Which wage costs are covered under the Coronavirus Job Retention Scheme?

Under the Coronavirus Job Retention Scheme, employers can claim a grant from HM Revenue and Customs (HMRC) to cover 80% of an employee's regular wage, or £2,500 per month, whichever is lower. In addition to this, they can claim the employer national insurance contributions and the minimum automatic enrolment employer pension contributions that they are liable to pay on the subsidised wage. The Government has created a Coronavirus Job Retention Scheme calculator to assist with making a claim.

The employer should use the employee's pay in the last pay period prior to 19 March 2020 to calculate 80% of the pay for salaried workers (although where the employer has based its calculation of salary on pay at 28 February 2020 in accordance with previous HMRC guidance, this calculation can be used for the first claim if there is a difference). There are separate rules for calculating the pay of workers with irregular hours.

Guidance published by HMRC, states that the calculation should be based on the regular payments the employer is obliged to make to the employee, including:

  • regular wages;
  • non-discretionary payments for hours worked, including overtime;
  • non-discretionary fees;
  • non-discretionary commission payments; and
  • piece rate payments.

The calculation of wage costs should not include discretionary commission payments, discretionary bonus payments, tips or non-cash payments. Non-monetary benefits (eg benefits-in-kind) are excluded, as are benefits provided through salary sacrifice.

Employers can top up the amount that they claim from HMRC and pay employees in full. If an employer does not intend to top up the employees' wages, it must obtain their agreement to the reduction in pay, unless it has the contractual right to lay-off employees with no pay or reduced pay.

From 1 July 2020, furloughed workers can perform some work for the employer under a flexible furlough arrangement. The level of contribution towards wage costs that employers can claim under the scheme will reduce gradually until the end of October 2020, when the scheme will close. See How did the Coronavirus Job Retention Scheme change between 1 July 2020 and 31 October 2020?.