With the majority of employees receiving a monthly salary paid at the end of each month, employers are now focused on how to calculate wages for those who have been furloughed. Based on the guidance we currently have from government, pay should be calculated on the following basis:

For full or part time employees on a salary
– 80% of the employee’s salary, as of 28 February 2020, before tax.

For employees whose pay varies
If the employee has been employed for 12 months or more, pay the higher of either:
– the same month’s earning from the previous year
– the average monthly earnings for the 2019-2020 tax year
If the employee has been employed for less than 12 months, pay 80% of their average monthly earnings since they started work.
If the employee started employment in February 2020, work out the pro-rata for their earnings so far, and pay them 80%.

Employer National Insurance and Pension Contributions
You will still need to pay employer National Insurance and pension contributions on behalf of your furloughed employees and you can claim for these too.

Topping Up Salaries & Enhanced Pensions
You can choose to top up your employee’s salary but will only be able to claim 80% of their salary to a maximum of £2,500. It should be remembered that employees must not work or provide any services for the business while furloughed even if they receive a top-up salary. You will not be able to claim for additional National Insurance or pension contributions you make because you chose to top up your employee’s salary. You cannot claim for any pension contributions you make that are above the mandatory employer contribution.

Past Overtime, Fees, Commission, Bonuses and Non-Cash Payments
You should include overtime and compulsory commission in the calculation of wages. Discretionary bonuses (including tips), commission payments and non-cash payments should be excluded.

Apprenticeship Levy and Student Loans
Both the Apprenticeship Levy and Student Loans should continue to be paid as usual. These will not be covered by the grant.

Claims Through This Scheme
The online service for claims will be launched on 20 April and we will provide further guidance when it is available. You will need to claim for:
– 80% of your employees’ wages up to a maximum of £2,500.
– minimum NIC and automatic enrolment employer pension contributions on the subsidised wage
Claims should be started from the date that the employee finished work and starts furlough.

If you have any queries or require more information on how to calculate wages for furloughed employees please contact Stephen McConnell, Business Services Partner stephenmcconnell@bakertillymm.co.uk or our Payroll team payroll@bakertillymm.co.uk