One off AVC February, reduced furlough pay massively

raijake

I am an employee who made a one-off AVC pension contribution of £2k. in Februaury 2020 which was reflective in my 25th February payslip. Subsequently, upon checking my furlough period wage slips for April and May 2020, there is a massive shortfall far less than the £2.5k (maximum furlough wage for £42k per anum salary) minus deductions that I was expecting. The employer has advised me they are simply abiding by the Job Retention Scheme rules by taking the salary sacrifice from February pay. Surely this is totally unfair and unethical as my Februaury salary sacrifice amount was not reflective of what it normally is (much less) and as a result I am being penalised for planning for my future. Please advise if there is anything I can do. 

Jeremy535897

See guidance at https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme :

"What to include when calculating wages

The amount you should use when calculating 80% of your employees’ wages is regular payments you are obliged to make, including:

• regular wages you pay to employees
• non-discretionary payments for hours worked, including overtime
• non-discretionary fees
• non-discretionary commission payments
• piece rate payments

You cannot include the following when calculating wages:

• payments made at the discretion of the employer or a client - where the employer or client was under no contractual obligation to pay, including:
  • any tips, including those distributed through troncs
  • discretionary bonuses
  • discretionary commission payments
• non-cash payments
• non-monetary benefits like benefits in kind (such as a company car) and salary sacrifice schemes (including pension contributions) that reduce an employees’ taxable pay

The entirety of the grant received to cover an employee’s subsidised furlough pay must be paid to them in the form of money. No part of the grant should be netted off to pay for the provision of benefits or a salary sacrifice scheme.

Where the employer provides benefits to furloughed employees, including through a salary sacrifice scheme, these benefits should be in addition to the wages that must be paid under the terms of the Job Retention Scheme.

Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly."

raijake

Thanks Jeremy, however this is not a regular pension salary sacrifice and a one-off. So efectively employees that find themselves in this position have been heavily penalised just becuase they use AVC to contribute to a pension rather than spread the cost across the year. Is there anyone I can express my concerns to in this respect?

Jeremy535897

The guidance says you don't reduce pay by payments under salary sacrifice schemes. It doesn't distinguish between regular and one-off payments. It also says:
"Where the employer provides benefits to furloughed employees, including through a salary sacrifice scheme, these benefits should be in addition to the wages that must be paid under the terms of the Job Retention Scheme."

raijake

I read it as you cannot include salary sacrifice schemes in the wage calculation of 80%. So in effect the AVC of £2k in February salary, cannot be included into the 80% calculation. Could you confirm?

Jeremy535897

I read it that if your monthly salary would have been  £2,500 but a salary sacrifice of £1,000 for pension contributions made it  £1,500, you would use  £2,500 as the reference salary.

unholyangel

Jeremy535897 said:

I read it that if your monthly salary would have been  £2,500 but a salary sacrifice of £1,000 for pension contributions made it  £1,500, you would use  £2,500 as the reference salary.

You're wrong I'm afraid. You'd use 1500. With salary sacrifice they have (as the name suggests) sacrificed the salary so that they are no longer entitled to it. Salary sacrifice into a pension counts as employer contributions and not employee for that very reason. When it says disregard it, it means disregard the amount sacrificed, not that you should disregard salary sacrifice itself. 


The cjrs rules also state if you're a fixed rate employee that your reference salary is the salary paid to you on the period before 19 march. So it would seem op's employer has calculated it correctly. 

Jeremy535897

I must admit I find it very hard to interpret. I don't know why they lump together benefits in kind and salary sacrifice for pensions in the same bullet point. Benefits are additions to cash money that don't go through payroll, so you wouldn't expect them to be included. If OP had made a personal pension contribution out of his February salary, his furlough would be based on the £2,500 in my example, and OP would still have got the same tax (but not NI) relief for the February contribution, so using £1,500 is illogical.

unholyangel

Jeremy535897 said:

I must admit I find it very hard to interpret. I don't know why they lump together benefits in kind and salary sacrifice for pensions in the same bullet point. Benefits are additions to cash money that don't go through payroll, so you wouldn't expect them to be included. If OP had made a personal pension contribution out of his February salary, his furlough would be based on the £2,500 in my example, and OP would still have got the same tax (but not NI) relief for the February contribution, so using £1,500 is illogical.

You've never heard of payrolling benefits in kind? It's an alternative way to pay the appropriate tax due on bik without it going into your tax code. 

In the example you give of personal pension payments, they would have been paid it as salary, paid tax and ni  on it and made the contribution themselves. But as I explained, under salary sacrifice they are foregoing that salary. It is no longer theirs. 

Read icaew's guide on the scheme. It covers salary sacrifice - and that a SS amount should not be included in calculations for cjrs. 

Jeremy535897

Thanks for that. It's a while since I looked at benefits in kind and payroll.

raijake

This is extremely unfair as my February salary is not a true reflection of my monthly pay, I was merely investing in my future pension pot. Any advice on how I can get out of this hole??? My salary has now been reduced to something like 40% where I was expecting the JRS £2.5k maximum (pre deductions) like most of my other colleagues.
Following review, they have worked out my salary based on 'fixed rate full time employee' guidelines which I am, however in the above case, could they not have used the 'employees who pay varies' (given the AVC contribution) and calculate a monthly average? HMRC guidelines indicate the following, would this cover the employer... 
'Choose the calculation you think best fits the way your employee is paid. For example, if you pay your employee a regular salary, use the calculation for fixed pay amounts. HMRC will not decline or seek repayment of any grant based solely on the particular choice of pay calculation, as long as a reasonable choice of approach is made'