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FAQs: Recording furlough leave in Xero Payroll

April 23, 2020

The Coronavirus Job Retention Scheme has been set up by the UK government to support businesses through the developing COVID-19 situation. It allows employers to claim 80% of employee wages, plus any associated employer National Insurance and pension contributions, if they have been put on furlough because of coronavirus (COVID-19).
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Xero has been working hard to build functionality in Xero Payroll to support employers to claim those wages. On 14 April, we launched the ability to record furlough leave in Xero Payroll. And as of Monday, 20 April, HMRC opened its portal to allow businesses to claim funding for furloughed employees.

As we continue to evolve and improve our furlough functionality in Xero, we have collected some of the commonly asked questions faced by businesses, accountants and bookkeepers. These will be updated regularly as we progress.

Last updated: 23 April 2020

How do you process an employee on furlough when paying them above the 80% wage subsidy? What happens to the employer National Insurance and pension contributions?

In Xero Payroll, check that the employees salary and wages are set to 100% of the employees earnings. This is to ensure that the furlough pay item calculates the 80% subsidised wage value from the employees full pay value.

Once you’ve processed the time off request and draft pay run, you can add an additional earnings line to the payslip to top up your employees pay. Only the value against the furlough pay item will be used to split out the furlough element of employers National Insurance and employers minimum pension contributions towards the claim report.

The full payslip will continue to calculate the appropriate taxes and deductions reporting them through RTI as usual and full pension contributions will continue to reflect within the pension filing reports.

What if my employees are on different pay calendars within Xero, such as weekly and fortnightly? How will the furlough feature work for these pay runs?

Continue to use the furlough feature by adding a ‘time off’ request with the employee’s full furlough leave period. Within the new furlough leave request, you’ll see the leave period broken out by each pay period.

When you come to process the pay run, the appropriate portion of the employee’s furlough leave will be assigned to their draft payslip for you to review. This means that regardless of the pay calendar, weekly or fortnightly, the furlough period will be picked up within the appropriate pay period.

How do I process furlough for an employee with irregular or variable earnings?

Often employees with irregular earnings or zero hour contracts are set up in Xero Payroll with no set rate or hours within the employment tab, salary and wages line. Once you’ve entered the employee’s furlough leave through ‘time off’, you’ll notice that a furlough pay item will be available within the draft pay run for you to enter a pre-calculated 80% wage subsidy.

HMRC provides guidance on how to work out 80% of your employee’s usual wage. Once you’ve updated the furlough pay item, Xero Payroll will handle the employer National Insurance and pension calculation accordingly and this will display on the claim report that we’ll be making available shortly.

GOV.UK: Work out 80% of your employee’s usual wage

Will Xero submit information directly to HMRC about furlough and make the claim for me?

All businesses and some PAYE authorised agents will be able to make the claim directly through the PAYE Online services with HMRC as of 20 April. Xero Payroll will not be submitting any furlough details through RTI, nor will Xero Payroll be able to make the claim on your behalf.

HMRC recommend that if you are not registered for PAYE online services, this process should be done as soon as possible and can take up to 10 working days.

How do we process multiple periods of furlough for an employee who is returning to work intermittently during the scheme period?

Within the ‘time off’ screen in Xero Payroll, you’ll simply need to enter each period of furlough leave that the employee is taking – remembering that each period of furlough will need to be for a minimum of three weeks. The employee can return to work for any number of days that have been agreed between their furlough periods.

How do we account for staff who have time off for holiday during furlough?

All periods of overlapping time off during furlough should be discussed and agreed with the employee. If an employee is taking holiday during furlough, this period should be paid at the employee’s usual rate and you can add an additional earnings line to top up the employee’s earnings for any period of holiday taken during furlough.

How do we account for staff who are on statutory parental leave?

If you’re paying employees statutory parental pay such as SMP or SPP, continue to pay their statutory entitlement until their statutory leave comes to an end. They can then be furloughed in the usual way, for the remainder of the Job Retention Scheme period. If paying your employees enhanced parental pay, we recommend contacting Xero support to guide you through the process.

Do we have to use the furlough feature or can we leave payroll as it is and just make the claim for 80% later from HMRC?

The furlough feature in Xero Payroll has been introduced to support businesses with an easy and accurate method of paying staff within and above the subsidised range. You can choose not to use this feature and use HMRC’s manual calculator to identify the values that can be claimed.

You can also choose to only use the furlough feature in Xero from the current pay period moving forward, and use HMRC’s manual calculator for any past pay periods that have already been posted.

While staff are on furlough how do we pay them for bank holidays?

HMRC guidance states: “If an employee usually works bank holidays then the employer can agree that this is included in the grant payment. If the employee usually takes the bank holiday as leave, then the employer would either have to top up their usual holiday pay, or give the employee a day of holiday in lieu.”

In Xero Payroll we recommend that employee Holiday Groups are set to None to ensure that the Bank Holidays are included in the furlough hours to be claimed at 80%. You can then add an earnings line to the draft payslip to top up your employee’s earnings to their usual rate for any Bank Holidays the employee would usually have taken off.

How do I process furlough leave for March now that the 19th of April has passed?

Now that we’ve passed the 2019/20 filing cut off in Xero Payroll, you’ll need to use HMRC to calculate furlough claim values for March.  We’re not supporting any 2019/20 backdating for furlough.

Can we edit the furlough end date if the details of the scheme change?

Any furlough leave end dates that have not been included within a draft or posted payrun can be edited as required.

How do I calculate the 80% wage subsidy if my employees are paid at the national minimum/living wage rate?

When calculating 80% of the employee’s usual earnings, it’s important to remember that the employee will not have any working hours while on furlough and the consideration on NMW/NLW is based on the hours an employee works. HMRC has released employer guidance on National Minimum Wage which will provide some much needed clarity around this.

Xero Payroll has based the 80% wage subsidy on the rate of pay updated on the employment tab, salary and wages line. This value can be updated within the draft pay run if a change is required.

Are we able to claim employer National Insurance through the Job Retention Scheme if we are claiming Employment Allowance as a business?

Once the cost of the employer’s National Insurance exceeds the Employment Allowance, you’ll then be able to claim through the Job Retention Scheme for the remaining cost of the employer’s National Insurance applicable to furloughed staff. This will be indicated on the claim report that we will be providing by the end of April.

Can directors be furloughed and continue to complete payroll, VAT returns and pay supplier invoices?

HMRC guidance states that company directors paid via PAYE can be furloughed. Furloughed directors are able to carry out duties to fulfil their statutory obligations so long as they do not carry out work that would generally create commercial revenue or provide services to or on behalf of their company.

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