As the smallest entity across industry supply chains, contractors have been among the hardest hit by the Covid 19 lockdown. For many contractors, the Coronavirus Job Retention Scheme (CJRS) has been an essential and valuable necessity when many of their staple contracts and placements have had to be postponed or cancelled.
When a contractor is engaged under umbrella PAYE they become an employee of the umbrella company. Under the CJRS this means that they are entitled to be furloughed as long as they have met the given criteria. Despite a lack of clear guidance from HMRC in regards to umbrella companies, many contractors were able to find relief under this scheme.
When the scheme was announced in March, the process was put in place to cover 80% of a furloughed employee’s income, up to a maximum of £2,500. At the end of May, Rishi Sunak announced that the scheme would be extended beyond the original June finishing date and would be extended in its current form until the end of July. The additional concession made to this would be that employers will be expected to pay for a portion of furlough costs from August.
Contributions from August 1st 2020
When the scheme was launched it covered all employment costs, including employer National Insurance Contributions (NICs) as well as pension contributions. In a change to this, from August 1st, the scheme will no longer cover these costs. The employer (either the umbrella company or the limited company) are expected to pick up the bill but in the case of an umbrella, finding this expense will be difficult due to the fact that they will be receiving no income from furloughed contractors.
As the scheme winds down, the government will seek to pass more of the furlough cost onto employers. From September 1st, the government contribution will be cut to 70% of wages, up to a cap of £2,187.50 per month. Employers will be expected to make up the 10% difference to 80% for any un-worked hours.
Continuing this trend from October 1st, the government contribution will be placed at 60%, with employers expected to make up the 20% difference to 80%.
As in previous situations, umbrella companies are waiting on clear guidance from HMRC to help determine how the additional contributions an ’employer’ is liable for can be made. Once clear guidance has been given, we will be able to provide a clearer picture as to how our industry can proceed. Fingers crossed by then we all will have returned to some sense of normality and will be back working for the full 100% of our wage.
If you have any questions on furloughing and what these changes mean to you please contact us on 020 3819 7220 or email us on email@example.com