So, back in March, the chancellor announced the Coronavirus Job Retention Scheme to enable employers to pay their employees 80% of their salary via a Government grant. We were relying on guidance which was updated twice and then on 15 April a legal document was published in the form of a Schedule which put all the guidance into law.
The original position in the first guidance was no commission to be paid. The next update on 4 April 2020 gave the green light for commission to be paid but, there was this word compulsory thrown into the mix. HMRC confirmed to us via their official twitter customer support channel that compulsory equalled contractual which then meant, if commission was in the contract, employers could be confident to base their employee furlough calculations on the rules for ‘employers whose pay varies’. This was good news for many in sales. However, many sales people found that the wording in their employment contract suggested that commission was discretionary and therefore, some employers were refusing to process furlough applications based on their employee’s regular take home salary. This would leave many sales people with less than minimum wage while on furlough.
Now we have the law, the commission scenario still isn’t awfully clear. We are chasing HMRC for clarification. However, we would want to argue that as paragraph 7.3 of the new Schedule essentially says that any all regular salary or wages can be taken into account, regular commission should be a legitimate part of that. Further, paragraph 7.4(d) defines any amount which “arises from a legally enforceable agreement, understanding, scheme, transaction or series of transactions” is an allowable amount on which to base the furlough calculation.
There are a number of arguments to support this, including the legal rulings around calculating annual leave for those on commission (albeit these relate to a statutory right under EU law). We also have the word ‘understanding’, we would argue that it is understood that commission is earnt and paid on a regular basis and so is not discretionary at all. The word ‘scheme’ is also useful as most companies will pay commission under the terms of a scheme i.e you sell x amount of cars and we will pay you £x. And finally, the fact a regular payment can arise from a ‘transaction’ or a ‘series of transactions’ would also suggest that as it is ‘customer and practice’ to pay commission, these are regular payments.
In short, we would argue there is enough there to justify paying furlough based on regular commission payments. However, it is employers who will be left short if HMRC refuse to reimburse them and so they need to check direct with HMRC if they are unsure but they should use all the above points to justify it.
Now, even if it is made clear that all regular commission payments can be used to calculate furlough payments, this still leaves an issue about commission already earnt. For many, particularly in new car sales, the April pay packet is a generous one and of course all that lovely commission was earnt on past sales when the business was still open.
If an employee goes on furlough and takes 80% of their regular monthly salary, up to a cap of £2500 in their April salary, then it will be incredibly difficult to justify paying all that previously earnt commission as there is a £2500 cap. Employees could then potentially lose that March commission (much in the same way any employee earning over £30k will also lose). The alternative is for employees to take the basic salary for the entire furlough period (and the current scheme is open until 31 May but of course no-one can predict if it will be extended) and be paid the commission already earnt in full as it falls due for payment. Neither option is without its difficulty.
We hope to get more clarification and are pushing for it but the message for now, is do not give up on commission being included in furlough payments but in the meantime, employees should look at all the options for reducing your monthly outlay such as credit card and mortgage payment holidays and employers should keep conversations going with their trade bodies and encourage their accountants to do the same.