On 12 June 2020, the Government finally published full details of how its new concept of ‘flexible furloughing’ will work from 1 July until 31 October 2020. If you are planning to utilise the scheme during this period, you may want to take a deep breath and be prepared for some serious head scratching – they have not made it easy.
While the Job Retention Scheme has perhaps never been completely straightforward, for the first couple of months the Government guidance was at least contained in a single web page (albeit one that was updated at least once a week).
Unfortunately, things are no longer quite so simple. For a start, the guidance is now spread across a variety of different pages of the Gov.uk website with content regularly being moved from one page to another without any obvious reason. Furthermore, the new rules regarding how to calculate the amount that can be claimed for someone who is flexibly furloughed are not for the faint-hearted. And that is before you even attempt to decipher the recently updated Treasury Direction (which is now considerably out of date given that it fails to deal with any of the new flexible furloughing mechanics).
We have already covered the headline changes that are coming into effect in our briefing note of 2 June 2020 (available here). In short, from 1 July 2020 employers will be able to allow workers to return to work part-time while continuing to claim for them under the scheme. However, from 1 August 2020, employers will be required to contribute towards the costs of this scheme, with the employer contributions increasing each month.
So what do employers need to know about the latest changes to the guidance?
Firstly, the good news – flexible furloughing genuinely does seem to be extremely flexible and lives up to the promise made in the Chancellor’s original announcement on 29 May 2020. From 1 July 2020, there will no longer be a minimum furlough period of 3 weeks (provided that a worker has already been furloughed for at least 3 weeks) and workers can be furloughed for any length of time and for any number of hours. Employers will therefore be able to agree any form of working pattern with their workers and will be able to claim for any ‘usual hours’ which aren’t worked in the relevant claim period.
It also appears that employers may have flexibility to agree with workers what pay they receive during the hours they work while they are being flexibly furloughed. While the guidance states that employers should pay their employees ‘in full’ for the hours they work, full pay is not defined so it is not clear that this means the usual rate the worker received prior to 19 March 2020. It is possible therefore that employers may be able to pay their workers a lower rate of pay for this time (assuming this can be agreed with the relevant workers). This could potentially be useful for those employers who reduced pay for a short period prior to taking the step of putting staff on furlough.
However, things unfortunately get a little more complicated when it comes to calculating how much an employer can claim through the scheme. In order to make a claim, an employer will need to calculate what a worker’s ‘usual hours’ are. There are different rules that apply depending on whether your worker works fixed or variable hours and the Government has provided a number of examples to assist employers. In summary:
- For individuals with fixed hours, their usual hours will be those they were contracted to work at the end of the last pay period ending on or before 19 March 2020;
- For individuals with variable hours, their usual hours will be the higher of either the average number of hours they worked in the tax year 2019 to 2020 or the corresponding calendar pay period in the tax year 2019 to 2020.
The rules that apply for variable hour workers have the potential to be tortuous to follow in practice, particularly when factoring in the new rules that dictate the claim periods employers must adhere to (see below for further details). This is likely to be especially problematic for our Film and TV clients given that a large number of their furloughed workers do not work fixed hours.
Notwithstanding the difficulties involved in carrying out such calculations, decisions about how to operate flexible furloughing will be complicated by some of the other changes to the guidance. For example:
- Claim periods – While workers can be furloughed for any length of time from 1 July 2020 onwards, claim periods must start and end within the same calendar month, must last at least 7 days and must include all workers who are furloughed because employers will only be permitted to make one claim for any period and claim periods must not overlap. The only exception is where the employer is claiming for the first or last few days in a month and they have already claimed for the period ending immediately before it, in which case the claim period can be less than 7 days. Employers will therefore need to consider their claim periods very carefully;
- Cap – The Government has capped the number of workers who can be furloughed in any single claim period from 1 July 2020 to the maximum number of those claimed by the employer for any claim period ending by 30 June 2020 (with the exception of those returning from statutory family leave who can be furloughed on top of this number – see below). This means that employers who were using a rotational furlough system may now find themselves restricted by the number of workers they are able to furlough going forward and all employers will need to double check that they aren’t exceeding this number, particularly given the changes that may need to be made to their claim periods (see above);
- Cut-off date – As announced previously, the Government introduced a cut-off date of 10 June 2020, after which time workers were no longer able to be furloughed for the first time. This cut-off date passed last week which means that any worker who had not been furloughed by this date is no longer eligible. This cut-off date still remains in the new guidance but an exception has been introduced allowing any workers returning from statutory family leave after 10 June 2020 to be furloughed for the first time, provided that their employer had previously claimed under the scheme and provided that the worker started their leave before 10 June 2020 and was included on an RTI submission on or before 19 March 2020;
- Errors – HMRC has updated the claim process to account for the fact that errors may be made by employers when making claims (presumably in recognition of the complexity of the calculations that will required in some cases). Employers who have overclaimed will now have the option to adjust future claims down to take account of previous overpayments and HMRC is working on a process for repayments of overpaid amounts where an employer does not intend to submit further claims. If an employer has underclaimed for a particular period, this unfortunately cannot be rectified in a subsequent claim but the employer will be able to contact HMRC directly to amend their claim and will need to comply with additional checks to verify the basis for the claimed underpayment.
While the upcoming changes to the scheme and the concept of ‘flexible furloughing’ will hopefully allow many companies to bring staff back to work on a phased basis, it is unfortunate that the task of navigating the new rules is not as straightforward as it might be.
We expect that a further update to the Treasury Direction will be published in the coming days in an effort to provide a legislative footing for the new rules.
We remain on hand to assist with any furloughing queries you may have over the next few months.