The Government has released an update to the CJRS guidance although many of the points that the Umbrella companies hoped to be clarified are still confused, and are leaving many umbrella providers unable to act.
The arrangements, as it appears, result in umbrella workers’ qualifying earnings under the CJRS amounting to just 80% of the National Minimum Wage element of their pay. This results in them being unfairly disadvantaged under the arrangements.
Most umbrella workers do not receive a ‘regular wage’; they receive earnings that will vary not only from assignment to assignment, but from week to week, according to the number of hours worked; their pay is made up of NMW, and any excess is paid as a discretionary bonus; and all their pay is subject to PAYE.
The current guidance is unclear or appears to disadvantage umbrella workers. This uncertainty centres around whether or not a furloughed umbrella employee, being an ‘employee whose pay varies’, should be paid on a basis calculated at 80% of historic earnings, or 80% of only the NMW element of historic earnings where the remainder has been paid as a discretionary bonus.
Case law has upheld that, for holiday pay purposes, variable elements of remuneration (such as commission and bonuses) are only included if they vary with the amount of work done.
These outcomes would seem to be an established principle and adopting them would be a solid basis for the calculation of earnings under the CJRS, removing many of the uncertainties and apparent inequities in the limited guidance so far published.
Furthermore, the scheme could then be easily enforced by HMRC, by referencing against historic RTI data to ensure correct amounts are being claimed in relation to workers.
These returns will not generally differentiate between salary and bonus elements of pay. This weakness may be vulnerable to being exploited and create unintended market distortions at this time of high uncertainty. Future enforcement will prove difficult and costly and can be significantly addressed where the established principles of remuneration are used as the basis for the CJRS arrangements.
Crawford Temple, MD of Professional Passport commented: ‘We never saw the original proposed CJRS arrangements as an attack on umbrella providers. We believed that in designing the arrangements in such a short time scale nuances were overlooked. We still have confidence that once these inequities were fully understood they will be addressed. Professional Passport together with Trade Unions, Accountancy Bodies, Taxation Specialists and many other organisations operating across the payment intermediary and agency sector were making the same points to Government; that collective voice needs to be heard.’
He went on to say: ‘The Government, as a result of these unprecedented times, has had to effectively rewrite the tax system in a matter of days and this was always going to have issues. What is clear is that there seems to be a genuine under lying principle to help workers during these difficult times.
The Government has made many recent arguments on ‘fairness’ to support the case for Off-Payroll Working. These have centred on a comparison of an employee and ‘disguised employee’ where the levels of tax vary. The principle that was trying to be established was that 2 people doing the same roles should be paying the same levels of tax. These arguments can be extended to the current situation in the CJRS arrangements.
Two workers carrying out exactly the same work, one paid via agency PAYE and one paid through an umbrella company should be in the same position in relation to the CJRS scheme; that seems to support fairness. Under the current arrangements the agency PAYE worker would qualify for 80% of their average earnings whereas the umbrella worker would, in the majority of cases, be limited to 80% of their National Minimum Wage earnings.
By adopting the principles established through case law relating to holiday pay this inequity would be removed.
Making these amendments, together with the cap on qualifying earnings of £2,500, will significantly benefit the lowest paid and most vulnerable workers during these challenging times and we implore an urgent review of the arrangements.
The updated guidance can be viewed here: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme