With Furlough payments continuing until the end of October, it is important to check (and double check) that you aren’t making these common mistakes when processing and reclaiming Furlough payments…
1.Failing to uplift holiday and bank holiday payments
If an employee uses annual leave whilst on furlough, employers are required to pay the additional amount (20%) on top of the furlough reclaim (80%). Please note employees that are not furloughed, must not be placed on furlough for the period of their annual leave in order to reclaim 80% of their holiday payment.
Similarly if an employee is required to take a bank holiday as annual leave, employers must top up their figure to 100% (20% on top of the 80% furlough reclaim). Alternatively, employers can grant a day off in lieu and this day can be used as annual leave at a different point in the holiday year.
2.Reclaiming over the maximum £2,500
The Job Retention Scheme is capped at £2,500, therefore if an employee’s 80% average is higher than this figure, only £2,500 can be reclaimed. If employers wish to pay 80% (or more) of the individuals wages, they must do so at their own cost.
E.g. Employee 1 earns £5,000 per Month.
£5,000 x 0.8 = £4,000 (80% of Monthly salary)
Based on job retention scheme cap, employer can only reclaim £2,500 of this figure.
Employer can chose to uplift to 80% (or more) and contribute £1,500, but only £2,500 will be reclaimed.
Please note if the amount you’re reclaiming for is not one week or one Month, there are maximum daily wage amounts (please note this varies each Month, as it depends on calendar days).
E.g. Employee 1 earns £5,000 per Month and under the flexible furlough scheme, needs to be furloughed for 4 days in July’s payroll.
July calendar day rate for employee 1 = £161.29 (£5,000 / 31 (calendar days in July)
Maximum day rate for July = £80.65 (£2,500 / 31 (calendar days in July) = £80.65). The maximum day rate changes Monthly, depending on calendar days.
Based on this, employee 1 should be paid £80.65 x 4 = £322.6 for 4 furloughed calendar days.
Any figure paid to the employee over the maximum day rate cannot be reclaimed.
3.Claiming 80% of wages and underpaying employees
Government guidance is clear in that, any figure claimed from HMRC must contribute towards employee wages. Paying employee’s less than the reclaimed figure, would be considered a deliberate breach of the JRS and could lead to an investigation and fines from HMRC.
4.Reclaiming for employees that were not on an RTI submission before 19th March
In order for an employee to be entitled to furlough, they must have been on the PAYE payroll on or before 19th March 2020 and an RTI submission must have been sent, to notify HMRC of payment.
If an employee started work prior or after this time-frame, employers must not place them on the JRS as this money cannot be reclaimed.
5.Including discretionary overtime, bonus and tips in average calculations
For salaried workers, furlough calculations should be based on normal contractual salary, excluding discretionary overtime/bonus’ and tips. Guaranteed overtime and guaranteed commission should be included in average calculations.
For workers with varied pay, furlough calculations should be paid at the higher of (again this must exclude discretionary overtime/bonus’ and tips)…
- Average earnings in 19/20 tax year (pro rata calculation if worker started part way through tax year).
- Pay from the same period from last tax year.
What do you do if you process an incorrect reclaim?
Over claim- this can be resolved by reducing the following reclaim processed with HMRC, to correct the figures.
Under claim- employers (or your agent) must contact HMRC so they can manually reduce your claim to the correct figure.
If you are worried about mistakes with furlough or about your payroll, get in touch below.