Coronavirus job retention scheme - employer contributions

The Coronavirus Job Retention Scheme was set up by the Government in response to the COVID-19 virus. The scheme intends to support businesses and their employees through the outbreak by covering up to 80% of the costs of employment up to an overall cap at the outset of £2,805 per employee per month. Up to 31st July 2020, this not only included salary, but also the employer’s National Insurance contributions and the minimum employer pension contribution of 3% of qualifying earnings required under Automatic Enrolment (AE). Flexible furlough – allowing furloughed employees to return to work part-time – is possible from 1st July 2020. The level of Government financial support tapers off from 1st August 2020 and the scheme ends on 31st October 2020.

We recognise the impact of the Coronavirus outbreak may be placing a considerable strain on you and your employees. We want to reassure you that we’re working with the Government and Regulators to determine whether any change to current industry practice is required. To continue to support you, we wanted to share our understanding of the current situation and what it means for you as an employer.

We’ve summarised the current position on employer pension contributions.

  • The scheme applies where a business has ‘furloughed workers’. Originally, that required the employees to be completely inactive, but from 1st July 2020 ‘flexible furlough’ allows previously furloughed workers to return to work part-time. The Coronavirus Job Retention Scheme is intended to support a business and their employees by covering up to 80% of the costs of employment up to an overall pay cap of £2,500 and a total of up to £2,805 per employee per month (at the outset). Up to 31st July 2020, this financial support included employer National Insurance (NI) contributions and the minimum employer pension contribution of 3% of qualifying earnings required under AE.
  • Where a business has made other arrangements with employees such as reducing pay (for example to 50% of normal salary), we would expect AE contributions to continue and be based on the reduced salary applying to each pay reference period.
  • Where a business is carrying on its operations as normal, we would not expect any changes in relation to AE contributions.
  • Where an employer falls into arrears, the current rules require missed contributions to be made up at a future date. Normally a recovery plan would be agreed with The Pensions Regulator (TPR) at the earliest point. We expect that in the current circumstances the matter of arrears will be addressed with TPR at a later date.
  • Where a business has ceased trading, no further contributions will be payable. However, if the scheme was in arrears prior to this there may be a claim on the assets of the business in respect of missed contributions, as is normally the case.

This is our current understanding of the DWP’s latest update on employer contributions based on conversations we are having with the Government and Regulators.

Coronavirus job retention scheme – how it works

  • Under the Coronavirus Job Retention Scheme, all UK employers with a PAYE scheme will be able to access support to continue paying part of their employees’ salaries for those who would otherwise have been laid off during this crisis.
  • This applies to employees who have been asked to stop working, but who are being kept on the payroll, otherwise described as ‘furloughed workers’. This is to safeguard workers from being made redundant. Up to 31st August 2020, HMRC will reimburse the lower of 80% of their salary or £2,500 per month. After this, employers must continue to pay fully-furloughed employees at least 80% of their earnings capped at £2,500 but for September, HMRC will reimburse a maximum of 70% of salary capped at £2,187.50. For October, this will reduce to a maximum of 60% of salary capped at £1,875. Pro-rated payments will be made if the furloughed employee is working part-time from 1st July 2020.
  • Up to 31st July 2020, the scheme also paid the associated employer NI contributions and AE minimum employer pension contributions (capped at 3%), making the total maximum payment £2,805 per employee per month.
  • The Coronavirus Job Retention Scheme will cover the cost of salary, employer NI contributions and employer pension contributions backdated to 1st March 2020. Flexible furlough – allowing previously furloughed workers to work part-time – was introduced on 1st July 2020. The scheme closes on 31st October 2020.

For further information including how to access the scheme, visit www.gov.uk/government/collections/coronavirus-job-retention-scheme.