On Friday (29th May) the chancellor, Rishi Sunak, announced the further details we have been waiting for to explain his plan to extend the Coronavirus Job Retention Scheme to October 2020. The announcement covered two alterations to the scheme – flexible furloughing and the requirement for employers to make some contributions towards the payments made to employers.
Flexible Furloughing
From 1 July 2020, employers will have the flexibility to bring back previously furloughed workers on a part time basis. Under the original rules in place from 1 March 2020 to 30 June 2020, employees could not undertake any work for an employer if they were furloughed. It is hoped that the new flexibility will help employees get back to work, and help employers manage the gradual reopening and rebuilding of their businesses.
For an employees’ normal hours where they are still furloughed and undertake no work, the government will continue to pay 80% of wages (up to the same £2,500 per month cap) up to the end of August. For hours that employees do work, employers will need to pay 100% of their wages and associated employment costs (pensions and employers national insurance).
Employers must agree any working hour arrangements with their employees in writing, and the arrangement must cover at least one week as this will be the minimum period that can be claimed when submitting a claim for the grant.
When submitting a claim, employers will need to submit details of the usual hours that an employee would have been expected to work in the claim period, and the actual hours worked. If employees are still unable to work, then employers can still continue to claim under the existing rules (see here for our previous article).
The last date that employers can place an employee on furlough for the first time is the 10 June 2020 as the scheme will close to new entrants from 30 June 2020, and there is a minimum three week furloughing period under the original rules. Employers should therefore be considering if there are any employees that have not previously been furloughed that should be prior to the 10 June 2020 to enable them to be part of the flexible furloughing arrangements.
Employer Contributions
From August, the amount that can be claimed under the scheme will be slowly tapered. Please see the summary below of the contributions that employers will be required to make in future months.
June and July – The scheme will continue in its current form, with the government paying 80% of wages up to the monthly cap of £2,500, as well as employer’s national insurance and pension contributions, for furloughed hours. As discussed above, under flexible furloughing arrangements, employers will need to pay 100% of wages and associated costs for hours actually worked by employees. From 1 July onwards, the monthly cap will proportionate to the hours not worked.
August – The government will still pay 80% of wages up to the monthly cap of £2,500, but employers will be responsible for paying 100% of employer’s national insurance and pension contributions.
September – The government will reduce their contribution to 70% of wages, with a lower monthly cap of £2,187.50, for the hours an employee does not work. Employers will need to pay the additional 10% of wages so that employees still receive 80% (up to the £2,500 monthly cap), plus full employer’s national insurance and pension contributions.
October - The governments contribution will taper again so that they pay 60% of wages up to a cap of £1,875 per month for hours that the employee does not work. Employers will pay the additional 20%, plus employer’s national insurance and pension contributions.
As mentioned above, the monthly cap will be proportional to the hours furloughed. Our understanding of this is that, for example, if an employee is expected to work 175 hours in September under their usual working hours requirements, but remains on furlough for 40% of their hours and works the remaining 60% of hours under the new flexible furlough arrangements, the “total cap” will be £1,000 per month. As this arrangement is in September and the government expect employers to make up the additional 10% of wages, we would expect the government to pay £875 towards this, and the employer to pay £125.
As ever, please get in touch with a member of the Charter Tax team if you would like any help or advice in relation to the Coronavirus Job Retention Scheme.
