Changes to CJRS could present risks for employers if calculations are mistaken

Changes to the government’s Coronavirus Job Retention Scheme (CJRS) in August mean that grant employers will continue to pay 80 percent of employees’ salary up to a cap of £2,500 but now also pay national insurance and pension contributions.

Karen Tasker, an audit partner at RSM, warns about the risks of miscalculating employees’ pension contributions.

“Particularly with salary sacrifice and pension scheme arrangements – we’re finding that from day one, the calculation hasn’t been processed correctly,” she says. “It’s about making sure the employer understands the rules and that the furlough agreements are tailored accordingly.”

When applying for CJRS, the employer provides HMRC with the employee’s reference salary to determine what can be covered – which is the post salary sacrifice salary.

However, the process is often mistaken by employers as they use the pre salary sacrifice salary instead, according to Tasken.

The Finance Act, which received Royal Assent last week, says that if an employer has mistakenly taken a salary sacrifice off the furlough grand pay, the fund it receives from the government and then paid to the employee will need to be corrected by October 20.

“There’s also the risk as well that the employer receives a claim for unlawful deductions from employee wages, so it’s really important for employers to understand those new rules, new applications,” explains Tasken.

“If this isn’t sorted out until the end of the CJRS and if contributions are wrong, this means it’s not only an employer issue – it’s also a trustee issue because trustees need to make sure that pension contributions are deducted or received into the scheme by the statutory deadline,” she adds.

Tasken says this breach could affect the audited accounts of the firm and could also lead to a report to the pension regulator in the UK because contributions have been deducted in accordance with the scheme rules.

HMRC is entitled to charge 100 percent for an incorrect claim as well as the recovery of any over-claim from employers. If these are fraudulent, it will also pursue a criminal prosecution.

What’s more, employers that have wrongly calculated the pension contributions of their furloughed employees face reputational risks.

“There is a reputational risk because firms are going through difficult times at the moment with coronavirus. I’m surprised it’s not on the wider radar of regulator and HMRC needs to focus the minds of employers on some of the risks of not getting this right,” says Tasken.

“I would encourage trustees to have a look at those month’s wages and contribution deductions now to make it timelier because what they don’t want is for that to come out a year down the line.”

Tasken believes the CJRS lacked enough guidance when it came into force – triggering the wrong calculations of pension contributions.