The coronavirus outbreak continues to have a significant impact on organisations around the world as operations come to a halt while frontline workers focus on tackling the virus. With operations temporarily suspended, this has had a direct impact on employees with an increasing amount of organisations placing them on furlough leave.
In this article we will cover what government provisions have been announced for UK employees placed on furlough leave, how companies are handling this and recommendations on configuration in Workday if your organisation has furloughed workers.
Coronavirus Job Retention Scheme
On 20 March 2020, the Chancellor, Rishi Sunak, announced the Coronavirus Job Retention Scheme for employees placed on furlough leave by their employers. Furlough leave is a temporary leave of absence due to economic reasons with the intention of saving jobs in the UK. Below are some key components of the scheme:
HM Revenue & Customs (HMRC) will reimburse employers for 80% of the wage costs of employees who are kept on, up to £2,500 per employee per month.
Employees will stay on the payroll while they are furloughed and will continue to accrue continuous service/annual leave.
Employers can decide whether to top-up the 80% to full pay.
The payment will operate as a grant, not a loan, and grants should be available by the end of April.
It is currently paid for a minimum of three weeks and a maximum of three months (this could be subject to change depending on the progress of legislation).
There is no limit on the amount of funding that can be given to an employer.
Employers need to submit information to HMRC via the online portal regarding employees and their earnings.
This applies to any employee on the payroll as of 28 February 2020 and the scheme will run until the end of May with the possibility of an extension.
Employers can also claim for the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
The scheme will apply to all UK employers and will include, for example, companies, partnerships, LLPs, charities and sole traders.
Full-time and part-time employees
For full-time and part-time salaried employees, employers should calculate 80% of the employee’s salary before tax as of 28 February 2020 and should exclude commission and bonuses.
Employees whose pay varies
If the employee has been employed for 12 months or longer prior to the claim, you can claim for the higher of either:
The same month’s earning from the previous year.
Average monthly earnings from the 2019-20 tax year.
If the employee has been employed for less than 12 months, you can claim for an average of their monthly earnings since they started work.
If the employee started between 1 February and 28 February, you should use a pro-rata for their earnings to claim.
How to claim
The claims portal is now live and you can access it here. You’ll need the Government Gateway user ID and password you got when you registered for PAYE online.
Topping-up an employee’s salary
If you do decide to top-up the remaining 20% salary to give your employees full pay during furlough leave, Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded through this scheme. Nor will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings.
How employers are responding
We reached out to our customers to see how COVID-19 has impacted their organisation and what their plans are for their workforce while many employees’ usual duties are temporarily halted. Of those customers that had placed their workers on furlough leave, the majority had implemented 100% furlough leave pay, with the intention to claim back 80% via the government grant and account for the 20% top-up internally. While this is not a requirement as part of the furlough leave, this may help to retain your top talent when your organisation is able to restart operations.
Recommendations for absence
While further guidance around absence and time-off plans is expected, the interim recommendation is for organisations to place their furloughed workers on leave with a Leave Type as ‘COVID-19’ rather than a time-off plan. Using this method means payroll will no longer pay your furloughed employees until the payroll side has been configured.
Recommendations for payroll
We have been working closely with Workday on recommendations for payroll configurations if you have furloughed workers in your organisation. While Workday continues to monitor the situation, they have provided initial guidance on how to manage the 80% calculation within Workday using configuration. You can find the guidance from Workday on Workday Community in the form of a webinar and PowerPoint deck here.
If you are paying 100% you can proceed as normal. If you would like this to be split out for the 80% and 20% to enable reporting, then the guidance Workday has provided will also work for the 20%. You will need to create a separate earning for this.
While these are the immediate recommendations for managing absence and payroll, we are working closely with Workday as well as monitoring the guidance issued by the government to apply our recommendations and best practices. If you have questions specific to your organisation, please reach out to us via your account manager, project manager or at email@example.com.