculate your employees pay

Work out the reference salary

  • Work out a reference salary for each employee. From November, you can claim back 80% of this, capped at £2500.

    The amount you should use when calculating 80% of your employees’ wages for hours not worked, is made up of the regular payments you are obliged to make.

    Include Do not include
    • regular wages you paid to employees
    • non-discretionary payments for hours worked, including overtime
    • non-discretionary fees
    • non-discretionary commission payments
    • piece rate payments
    • payments made at the discretion of the employer or a client - where the employer or client was under no contractual obligation to pay, including:
      • any tips, including those distributed through troncs
      • discretionary bonuses
      • discretionary commission payments
    • non-cash payments
    • non-monetary benefits like benefits in kind (such as a company car) and benefits received under salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay

    See the Government website for full details of what can and can't be included in the reference salary here Steps to take before calculating your claim using the Coronavirus Job Retention Scheme

  • You can choose to top-up the amount paid to furloughed workers to make up to their normal salary, but you can't reclaim this from the government.
  • You cannot claim for any additional employer costs, such as employer National Insurance Contributions or pension contributions.

  • The reference salary is calculated differently depending on whether employees were previously eligible for the scheme.

    This includes employees who have not been furloughed before.

    If your employee was furloughed before 30th October 2020, use the same calculations for working out reference pay and usual hours.

    If they were not furloughed but were eligible to be furloughed you must calculate the value of the claim using the same method as used for staff who were furloughed.

    To have been furloughed previously, each employee must have been working for you on or before 19th March.

    Salaried employees

    These are employees who get the same fixed salary each period.

    Use their actual salary from the last full pay period before 19th March 2020.

    • For monthly paid employees this could have been their February pay.
    • For weekly paid employees, this could have been their pay for the first week in March 2020.

    Where to find this

    Check the payslip for the relevant period.

    Find this from the Pay Runs option on the main menu and open the payslip for the relevant employees. Open the relevant pay run and select the payslip.

    Variable paid employees

    These are employees who get paid a different amount each pay period.

    • For employees employed for a full 12 month period use whichever is the higher

      • the same month’s earning from the previous year.

      • the average monthly earnings from the 2019-20 tax year
    • If the employee has been employed for less than a year, use the average of their monthly earnings since they started work.

    Where to find this

    Find this information in payroll from the following places

    1. Average Earnings and Working Hours report shows a breakdown of the average earnings and hours worked by all employees over the period you run the report.

      Find this under the Reports option on the main menu. See The Average Earnings & Working Hours report

    2. The detailed report for each pay run will show you what each employee was paid for a given period.

      Find this under the Pay Run, open the relevant pay run, then select the Open detailed report link.

    If you're new to the job retention scheme, or are furloughing employees who have started with you since 19th march 2020 (i.e they were not reported to HMRC as employed), use the following rules to calculate your reference salary.

    Salaried employees

    These are employees who get the same fixed salary each period.

    Use their actual salary from their last full pay period on or before 30 October 2020.

    Where to find this

    Check the payslip for the relevant period.

    Find this from the Pay Runs option on the main menu and open the payslip for the relevant employees. Open the relevant pay run and select the payslip.

    Variable paid employees

    These are employees who get paid a different amount each pay period.

    • Work out the average the employee was paid between the start date of their employment or 6th April 2020 (whichever is later) and the day before their furlough period starts.
    • For hourly paid employees, work out the salary from the average number of hours they worked between 6th April 2020 and the day before their furlough period starts.

    Where to find this

    Find this information in payroll from the following places

    1. Average Earnings and Working Hours report shows a breakdown of the average earnings and hours worked by all employees over the period you run the report.

      Find this under the Reports option on the main menu.

    2. The detailed report for each pay run will show you what each employee was paid for a given period.

      Find this under Pay Runs, open the relevant pay run, then select the Open detailed report link.

Work out the furlough payment

From November 2020, pay your employees, the lower of 80% of their reference salary or £2500 per month.

The HMRC also provides a Job Retention Scheme calculator which you can use to help with working out employees furlough pay.

Always make a note of your calculations and payments to aid later queries.

June 2020: The government paid 80% of the reference salary, capped at £2,500. It also paid employer National Insurance and pension contributions. Employers didn't have to pay anything.

July 2020: The government paid 80% of the reference salary, capped at £2,500. It also paid employer National Insurance and pension contributions. Employers didn’t have to pay anything.

August 2020: The government paid 80% of the reference salary, capped at £2,500. Employers have to pay for employer National Insurance and pension contributions.

September 2020: The government paid 70% of the reference salary, capped at £2,187.50. Employers paid for employer National Insurance and pension contributions, and 10% of wages to make up the minimum employee salary of 80% of the reference salary, capped at £2,500.

