Calculating Payroll for Furloughed Workers

UPDATED 15/04/2020

In March 2020, the UK government introduced a new terminology of ‘furlough’ (the first for UK employment law) through its Coronavirus Job Retention Scheme and intends it to be used as a mechanism to reimburse 80% of wages to companies that may have otherwise been forced to make redundancies during the COVID-19 pandemic.

It’s important to clearly define the meaning of ‘furlough’, which is generally considered to be someone who is on a temporary leave of absence from work.  This is usually due to economic reasons or relating to challenges affecting the whole country.

How to Calculate Wages at 80%

Whilst the initial guidance was updated on 4th April 2020, it is still clear that you can only claim 80% of the following:

  • Usual monthly wage costs, up to £2,500 a month
  • Associated Employer National Insurance contributions
  • Minimum automatic enrolment employer pension contributions on that wage.

If you choose to pay 100%, then you should only reclaim 80% and both national insurance and minimum auto-enrolment contributions should be calculated only on 80%.

For employees with pay that varies, the guidance states:

If the employee has been employed for 12 months or more, you can claim the highest of either the:

  • same month’s earning from the previous year
  • average monthly earnings for the 2019-2020 tax year

09/04/2020 – HMRC have confirmed to us that, where employees are paid a salary but work regular overtime “the calculation should be the higher amount of either the employees average wage for tax 19/20 tax year (overtime included) or the amount made in the corresponding month of the previous tax year (18/19)”.

If the employee has been employed for less than 12 months, claim for 80% of their average monthly earnings since they started work.

If the employee only started in February 2020, work out a pro-rata for their earnings so far, and claim for 80%.

You can only claim for furloughed employees that were on your PAYE payroll on or before 19 March 2020 and which were notified to HMRC on an RTI submission on or before 19 March 2020. This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 19 March 2020.  Employees that were employed as of 28 February 2020 and on payroll (i.e. notified to HMRC on an RTI submission on or before 28 February) and were made redundant or stopped working for the employer after that and prior to 19 March 2020, can also qualify for the scheme if the employer re-employs them and puts them on furlough.

How to Display on Payslips

If you’re a client of Talk Staff Payroll, we are recommending that you pay any employees using a new component, worded as either:

  • Furloughed Hourly Pay; or
  • Furloughed Salary

This will ensure that our Payroll Team can easily calculate your claim.

Please remember that legislation came into force in 2019, requiring all employers to:

  • provide payslips to all workers
  • show hours on payslips where the pay varies by the amount of time worked

You should still continue to abide by these new rules until otherwise advised not to do so.

How to Reclaim Wage Costs from HMRC

HMRC is currently building a system to reclaim money back, which is currently being paid out by employers throughout the UK and is expected to be ready on 20th April and first payments reaching employers by 30th April 2020.

We are currently looking to offer two packages (subject to change) to assist with this:

  • Standard Claim (£79.00), where only 80% is paid with minimum auto-enrolment contributions made and employees remain furloughed until the scheme comes to an end
  • Advanced Claim (£POA), where the employer chooses to pay above 80% and/or auto-enrolment contributions are higher than the minimum requirement and/or employees are furloughed on a rotation basis

It is important, where possible, that you continue to pay employees inline with the guidance and then reclaim this at a later date.

Please note that we cannot currently warrant the accuracy of the information contained within this article due to guidelines constantly being updated by the government and recommend that you verify any details via the Business Support website before acting on this.