Due to the closure of businesses up and down the country, many workers have been placed on furlough. Furlough is a forced, temporary, period of unpaid leave. It takes place when an employer has no work for its employees to carry out, or if the business is forced to close.
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Dissimilar to redundancy, the employee remains on the payroll in their absence.
Under the Coronavirus Job Retention Scheme (CJRS) unveiled by Chancellor Rishi Sunak, the government will cover 80 percent of employee wages up to £2,5000 a month.
However, the question still remains as to how furlough could affect pension contributions.
According to information published by the government so far, the CJRS scheme will cover National Insurance contributions at the normal rate.
However, the scheme will only cover minimum automatic enrolment employer pension contributions on that wage.
Any employer pension contributions which are above the minimum rate will not be covered.
It is up to the employer to decide whether or not they will top up their workers’ pay with the extra 20 percent of wages not offered by the government.
However, if an employer does choose to do so, the scheme will not cover employer pension contributions on the extra amount.
Employees will continue to pay income tax and National Insurance on any wages during the furlough period.
The Coronavirus Job Retention Scheme is in place for three months, starting March 1, 2020.
However, the scheme could well be extended if circumstances necessitate.
The scheme aims to assist those who have inadvertently found themselves out of work, and who may be struggling to make ends meet.
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To qualify as eligible, you must have been on the employer’s payroll on or before February 28, 2020.
The online service the government has implemented to claim wages is currently not available.
The Treasury expects the service to be in place by the end of April 2020.
Mr Sunak has described the package offered by the Treasury as “unprecedented”.
He added the retention scheme would allow those on temporary leave to volunteer, for example with the NHS, without risking their pay.
However, analysis from the Resolution Foundation using British Chambers of Commerce figures have shown the package could cost the government billions.
The foundation found 50 percent of companies are putting most of their staff into the scheme.
If taken up by at least a third of private sector employees, the cost to the government could stand at £40 billion over three months.
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