We continue our series of articles looking at how governments around the world are providing support for payroll costs during the COVID-19 pandemic, and specifically what global payroll professionals will need to do to access this support for their employer.
In part one we reviewed implications for France and The Netherlands, in part two we reviewed implications for Germany and China and now we turn our attention to the United Kingdom and Ireland.
We start in the UK where Chancellor Rishi Sunak has acknowledged that business faces a unique set of circumstances which have called for a comprehensive government response. This has been provided in a number of different ways. The UK outsourced the payment of Statutory Sick Pay (SSP) to employees, at full cost to their employer with no reimbursement from the government some years ago. The scheme requires a three day waiting period during which no benefit is paid, but the pandemic has forced significant changes to this scheme.
The first change is the waiving of the 3-day waiting period for anyone absent because of COVID-19, meaning that SSP entitlement is calculated from the first day of absence rather than the fourth. The government has instructed the population that anyone suffering from the most prominent symptoms (persistent cough and high temperature) should self isolate for at least seven days. Equally, those living in a household with someone in this category must do the same. In both instances, the individual will be able to apply to their employer to receive SSP (from 6th April 2020, £95.85 per week). So sick pay becomes payable to people who do not need to be sick, but merely absent from work because they are self-isolating under government guidelines.
One crucial rule that employers must undertake under the SSP system is the need to verify the exact health situation of any claimant by requiring medical evidence of incapacity in the form of a Doctors Fit Note. To assist the NHS and free up valuable GP time, this requirement has also been waived, and indeed anyone self-isolating who is not ill would not receive one. Claimants are advised as an alternative to apply on the NHS111 government website for an Isolation Note instead. Employers have been urged in official guidance to use their discretion (and presumably err on the side of generosity) when reviewing medical evidence.
The cost of this scheme will still fall to some employers, but the government has provided support for smaller companies. A smaller company is deemed to be one with up to 249 employees, the headcount being taken from the live payroll as at 28th February 2020. These smaller employers will be able to recover up to two weeks of SSP payments for each afflicted employee. The mechanism for making this recovery is still to be determined by HMRC, but they have indicated that it is not likely to be the same “netting off” arrangement currently applied to other statutory payments such as Statutory Maternity or Paternity Pay.
The amendments to the SSP rules only apply to illness or absence linked to COVID-19. The waiting day’s provisions and the liability for the cost of SSP falling on the employer, regardless of size, continue to be the case for any non COVID-19 absence. The rules on gathering evidence of incapacity are relaxed; however, for all absences, employers should be mindful that Doctor’s surgeries across the country have urged people not to come in. It will be important for employers to clearly document all decisions they made regarding SSP eligibility, and to be able to confirm that they met the spirit as well as the letter of the law.
Turning to the position of workers who are facing the prospect of short-time working or even layoff, the UK has a little known scheme that allows employers to suspend work either in full or partly, provided that the ability to do this has been included in the contract of employment. Where this has been done, the employer is obliged to pay Statutory Guarantee Pay at the rate of £30 per day (effective April 2020) for the first five days of layoff. After that, there is no obligation to pay the employee, but the scheme can only be deployed for either four continuous weeks or six weeks in total within a rolling 13 week period. After this point, the employer would be deemed in breach of contract, would be required to make the employee redundant, and would have to make any resulting redundancy payments required by law.
This scheme fails to address the concerns of both employers and workers during the current crisis and to provide certainty to the UK economy; the government has introduced the Coronavirus Job Retention Scheme. Under the scheme, the government is guaranteeing to cover 80% of employee’s wages up to a maximum of £2,500 per month per employee for an initial period of up to three months, although this may be extended should the COVID-19 outbreak be ongoing past that point. The PAYE system will be used by HMRC to direct funding back to employers who will report furloughed staff via a portal.
To claim the support, the employee must have been officially deemed to be “On Furlough” – a term which simply means taking a leave of absence, from the Dutch word Verlof. Those employers who had the foresight to include a layoff clause in contracts will be able to implement the change automatically, but where this is not the case, the switch to being a furloughed employee needs to be voluntarily agreed by the employee. If the alternative is losing the job, it is presumed that most employees will readily agree to the change. However, it is possible that some employees may want to reject the request to accept being placed on furlough and then either continue to receive full pay or (more likely) be made redundant and receive the required termination payment.
The support extends to all UK businesses, including charities, not for profit organizations and companies where there is just one single Director as the workforce. The employer will be responsible for calculating the 80% salary, paying the employee, and then claiming the reimbursement from HMRC. It is important to emphasize that this support is a grant, not a loan. The allowance will be treated for taxation purposes as ordinary pay, be subject to tax and national insurance contributions, and also any pension contribution obligations. The employer will have no future liability to repay any of the support provided. The cap of £2,500 per employee per month is designed to cover both pay and employer’s national insurance and pensions contributions.
