The Coronavirus Job Retention Scheme (CJRS) is a government-funded scheme that provides a contribution towards wage costs for employers who stand staff down as a result of the COVID-19 crisis. Where, by reason of circumstances arising as a result of the coronavirus, the employer instructs an employee to cease all work in relation to their employment for 21 days or more, the employer can make them a "furloughed worker". If the employer does this, the government will contribute 80% of that employee's salary (subject to a cap of £2,500 per month), plus employers' national insurance contributions and the minimum automatic enrolment employer pension contributions on the reduced salary (as to which, see below).
The CJRS is open to all organisations, regardless of size, and all employees employed as at 19 March 2020 (originally 28 February but the CJRS was extended on 15 April). It will initially be open for three months (extended on 17 April to four months) from 1 March. Employers are required to pay salary and pension contributions in the usual way and claim reimbursement under the CJRS. See our Employment department's client guide for more detail of the CJRS.
What furlough could mean for pension contributions and benefits will depend on what type of pension arrangement is provided by the employer, the specific rules of that arrangement and what changes the employer might be making to pay and benefits during that period. There are a number of potential pitfalls and complexities. Salary sacrifice arrangements can further complicate the position. Please see our guide to the pension aspects of the CJRS.
The pensions and salary sacrifice content of the government's CJRS guidance is as follows:
"How much you can claim
You’ll need to claim for:
Employer pension contributions that are paid on the subsidised furlough pay, up to the level of the minimum automatic enrolment employer contribution. The maximum level of grant for employer pension contributions on subsidised furlough pay is set in line with the minimum automatic enrolment employer contribution of 3% on qualifying earnings. Grants for pension contributions can be claimed up to this cap provided the employer will pay the whole amount claimed to a pension scheme for the employee as an employer contribution.
Benefits in Kind and Salary Sacrifice Schemes
The reference salary should not include the cost of non-monetary benefits provided to employees, including taxable Benefits in Kind. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included in the reference salary.
All the grant received to cover an employee’s subsidised furlough pay must be paid to them in the form of money. No part of the grant should be netted off to pay for the provision of benefits or a salary sacrifice scheme.
Where the employer provides benefits to furloughed employees, including through a salary sacrifice scheme, these benefits should be in addition to the wages that must be paid under the terms of the Job Retention Scheme.
Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly."
This new "life event" may not increase the salary claimable under the CJRS, given that there cannot be a retrospective opt-out of salary sacrifice effective before the 19 March (previously 28 February) 2020 date as at which furlough/CJRS pay is assessed but it may increase the pay the employer must pay to the employee.
On 15 April, the Chancellor of the Exchequer signed a direction to HMRC including the following definitive specification of the amounts employers can claim in respect of pension contributions for furloughed employees. Note that this applies regardless of the employer's basis of complying with the DC requirements and would seem to apply in respect of DB members too.
"8.9 The amount allowable as a CJRS claimable pension contribution under paragraph 8.1(c) is the lower of-
(a) the contribution payable by the employer in respect of the employee to the registered pension scheme for the relevant CJRS period, and
(b) 3% of the part of the gross earnings paid to an employee in a pay reference period as applicable to the employee of 12 months that are-
(i) more than the lower limit for qualifying earnings in that pay reference period (as set out insection 13(1)(a) of the Pensions Act 2008), and
(ii) not more than the amount claimable by the employer under CJRS in respect of an amount of gross earnings as described in paragraph 8.1(a) in the same pay reference period."
See also the Pensions Regulator's 17 April guidance on CJRS pension contribution claims where there is a salary sacrifice arrangement and/or certification of DC contributions
This is an extract from our 81st issue of What's Happening in Pensions.
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