“For the purposes of calculating the reference pay, employers should include all the regular payments that they are obliged to make, following the published online guidance on how to “Work out 80% of your employees' wages to claim through the Coronavirus Job Retention Scheme”.
Variable payments that are specified in a contract and are always paid in reality can be included within the reference salary for calculating the subsidised furlough pay grant.
Whether a particular payment, made in the reference period, should be included in the gross pay grant calculation depends on whether it was a discretionary payment. The written terms of the employment contract are the starting point for assessing whether a payment was discretionary. Where there was no written contract the Statement of Employment Particulars provided under S.1 of the Employment Rights Act 1996 should be used. An employer should only include payments to which the employee had an enforceable right.
The scheme covers “zero-hour” employment contracts or other situations where the employee or employer have a choice about how many hours they will work, so long as the payment made by the employer for any hours worked was non-discretionary.
All of the money claimed to cover an employee’s subsidised furlough pay under CJRS must be paid over to the employee - it cannot be retained by the employer”
There was then a further set of clarity provided to support understanding especially on the subject of “discretionary payments or bonus’” that read
“‘this matter is for customers to resolve, through their own processes and taking into account any legal advice as appropriate – it is not possible for HMRC to determine ahead of time whether any particular bonus payment is discretionary or not, because the wording of the contract and the actual contractual relationships in play vary considerably among different employers.
Customers should bear in mind that variable payments that are specified in a contract and are always paid in reality can be included within the reference salary for calculating the subsidised furlough pay grant. Customers should also be aware that a payment could be non-discretionary even if labelled otherwise in the written contract. As with all tax decisions, HMRC expects customers to take reasonable care to comply with their obligations’.
Comment: This advice from BEIS clarifies the issue around discretionary pay referred to in our previous article, in particular the point that on the face of it under the Treasury Order and other HMRC guidance this pay is not treated as regular pay for calculation purposes. The updated advice is that it will be treated as regular pay unless the written contract designates the payment as discretionary, and then if a discretion clause is not realistic it may be ignored so allowing for payments made to be treated as regular payments.
This should be music to the ears of many umbrella companies. However payments made on a genuine discretion basis by any employer will still not be taken into account for furlough payment purposes.