Mrs. A ordinarily earns a salary of £2,300 per month. She is a member of an auto-enrolment pension scheme, and her employer pays a 3% pension contribution
Under the Job Retention scheme, Mrs. A will receive an 80% salary payment of £1,840
Mrs. A’s pay will be subject to the usual deductions and will be reported to HMRC electronically
This will attract an employer national insurance contribution of £154.70 and an employer pension contribution of £55.20
Mrs A’s gross salary cost of £1,840 + £154.70 + £55.20 = £2,049.90. This amount can be recovered in full under the scheme. Had the total cost exceeded £2,500 the grant would have been limited to this maximum monthly claim
Mrs. A’s employer will need to claim the support via the new HMRC portal, which is currently under construction.
There are some important rules that must be met in order to qualify for support. The scheme can only apply to those who were employees of the employer on 29th February 2020. It officially commenced on 1st March 2020, and support can be applied for retrospectively back to that date. The initial support will run for three months, but the government has indicated that they may extend that support beyond this period. The employee must not work for the employer, so it cannot be used to support those on short-time working, only those where work has ceased altogether.
A similar approach has been taken in the Republic of Ireland. Here the default position is that the state rather than employers pay illness benefit to a sick employee. The benefit usually has a six-day (one week Monday – Saturday) waiting period before benefit is paid, but for COVID-19 cases, this waiting period is to be waived. The benefit is also payable to those who are not sick but who are self-isolating under government advice. The level of benefit has also been substantially increased from €203 per week to €305 per week for two weeks. Where employees are off sick or self-isolating the government has urged employers to support their workers – the following statement appears on the Department of Employment Affairs and Social Protection's website:
The government has now urged all employers to support national public health objectives by continuing, as a minimum, to pay employees who cannot attend work due to COVID-19 illness or self-isolation the difference between the enhanced Illness Benefit rate and their normal wages. While there is no legal obligation for employers to follow this request, an appeal to join a national public health initiative would be difficult for any business to ignore, and given the potential for a public relations disaster, if employers do not comply, companies should consider this appeal very carefully. A number of ways are suggested as to how this might be done including:
- Allowing the employee to work from home
- Allowing the employee to make up the time lost at a future date
- Allowing an employee to use vacation to cover the absence
- Rearranging parental leave
The changes only impact on COVID-19 absences – any other sickness absence is covered by the existing rules.
Turning to the position of those whose workplace temporarily closes due to the pandemic, there are two options available for financial support. The employer could simply lay off the employees without pay – provided the contract of employment allowed for a layoff. Such employees may claim the COVID-19 Pandemic Unemployment Payment direct from DEASP, a payment of €203 per week for an initial six weeks. The employer must enter a leaving date on the payroll submission to allow the payment to be made.
Alternatively, the government has introduced the Employer COVID-19 Refund Scheme to encourage employers to retain staff on their payroll. The aim of the scheme is to keep people on their employer's payroll rather than having employment terminated, and for these workers to receive the payment that otherwise DEASP would have to pay as Pandemic Unemployment Payment. It may be applied to any employee for whom the employer has filed at least one payroll submission for in the period 1st February to 15th March 2020. The employee will receive a non-taxable payment of €203 per week, and the employer must not be making any top-up payment to the worker.
The payroll instructions on how to set this up are quite detailed. The employer must first apply via Revenue Online Services to access the scheme. The employee's PRSI class and subclass should be re-set to J9 – the category usually only used for those receiving a FAS allowance through government job creation schemes. This is done to ensure that a social insurance record is still created for the individual. The employer must enter €0.01 of basic pay – at this level, the usual employer PRSI contribution for class J9 of ½% will not actually calculate an employer deduction. The allowance of €203 is then paid under a separate pay code, which has been set to be exempt from income tax, universal social charge, PRSI, and pension contributions. Any income tax/USC refund generated by the usual cumulative pay calculation may also be paid to the employee. The employer must then file a payroll submission as usual to report the payment. Reporting the pay as €0.01 and PRSI class as J9 is crucial to the reimbursement as it is this data that will identify the system is in use by the employer, and this, in turn, will trigger the €203 refund which will be paid directly to the employer's bank account by the next banking day. Full details of the scheme are available here.
For employees who have been placed on short-time working rather than having pay suspended altogether if a lay off clause has not been included in the employment contract, the employee's consent should be obtained by issuing form RP9 to them – available here. For those who previously worked full time and are now working three days a week or less, the employee has the option of claiming Short Time Work Support benefit directly from DEASP. This is paid at the rate of €81.20 for each missed day of work, with no administrative requirements for the employer.
Lastly, where an employer has instructed employees to work from home, there is the ability to pay the employee a small tax-free per diem to cover the running costs of having to use their own residence as a work location. The allowance is set at €3.20 for each day of home working. It is not a mandatory requirement, and if the employer chooses not to pay it, the employee has the possibility to claim a tax allowance for any sums expended in connection with home working provided they meet the test of being incurred wholly, exclusively and necessarily in the course of the duties of the employment. As with any tax deduction claims, full receipts should always be retained.