Job Retention Scheme Module: The calculation and potential differences
Description
We recommend you check you're using Sage 50 Payroll - 26.02.128. To check your version number, click Help then click About. In the Program Details.
You don't need to worry about doing the calculation as the Job Retention Scheme Module does the calculations for you. However if you'd like to know more about how the module performs the calculation, you can view the information about employment type and the five steps of the calculation below.
Cause
Resolution
Differences between the Job Retention Scheme Module and HMRC
HMRC understand that there may be differences when processing furlough claims and we’re working with them to make this process as simple as possible for you. Although you may find there are some slight differences between the calculation returned from the Sage Job Retention Scheme Module and HMRC, rest assured we’re here to support you through this process and get you all the information you need to submit your claim as quickly as possible.
Why are there differences?
There are two common reasons for these differences. To find out about these and what you need to do to correct them, check the table below. Please note: These differences are very small, typically less than 1%.
What we're doing
We're working closely with HMRC to refine our calculation based on this new legislation. As with all new legislation, it's constantly updated as HMRC come across different scenarios.
We recommend that you check all calculations before submitting to HMRC to ensure any issues can be corrected. You also have the option of using HMRC's own tool to manually calculate for employees.
If you've already submitted your claim to HMRC
If you've already made a claim that contains a difference, HMRC have advised that they'll enable businesses to submit corrections in the future. They've not yet issued guidance on how this will work. We're working closely with HMRC to understand this and will update this guide as soon as we have more information.
Common reasons for differences
Potential difference
Why it's different
What you need to do
Incorrect values: If there are any errors in your previous pay periods or the information that you've entered into HMRC's tool.
The Sage 50 Payroll Job Retention Scheme Module calculates your claim based on the processing history in the software. If the processing history or the values you've entered into HMRC's tool are incorrect there will be a difference.
If the values are incorrect in your processing history in Sage 50 Payroll, you need to rollback then process the wages again with the correct values. If the values are incorrect on HMRC's tool, you can simply re-enter the correct values.
Daily rate calculation: There's a small difference, over March and April, between how the module calculates the daily rate furlough entitlement for employees against HMRC’s tool due to varying days within a month. For more information on this, check the fixed employee example in this article.
The module calculates the daily rate differently to HMRC tool. This results in less than a 0.2% difference over March and April.
No further action is required. This will even itself out over the periods you claim. Alternatively you can use HMRC tool to calculate.
Employment Type: Fixed or Variable?
Fixed pay
These are employees who get the same fixed salary each period.
Variable pay
These are employees who get paid a different amount each pay period.
Manual
You can use the manual employment type if you need to enter your own value for an employee in the assessment.
Directors
Directors calculations are the same as other employees. You can use the Fixed, Variable or Manual options.
Calculate the earnings for the assessment
From November you'll be paying each employee, 80% of their reference salary up to £2,500.
You can choose to top-up the amount paid to furloughed workers to make up to their normal salary, but you can't reclaim this from the government.
You can't claim for any additional employer costs, such as employer National Insurance Contributions or pension contributions.
If you're new to the job retention scheme and furloughing employees for the first time in November 2020, or perhaps furloughing an employee who meets the criteria for the extended scheme but wasn't previously eligible for CJRS, use the following rules to calculate the reference salary.
Fixed pay
Use their actual salary from the last full pay period ending on or before 30 October 2020.
Variable pay
Work out the average the employee was paid between the start date of their employment or 6 April 2020 (whichever is later) and the day before their furlough period starts.
For hourly paid employees, work out the salary from the average number of hours they worked between 6 April 2020 and the day before their furlough period starts.
Calculations
Flexible furloughing calculation - From July 2020
To help you understand the flexible furloughing calculations performed by the module, we've put together this free training video.
NOTE: We've not yet updated this video, however November calculations are the same as August.
Why is the furlough pay value higher than the reference earnings?
The furlough pay value can appear higher than the reference earnings value if the furlough claim period dates are greater than a single pay period, for example if you're claiming for March and April. The reference earnings value is the calculated earnings for one full monthly period and the furlough pay value is the furlough pay on the total claim period.
To view a breakdown, click Print. The report shows the reference earnings claim value for the full claim period which is the value that's used to calculate furlough pay.
How salary sacrifice impacts furlough pay calculations
A salary sacrifice is an agreement to sacrifice part of the employee's salary in exchange for other items, such as pension, childcare vouchers and the Cycle to Work scheme. These can impact other areas of the employee's pay such as statutory payments and their average earnings.
