Updated 2 April 2020
In the current climate, we are aware that every business is finding itself with new challenges. As you will no doubt be aware, the Government introduced the concept of the Coronavirus Job Retention Scheme on Friday 20 March. Initially, there was very little information available however over recent days more information has come to light.
So as to help you, we are working on a FAQ in relation to Employee Benefits and Furloughed workers. Until the full detail is known and this is put into practice there are likely to still be some grey areas however for now we have noted some immediate questions you may have below. If you do have further questions please let us know and we will endeavour to update you.
Please note you should also discuss this with any employment lawyer, as we are not able to provide legal advice.
What can we claim back for a Furloughed worker?
You can claim up to 80% of earnings (see below on how this is calculated) plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions.
How are monthly earnings are calculated?
You may claim, on behalf of an employee, the higher of:
– The amount an employee earned in the same month last year
– An average of the monthly earnings from the last year.
If an employee has been with you less than 12 months, you can claim the average of an employees monthly earnings since they started work. This same applies to zero hours contractors. It is important to state that bonuses, commissions and fees are not included as part of monthly earnings.
What will happen to pension contributions for a Furloughed worker?
We have recently published an article via our website which explains our current understanding on how pension schemes may be impacted. This is being updated as and when things evolve.
What salary should we base pension contributions on?
This should be based upon the actual amount being paid to the employee, in line with your existing pension contribution structure. If you decide to top up the salary paid via this scheme to it’s pre COVID-19 level this would need to be included as pensionable too. Please note however the amount that will be paid by HMRC to reimburse you for pension contributions will be only the legal minimum required – 3% of Qualifying Earnings. Please refer to the pensions article as linked to above for more detail.
Will this have an impact on our Group Life Assurance/Income Protection benefits?
We are working with providers to understand the implications, if any, of an employee becoming Furloughed. Our view is that an employee should still be deemed actively at work, unless they are off sick. Insurers also have a tolerance level on the scheme before a rate review is triggered. If only a few workers are being Furloughed then it is unlikely that this will breach the tolerance levels however please do keep in contact with us and we can of course monitor the situation.
What if the new Furlough salary isn’t enough to cover all of the deductions from pay to ensure salary sacrifice rules aren’t breached?
You may offer flexible benefits to employees and employees may well have purchased a number of additional benefits through their pay. We have set out some more information on benefits below, however if the new salary isn’t sufficient to cover the cost of all of the benefits you would need to give consideration to whether the benefit was being paid for by salary sacrifice. If it was, you cannot sacrifice an employee’s salary below National Living Wage and as such you would either have to amend the pension contribution to net pay, or stop some benefits – for example any holiday purchase. Please do consider any employment law implications on stopping contractual benefits however. We would recommend you take legal advice from an employment lawyer, as there may be a need to consult with your employees first.
My employees have purchased holiday through payroll and now would rather have the money, what can I do?
It is up to you how you action these requests, but it would be prudent that the same approach is taken across all of your work force so as to avoid any future claims. You may continue to deduct the pay from your employees (and therefore the individual will still accrue the additional holiday) if you feel you as a business are in need of this money. You may however consider pausing or stopping any holiday purchase for employees who request it. If doing so you should ensure that you inform them what they have paid for and accrued so far, and what remains.
on 28 March, it was announced that Furloughed workers are to be allowed to carry over any holiday entitlement for 2 years. Ordinarily this is at company discretion and many companies allow only a handful of days to be carried over. You will need to consider how this is managed, and whether as a company, you have a HR system that can cope. The detail on this is still to be announced as this was only introduced on 28 March 2020.
What about our Private Medical Insurance?
As you will no doubt be aware, private doctors and hospitals are being called in to support the impending influx of patients in need of care as we approach the peak of this outbreak. This means that there is likely to be a delay or restrictions placed on the treatment available via any PMI scheme you have. PMI schemes are annual contracts and as such, unless an employee leaves your employment they cannot opt out of this benefit mid-term. We would like to remind you that the PMI plan is an insurance, and in an ideal world wouldn’t be used (as it would ordinarily only be used if someone were to be ill/in pain). Most PMI plans will come with a host of other benefits that can be used, and the likelihood is this will remain, or evolve. We are in contact with PMI providers to understand their business continuity plans and how they plan to, if they plan to, compensate members who are not able to claim on their PMI at this time as they normally would. We cannot guarantee that they will provide any financial reimbursement or any extension of cover, but if they do we will let you know if this is of relevance to your scheme if applicable.
A separate update on PMI schemes can be found on our website, here.