CJRS update – new rules announced for the furlough scheme extension
The extension of the scheme will be a relief to many employers, but comes with some very substantial caveats:
- Scheme closure date: Although the scheme will run until the end of October, it will be closed to new entrants at the end of June 2020. In practice this means that, in order to qualify for the scheme, employees must be furloughed on or before Wednesday 10 June so that they can complete their 21 day minimum furlough period before the scheme closes to entrants on 30 June 2020. We take this to mean that those employees who have already been furloughed for a minimum of three weeks by 30 June can stay or be placed back on the furlough scheme at any time (for example, those who are on a rotation). Businesses should make an immediate assessment of their ongoing staffing needs as a matter of urgency to make their final determination of whether to designated any additional employees as furloughed on or before 10 June.
- Part-time working: The current ban on employees doing any work at all during furlough will be relaxed from 1 July 2020. From that date, employees will be able to work part-time while on furlough. The employer must pay for the days worked and the furlough scheme will contribute as normal for the days not worked. Employers contemplating using this part-time option will need to consider the practicalities of allowing employees to work part-time on their working days, such as reinstating access to IT systems. Any flexible part-time working pattern can be agreed with employees, but it must last for at least a week.
- Financing the scheme: The monthly cap of £2,500 remains in place, so employees on furlough will see no changes (if their pay is not topped up by their employer above the cap). What is different is how much of the cap the government will contribute.
- from 1 August, the government will continue to fund 80% of pay (capped at £2,500 per month) and employers will be required to cover the employer national insurance contributions and pension contributions currently covered by the government’s grant. That contribution currently covers employer NICs and pension contributions (up to an amount equivalent to the minimum automatic enrolment employer pension contribution) calculated on 80% of wages up to £2,500 a month. The government has calculated this additional cost to business as roughly 5% of total employment costs. Employee NICs and tax will continue to be deducted as usual.
- from 1 September, the government will cover only 70% (to a cap of £2,190). Employers will need to pay 10% of wages, plus employer NICs and pension contributions; and
- from 1 October the government will cover only 60% of salaries (to a cap of £1,875). Employers will need to pay 20% of wages, plus employer NICs and pension contributions.
The headline is therefore that employers will need to make up for the tapered reduction in the government’s grant, so that employees continue to receive not less than 80% of their usual salary.
The financial position is summarised in this government table:
Government contribution: employer NICs and pension contributions
|Government contribution: wages||80% up to £2,500||80% up to £2,500||70% up to £2,187.50||60% up to £1,875|
|Employer contribution: employer NICs and pension contributions||No||Yes||Yes||Yes|
|Employer contribution: wages||-||-||10% up to £312.50||20% up to £625|
|Employee receives||80% up to £2,500 per month||80% up to £2,500 per month||80% up to £2,500 per month||80% up to £2,500 per month|
Employers should take the following steps:
- Review staffing needs: As a reminder, furlough will only be available during the period 1 July - 31 October for employees whose first day of furlough was on or before 10 June. Businesses should therefore review their staffing requirements for the next quarter as a matter of urgency.
- Review furlough agreements: employers should review their furlough documentation, considering:
- whether existing furlough agreements allow for the extended furlough potentially to 31 October 2020;
- whether existing agreements permit an employer to require employees to work part-time or flexibly during furlough; and
- whether the financial arrangements need to be changed in light of the reduced government contribution and higher cost to employers from 1 August.
- Consider flexible working: Many businesses will want to make use of the new flexibility that will be available from 1 July. The further guidance to be published on 12 June should give additional detail on this element of the scheme (including how an hourly rate is to be calculated), but employers will need to have to hand (as a minimum) the normal hours each flexibly furloughed employee would have worked, and their new working pattern. In almost all cases, the new working pattern will need to be agreed with the employee, so employers should ensure they begin any consultation process in good time.
- Redundancies: The increased cost to employers of the furlough scheme from 1 August will inevitably make extended furlough uneconomic for some employers and redundancies may follow. Employers should ensure that employee consultation obligations are complied with in advance of making any redundancy decisions.
To discuss your individual requirements, please speak to your usual Macfarlanes contact.