Hot topic: Coronavirus – furlough and automatic enrolment

HMRC’s guidance on its Coronavirus Job Retention Scheme (“the CJRS”) has been updated at various stages to reflect changes to the scheme’s conditions, duration and levels of grant (see “The CJRS – in brief” below).

The CJRS, which went live on 20 April, aims to reimburse employers for part of the wages of staff on furlough (for a period now running originally until 31 October 2020, and extended in November 2020 to 31 March 2021 (with a review of the policy due in January 2021)).

Employers can choose to provide top-up salary in addition to the grant, but in periods where the grant covers them, the CJRS will not fund Employer NICs and automatic enrolment contributions on any additional top-up made. Where employers pay higher pension contributions than the default AE minimum, eg because they use a different DC basis to satisfy AE requirements, or the scheme is DB, the excess will not be funded by the CJRS. TPR has published guidance looking at the interplay between the furlough scheme and automatic enrolment issues (see our Alert).

Further guidance, including on how employers should calculate their claims for Employer NICs and minimum automatic enrolment employer pension contributions, before 1 August, is available.

The CJRS – in brief

• 1 March – technically goes live
• 20 April – official launch date. The grant covers 80% of a furloughed worker’s salary or wage, up to £2,500 per month, plus the associated Employer NICs and minimum automatic enrolment employer pension contributions (up to 3% of band earnings) on that salary. An employee must be furloughed for a minimum period of three consecutive weeks and, subject to certain exceptions, cannot work during furlough
• 10 June – the last day for furloughing an employee for the first time (ie to meet the minimum three-week qualifying condition before 1 July)
• 1 July – subject to limited exceptions, the CJRS was initially closed to new entrants. Furloughed employees can work part-time, with the employer paying their normal wage. An employer can still claim a grant in respect of the employee’s usual hours
• 1 August – the level of the grant begins to reduce each month, with employers having to cover the cost of employer NICs and pension contributions
• 1 September – building on the above changes, the Government pays 70% of wages for the hours the employee is on furlough (up to a cap of £2,187.50), with employers making up the remaining 10% of wages (up to the £2,500 cap)
• 1 October – the Government pays 60% of wages for the hours the employee is on furlough (up to a cap of £1,875), with employers making up the remaining 20% of wages (up to the £2,500 cap)
• 1 November – 31 January 2021: the grant returns to covering 80% of a furloughed worker’s salary or wage, up to £2,500 per month, but employers must cover the cost of employer NICs and pension contributions. Employers and employees do not need to have used the CJRS previously
• 31 January 2021 – 31 March 2021: further detail awaited

Tips for schemes and employers

Schemes and employers should ensure that:

• HMRC’s guidance is reviewed as and when it is updated
• there is dialogue between employers and trustees as to which employees have been furloughed and the consequences for their pension benefits if salaries are reduced whilst on furlough
• employer choices are compliant with automatic enrolment obligations (and scheme rules), and that contractual changes have been made where necessary
• decisions are made in compliance with equality and discrimination laws, and have been carefully documented – both in terms of records, and communication to the employees concerned
• any knock-on impact, for example to death benefits, has been considered.

Furlough – other pensions issues

Schemes should consider the impact furlough may have on employee contributions, and whether there are any salary sacrifice issues (see our Hot Topic).

Clients at or near their re-enrolment deadlines may wish to use the flexibility permitted to move their date for this by up to three months.