June 2, 2020
With many of us having become very familiar with ‘flexible working’ over the last 3 months, it is perhaps apt that the next stage of the government’s Coronavirus Job Retention Scheme is being described as ‘flexible furloughing’.
Following the announcement on 12 May 2020 that the scheme would be extended for a further 4 months until the end of 31 October 2020, the statement by the Chancellor and subsequent press release last Friday 29 May, has fleshed out further details of what we can expect in the coming months.
The end is nigh
First things first: we now know that the scheme is winding down and, barring an unforeseen change in events, it would appear that there is little prospect of the scheme being extended past the end of October 2020. Furthermore, the scheme will shortly close to new entrants.
Technically, the last date that new entrants can be admitted to the scheme is 30 June 2020. However, this does not give the full picture because a worker must have been furloughed for 3 weeks in order to be eligible under the scheme. As a result, the practical reality is that the cut-off date for any new furloughing decisions is 10 June 2020 as that date would ensure that 3 complete weeks of furlough leave can be completed by the end of June.
Flexibility and tapered contributions
The purpose of this new cut-off date is to enable the introduction of part time or so called ‘flexible furloughing’ and to support those who are already furloughed to return to work. We knew that additional flexibility was coming following the announcement on 12 May 2020, but the new plan has brought this change forward a month and this flexible period will now commence on 1 July 2020.
In addition, from August 2020, the amount of the government’s grant under the scheme will be gradually tapered on a monthly basis so that employers start to contribute towards the cost of their furlough payments. However, during this period, workers will continue to be entitled to 80% of their wages (subject to the usual cap) for the time they spend on furlough.
At present there are limited details of precisely how this will all work (the government has stated that additional guidance will be published on 12 June 2020) but the information revealed so far confirms the following:
- From 1 July 2020, furloughed workers will be able to work part time. It would seem that employers will have complete discretion to decide the hours and shift patterns their workers will work on their return (presumably with the workers’ agreement) but will need to pay their furloughed workers’ wages for the work they do without any reimbursement from the state. They will then need to pro-rate their claims under the scheme to account for the part of the week that was actually spent working rather than on furlough;
- Employers will be required to submit data on the usual hours their workers would otherwise have been expected to work in the relevant claim period and the actual hours they have worked. It appears that the government are alert to the risk of fraud here – they have stated that employees who believe they are not getting their 80% share can report any concerns to the HMRC fraud hotline with the HMRC ready and willing to take action against those abusing the flexibility afforded;
- From 1 August 2020, the government will continue to pay 80% of wages for any time spent on furlough up to a monthly cap of £2,500 but employers will no longer be able to claim reimbursement for employer NICs and pension contributions. These amounts (approximately £300 a month for a claim at the capped amount) will need to be covered by the employer;
- From 1 September 2020, the government’s contribution will reduce to 70% of wages up to a cap of £2,187.50 a month. Employers will need to cover the remaining 10% (to ensure furlough pay at 80% as well as the employer NICs and pension contributions); and
- Finally, from 1 October 2020, the government will contribute 60% of wages up to a cap of £1,875 with employers paying the remaining 20% plus the employer NICs and pension contributions.
These changes are clearly a significant shake up to how the scheme has been working up until now. After a confusing month or so following the scheme’s announcement when the government’s guidance was being updated regularly each week, we have recently had a period of relative calm as employers started to understand what claims were possible and were able to put these in motion. These new rules have the potential to muddy the waters all over again.
The ability for furloughed workers to return part time and remain on furlough is clearly a positive change but, if our experience of the scheme to date is anything to go by, implementing this and calculating the appropriate amount to claim will be a complicated task for employers.
Given the already vast cost of the scheme to the UK tax payer, some form of tapering to the relief seemed inevitable but it is clear these changes will likely force many employers to turn their minds to whether they will be able to cover the additional costs from 1 August. If this is not possible, it is reasonable to expect that those employers will start to consider whether it is necessary to make redundancies. In particular, we expect those of our clients within the Film and TV industries who have furloughed in situations where there is limited prospect of future work will have some tricky decisions in the coming weeks as to whether to maintain their support for crew once the changes kick in.
There are also some crucial questions that remain unclear following this latest announcement:
- When furloughed workers return part time, will they need to be paid their normal (pre-furlough) rate of pay or can the employer pay a lower amount (albeit without reimbursement from the government)? We would expect this will be a contractual issue that will be left for the employer to agree with the relevant worker but clarity is certainly needed here;
- For workers who do not really have ‘usual hours’, how will employers be required to account for the time spent working and the time spent on furlough? We assume this will work in a similar way to how claims for variable pay workers are currently assessed but there is the potential for further complications here if employers seek to offer them more hours than they typically worked prior to being furloughed. Will any reimbursement be claimable at all in such circumstances?
- Will the 3 week minimum period of furlough remain for those who are moved on and off furlough from July onwards? As such workers will have already served a full 3 week block of furlough prior to July, it is possible the government may remove this requirement for those who remain eligible for the scheme during the final four month period.
Hopefully the next instalment of government guidance to be published on 12 June will provide answers to these questions.
In addition to the announcement regarding the job retention scheme, the Chancellor also confirmed that the Self-Employment Income Support Scheme will be extended with those eligible able to claim a second and final grant capped at £6,570. This grant is worth 70% of any such individual’s average monthly trading profits and will be paid out in a single instalment covering three months’ worth of profits.
Applications for the second grant will open in August and the eligibility criteria will remain the same – individuals will need to confirm that their business has been adversely affected by coronavirus.
If you would like any assistance at all in relation to any of the government Covid-19 support schemes, please do let us know.