Employer: Cycle to work and furloughed workers
The COVID-19 pandemic has resulted in an unprecedented Government response and economic support package from the UK Government. This response includes a Job Retention Scheme which aims to support businesses who cannot economically continue to employ some, or all, of their workforce.
The Government's primary response has been to encourage employers to furlough eligible staff.
What is furloughing?
It allows employers to keep employees on their payroll and ensures they are not made redundant.
The Government is then funding a portion of those workers’ salaries to ensure they can maintain an adequate standard of living and meet their financial obligations.
The cycle to work scheme and furloughed employees
Recent Government updates on furloughing have included some key statements that explain how to check worker eligibility for the scheme and how to implement it.
Where the cycle to work scheme is concerned there are two key statements, the first one regards employers calculating salaries for furloughing:
“You cannot include […] non-monetary benefits like […] salary sacrifice schemes [...] that reduce an employees’ taxable pay.”1
The second statement relates to what employers and employees can use furloughed salaries to pay for:
“The entirety of the grant received to cover an employee’s subsidised furlough pay must be paid to them in the form of money.”
This essentially means that no part of the grant should be used to pay for the provision of the cycle to work scheme.
Options for employers with furloughed workers that have active cycle to work salary sacrifices
There are two recommended options for employers that have furloughed staff with active cycle to work salary sacrifices:
1. The salary sacrifice continues. To achieve this the employer must provide funds in addition to the wages that are paid under the terms of the Job Retention Scheme.
Where funds are provided on top of the furloughed wages to sustain the cycle to work scheme, the employer would need to pay the employee at least the equivalent of their gross salary sacrifice cost.
For example, an employee that pays lower rate tax and has a £1,200 salary sacrifice would need their employer to top up their pay by at least £100 (12 x £100 = £1,200). This would result in the salary sacrifice being sustained and an income tax saving of £30 (£20 income tax and £10 NI) being made.
It’s important to note that the employer has to ensure they account for any and all salary reductions to ensure they cover them all or, if the additional salary paid by the employer does not cover all of the employee's salarysacrifice outgoings, they would have to discuss which of the benefits the employee would like to suspend to ensure the employer does not draw funds from the salary funded by the Job Retention Scheme.
2.The salary sacrifice temporarily stops. This would mean there is a payment holiday on the value of the salary sacrifice for the period of the furloughing.
Covid-19 is being classed as a life event, this means that it is entirely acceptable for employers to apply a payment holiday to outstanding salary sacrifice payments during the period of furloughing.
Where this occurs, the employer and employee should mutually agree on this course of action and amend the terms of their employment as is appropriate.
Where a payment holiday is applied, it’s important that either the employer or the employee contacts Cyclescheme to confirm the length of the furlough. This way we can be sure to update our records and continue to effectively manage ownership options.
To further support this process and to simplify the work of employers and employees we’ve also set up an optional 3 month payment holiday for ownership fees – this means that where we’re not alerted to changes that are made, employees will not be unfairly directed to settle ownership fees early.
Options for employees that are furloughed and wish to apply for a cycle to work scheme
Employers can respond to requests to apply to the scheme by furloughed employees in a few different ways:
- Employees’ can apply and willing employers can increase the employees’ salary by the value of the salary sacrifice (as per advice in the section above)
- It’s acceptable for employers to suspend access to the scheme for employees who may or will be furloughed at some point in time in the next 12-month period or whose continued employment is not guaranteed during this period of time.
- There is also a middle ground whereby employers can leave the scheme open and accept applications but agree with the employee not to process them until their furloughing is concluded.