October 2020: The government paid 60% of the reference salary, capped at £1875. Employers paid for employer National Insurance and pension contributions, and 20% of wages to make up the minimum employee salary of 80% of the reference salary, capped at £2,500..

November 2020: The government pays 80% of the reference salary, capped at £2,500. Employers have to pay for employer National Insurance and pension contributions.

July 2021: The government pays 70% of the reference salary, capped at £2,500. Employers have to pay 10% and for employer National Insurance and pension contributions.

August 2021: The government pays 60% of the reference salary, capped at £2,500. Employers have to pay 20% and for employer National Insurance and pension contributions.

Once you've found the reference salary for an employee,

Monthly paid employees

  1. Identify the reference salary using the calculations detailed above

  2. Work out 80% of this value.

  3. Is this greater than £2500 per month?
    • Yes - £2500 is the new furlough salary.
    • No - use the 80% value as the new furlough salary.

Weekly paid employees

  1. Identify the weekly reference salary using the calculations detailed above.

  2. Work out 80% of this new average weekly pay

  3. Is this value greater than £576.92 (the weekly equivalent of £2500 pm)?
    • Yes - £576.92 is the new weekly furlough pay.
    • No - use the 80% value as the new weekly furlough pay.

Pay your employees

This the first time I've furloughed my employees

Create new payment types

Create a new payment type to be used to process the furlough part of your employees pay. This is the part you can reclaim from the government.

If you're planning to make top-up payments, then create a new payment type for this also. We recommend that you call it something obvious such as Salary Top Up.

Use existing payment types if you have them for non-reclaimable items such as discretionary commission and bonuses.

  1. From the Settings tab, select Payment & Deduction Settings.
  2. Choose Payments, then Create New Payment.

  3. Enter the details of the new payment:

    Payment Category Salary
    Payment Type Other Salary Payment
    Name Furloughed Pay
    Description Furlough payments to employees
    Include in Calculation of

    Select both Pension Earnings and Qualifying Earnings
  4. Click Save.

The payment now appears in the payments list in the Payments tab. If you created the payment while processing pay, the new payment is applied to the employee’s pay.

Process pay using the furlough payment only

Follow these steps if you are only paying the furlough amount to your employees, with no top ups. This will be 80% of their pay, (or £2500 per month, 576.92 per week).

  1. Run pay run for the period

  2. For each furloughed employee, add the new Furloughed Pay payment type.
  3. Enter their furlough salary amount.
  4. Repeat this process for all the affected employees.
  5. Process the rest of the pay run as normal.

  6. Pay your employees and submit your full payment submission (FPS).

Process pay using the furlough payment plus top up payments

Follow these steps, if you are paying the furlough amount to your employees plus any additional payments.

  1. Run the pay run for the period,

  2. For each furloughed employee, add the new Furloughed Pay payment
  3. Enter their furlough salary amount.
  4. For any top-up payments, add the payment type for Salary Top Up.
  5. Enter the agreed top up pay.
  6. Repeat this process for all the affected employees.
  7. Process the rest of the pay run as normal.
  8. Pay your employees and submit your Full Payment Submission (FPS).

I've furloughed my employees before

Process pay using the furlough payment only

Follow these steps if you are only paying the furlough amount to your employees, with no top ups. This will be 80% of their normal pay, (or £2500 per month, 576.92 per week)

  1. Run pay run for the period

  2. For each furloughed employee, using the new Furloughed Pay payment type.
  3. Enter their furlough salary amount.
  4. Add any other relevant payments such as commission or bonuses.
  5. Repeat this process for all the affected employees.
  6. Process the rest of the pay run as normal.

  7. Pay your employees and submit your full payment submission (FPS).

Process pay using the furlough payment plus top up payments

Follow these steps, if you are paying the furlough amount to your employees plus any additional payments.

  1. Run the pay run for the period,

  2. For each furloughed employee, add the new Furloughed Pay payment
  3. Enter their furlough salary amount.
  4. For any top-up payments, add the payment type for Salary Top Up.
  5. Enter the agreed top up pay.
  6. Repeat this process for all the affected employees.
  7. Process the rest of the pay run as normal.
  8. Pay your employees and submit your Full Payment Submission (FPS).

What's next?

Make claim from HMRC when information is available.

Disclaimer

This article provides general rather than specific guidance to assist all of our customers. We always do our best to make sure that the information is correct but as it's general guidance, no guarantees can be made concerning its suitability for your particular needs. The information is valid at the time of publishing and is provided without any warranty of any kind, express or implied. You should take professional advice if you require specific guidance on your individual circumstances, for example to ensure that the results obtained from using our software comply with statutory or regulatory requirements. For Employers, PAYE, NIC and general tax enquiries you should call the HMRC helpline on 0300 200 3200 or visit their website at www.gov.uk.In no event will we be liable to you for any direct, indirect, consequential or incidental loss or damage arising out of or in connection with your use of the information provided.