Job Retention Scheme - furlough and pay employees

UPDATED 10 September 2021

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.

  • 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.

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.

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).

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.