As the world gets to grips with the COVID-19 situation, the government has introduced several measures to help employers with cashflow. The Coronavirus Job Retention Scheme (CJRS) has been put in place to protect jobs, but there are a number of conditions attached and commercial alternatives may be more suitable, explains Monique Beaulieu.
In the Chancellor’s own words, the government's “unprecedented package" will protect jobs and ensure employers can pay their workers. As businesses look to manage cashflow, employers may wish to change employees’ remuneration in the short term as a way of protecting jobs for the longer term. Furloughing under the Coronavirus Job Retention Scheme is one such measure, however, this requires that the employee undertakes no work whatsoever. An alternative measure may be to make temporary pay reductions, bonus deferrals, contracted-hour reductions or offer cashflow alternatives.
Employees may co-operate with improving cashflow
As an employer, you cannot change an employee’s remuneration arrangements unilaterally, but in the current circumstances, employees may be willing to agree on an individual basis to changes to their employment terms. If employees are in a position to accept an alternative, this can help the business stay afloat in the short term and give employees greater value in the long term.
In structuring any sacrifice or deferral of remuneration, it is important to ensure that this is effective from a tax perspective, so that the Pay As You Earn (PAYE) and National Insurance Contributions (NICs) obligations do not arise before remuneration is payable. Unless care is taken and the arrangement is properly documented prior to the tax liabilities arising, the business will remain liable to operate PAYE and pay NICs even though the remuneration has not been paid to the employee.
Correct documentation and structuring will ensure that the remuneration will be treated by HMRC as unpaid for tax purposes. It is possible to seek HMRC agreement after implementation that a remuneration sacrifice or deferral is effective, however, this can take time and, in the current circumstances where businesses need to act quickly, this is unlikely to be feasible. Therefore, special care needs to be taken to ensure implementation is timely and the documentation is effective.