Umbrella sector divided over ‘unsustainable’ furlough scheme’s new pay guidance

Contractor umbrella companies appear to have finally received the clarification from the government that their workers want, in relation to the Coronavirus Job Retention Scheme.

But underlining just how long contractors have had to wait to hear if it’s 80% of earnings (not just 80% of NMW) that they can get, the clarification coincides with official talk of the CJRS ending.  

In fact, Rishi Sunak took to Twitter to confirm that because it is "not a sustainable” scheme, he is considering “the most effective way to wind down” the CJRS, probably in June, if not July.

'Easing people back to work'

“Yesterday, I told ITV News that there will be no cliff-edge to the Coronavirus Job Retention Scheme,” the chancellor tweeted.

“But as some scenarios show we are potentially spending as much on the furlough scheme as we do on the NHS, I am working out the most effective way to ease people back into work.”

His comments came as the business department said that, for calculating reference pay, umbrella companies should “include all the regular payments that they are obliged to make.”

'Depends on whether it was discretionary'

“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”, said BEISS adding:

“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.

“[And] the written terms of the employment contract are the starting point for assessing whether a payment was discretionary.”

'Music to umbrellas' ears'

Lawyer Adrian Marlowe welcomed the guidance for clarifying the issue around discretionary pay which, “on the face it”, is still not to be treated as ‘regular pay’ for calculation purposes.

“The updated advice [from BEISS] is that it will be treated as regular pay unless the written contract designates the payment as discretionary”, he added.

“And then if a discretion clause is not realistic, it may be ignored so allowing for payments made to be treated as regular payments.”

So BEISS’s update will be “music to the ears” of umbrellas, the Lawspeed boss also said, while reiterating that payments made on a genuine discretion basis ought not be taken into account for furlough payment purposes.

'Should remove the NMW-only threat'

Neil Carberry, CEO of the REC is upbeat too. “[This guidance] is confirmation from the government…that should reassure umbrella companies and temps working through them.

“All payments that would normally be paid to temps on a non-discretionary basis can be claimed for through the CJRS.”

In a LinkedIn post, Mr Carberry added: “This should remove the threat of umbrella-employed temps only being offered 80% of NMW rather than 80% of ordinary earnings [when furloughed.]”.

'Anything but clarity'

But speaking yesterday to ContractorUK, the chief executive of the Freelancer and Contractor Services Association (FCSA), Julia Kermode, was much less convinced.

 “While we welcome the attempt, the apparent clarity issued by HMRC [and then distributed by BEISS] is anything but.

“[The guidance] states that both the regular payment in practice and the contract terms should be the governing factor. But these two tests will often lead to completely different outcomes.  

“In addition, umbrella employers can simultaneously always pay the full amounts  -- basic plus bonus or commission -- as regular salary while also having a discretionary pay term in their employment contracts.  

“The fact that the term is in the contract does not negate the fact that the full amount is virtually always paid in practice. However in very unusual and rare circumstances – like less than 1 in 10,000 payments -- the discretionary element of pay might be withheld.”

'Doesn't seem too much to ask'

The FCSA boss says HMRC must explicitly say that umbrellas can pay the furlough based on average earnings, provided that the brolly can prove it is paying out what is normally paid in the vast majority of cases.  

“This does not seem too much to ask,” added Ms Kermode.

“And we cannot understand why HMRC is ignoring the critical importance of the situation. In the meantime, the fact remains that not all umbrella employers will be able to calculate furlough pay based on average earnings.”

'Beggar belief'

Others suggest some umbrella companies won’t, potentially even if they were able. “Some of the practices I've seen in the last few weeks beggar belief,” says accountant James Poyser, reflecting online.

“We've been hearing some pretty terrible stories from contractors who are using umbrellas and have been benched due to COVID-19.

“They should be entitled to furlough pay…but the brollies are dragging their heels, denying it's available or simply not returning calls/emails. This is not acceptable.”

'Good eggs'

Yet the inniAccounts CEO also said some umbrellas had shown themselves to be “good eggs,” by moving quickly and paying their workers under the CJRS “early”.

Another accountant, Louise Rayner of NumberMill, says HMRC’s system is letting CJRS applicants down.

“[The Revenue’s system] cannot seem to cope with weekly claims,” she revealed. “As the claims are done in three-week periods and each week new temps become eligible or ineligible…there are overlapping periods. We are spending hours on the phone to HMRC every week and getting inconsistent answers every week.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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