In order to calculate furlough pay, the employee's wages must be lowered by the sacrificed amount, which then affects the tax and national insurance calculations. When you're selecting the deductions to assess in the Job Retention Scheme Module, you need to select any salary sacrifice deductions to ensure the reduced value is used in the calculation.
Example
An employee has been furloughed from 1st to 30th April. This employee is paid £2000 per month and also has a salary sacrifice agreement for childcare vouchers for £200 per month. This employee's 80% calculation is based on the reduced amount of £1800.
The next step of the module's calculation is to calculate the employee's furlough earnings. To do this it needs to establish:
The number of tax periods that contain days within the furlough period, based on the employee's pay frequency.
The number of furloughed days within each tax period.
If the number of furloughed daysequals the number of days in the tax periodthen the earnings calculated in step 1 are the furloughed earnings.
If the number of furloughed days isless than the number of days in the tax periodthen the module calculates the furloughed earnings as follows:
Monthly employees
If the pay frequency ismonthlythen the furloughed earnings are:
Earnings in step 1 multiplied by 12. Divide this value by 365.2425 then multiply by the amount of furloughed days.
Weekly employees
If the pay frequency isweeklythen the furloughed earnings are:
Earnings in step 1 multiplied by 52. Divide this value by 365.2425 then multiply by the amount of furloughed days.
Fortnightly employees
If the pay frequency isfortnightlythen the furloughed earnings are:
Earnings in step 1 multiplied by 26. Divide this value by 365.2425 then multiply by the amount of furloughed days.
Four-weekly employees
If the pay frequency isfour-weeklythen the furloughed earnings are:
Earnings in step 1 multiplied by 13. Divide this value by 365.2425 then multiply by the amount of furloughed days.
Calculate furlough pay
The third step of the calculation is, for each tax period, the module calculatesfurlough payfrom step 2. There is a furlough cap, meaning the maximum amount you can reclaim is £2500 per month, or £576.92per week.
The furlough cap is calculated on a daily basis, and the daily cap is different depending on if the calendar month has 30 or 31 days.
In a 30 day month (e.g. April) the daily cap is £83.34.
In a 31 day month (eg. May) the daily cap is £80.65.
Payroll will calculate 80% of the furloughed earnings, then divide this by the number of days furloughed in the tax period to work out a daily rate for the period. This daily rate will be compared to the daily cap for the calendar month and the lower value is used for each day.
Example
An employee was furloughed from 16/03/20 - 05/04/20 (21 days total).
Their furloughed earnings were £2137.50. 80% of this is £1710.
£1710 divided by 21 = £81.43 daily rate for 80% earnings.
In March, the daily furlough cap is £80.65.
As this is lower, it will use this value for the 16 days that fall in March.
£80.65 multiplied by 16 = £1290.40
In April, the daily furlough cap is £83.34.
As the daily 80% rate (£81.34) is lower, it will use the daily 80% rate for the 5 days that fall in April.
£81.34 multiplied by 5 = £407.14
The total furlough pay that can be reclaimed is the total of the values for each month.
£1290.40 + £407.14 = £1697.54
Calculate employer's national insurance contributions
The fourth step of the calculation is to calculate employer's national insurance contributions (NICs). For each tax period, the module calculates the employer's NICs on furlough pay from step 3.
Calculate employer's pension contributions
In step five, for each tax period, the module calculates the employer's statutory minimum 3% pension contribution using the furloughed earnings value from step 3.
Example - Fixed salary
Firstly the module needs toannualise the employee's earningsit thendivides this by 365.2425to calculate adaily amount. It then works out thenumber of furlough dayswithineach tax period of your claimandmultipliesthesedays by the daily rate. The values for each period are then combined and is the value that the module calculates furlough pay on:
Reference salary x 12 =Annualised earnings.
Annualised earnings / 365.2425 =Daily rate.
Number of days in tax month A x Daily rate =Earnings for tax month A.
Number of days in tax month B x Daily rate =Earnings for tax month B.
Earnings for tax month A + Earnings for tax month B =100% Earnings value.
100% earnings value x 80% =Furloughed earnings.
If the reference salary in the period as of 19 March is£1000and their period of furlough is 1 April to 30 April, the module calculates the furloughed earnings as£788.52.
£1000 x 12 =£12,000.
£12,000 / 365.2425 =£32.8549.
For the period 1 to 5 April (tax month 12) 5 x £32.8549 =£164.2744.
For the period 6 April to 30 April (tax month 1) 25 x 32.8549 =£821.3725.
NOTE: We've not yet updated this video, however November calculations are the same as August.