Furlough pay for umbrella employees calculated on average pay

Government’s guidance for employers on the Job Retention Scheme was updated on 14 May 2020 to state;

“when variable payments are specified in a contract and those payments are always made, they may become non-discretionary. If that is the case, they should be included when calculating 80% of employees' wages."

This is a particularly important update for the temporary labour industry and contracting intermediaries who typically engage “umbrella employees” on the basis that they will be paid the National Living/Minimum Wage and a discretionary “profit related pay” or bonus element.

The Direction is clear that discretionary payments do not form part of regular salary or wages however, the updated guidance now states that if a payment is always made, it may become non-discretionary.

Employers need to consider whether contractual documentation refers to a discretionary element of pay, as well as whether an employee is “always” paid a sum greater than the contractual NMW/NMW.

See the updated guidance here.

Aspire Comment

Until this update, Government guidance hadn’t provided any clarity on how to calculate furlough for employees paid via umbrella companies and the traditional umbrella payroll calculation.

Aspire has advised clients all along that we consider it unlikely that HMRC will challenge if furlough pay claimed for an umbrella employee was based on average earnings and this is confirmed by this update. However, employers are likely to have already formed a stance on this and notified employees of their position and so, cannot be maligned for potentially having taken a risk-averse approach.

The update still does not provide certainty to employers with the unfortunate use of wording such as “may” still leaving matters slightly ambiguous. Therefore, if you would like to discuss matters further call us on 0121 445 6178 or email enquire@aspirepartnership.co.uk.