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Job Retention Scheme Module: The calculation and potential differences

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Summary

The method for calculating pay for furloughed workers depends on if their pay varies or not. You need to determine whether your employees' pay is fixed or variable. This then determines which calculation that the Job Retention Scheme Module performs in Sage 50cloud Payroll.

Description

We recommend you check you're using Sage 50cloud 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.

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 differenceWhy it's differentWhat 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 50cloud 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 50cloud 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 calculationThere'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.

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.

  1. Gross Pay - Salary sacrifice amount = Reference salary.
  2. Reference salary x 12 = Annualised earnings.
  3. Annualised earnings / 365.2425 = Daily rate.
  4. Daily rate x 80% = Furloughed daily rate.
  5. Furloughed daily rate x amount of days furloughed = Total furlough pay.

In our example, the employee is paid £2000 with a salary sacrifice amount of £200 and has been furloughed for 30 days:

  1. £2000 - £200 = £1800
  2. £1800 x 12 = £21,600
  3. £21,600 / 365.2425 = £59.14.
  4. £59.14 x 80% = £47.31.
  5. £47.31 x 30 = £1419.33.




Disclaimer: This article provides general rather than specific guidance to assist all of our customers. We always do our best to make sure that the information is correct but as it's general guidance, no guarantees can be made concerning its suitability for your particular needs. The information is valid at the time of publishing and is provided without any warranty of any kind, express or implied. You should take professional advice if you require specific guidance on your individual circumstances, for example to ensure that the results obtained from using our software comply with statutory or regulatory requirements. For Employers, PAYE, NIC and general tax enquiries you should call the HMRC helpline on 0300 200 3200 or visit their website at www.gov.uk In no event will we be liable to you for any direct, indirect, consequential or incidental loss or damage arising out of or in connection with your use of the information provided.





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