Are you ready for the Furlough Scheme changes?
On Friday 29 May 2020, the Chancellor of the Exchequer Rishi Sunak announced forthcoming changes to the Coronavirus Job Retention Scheme (Furlough Scheme). Details of these changes have been eagerly anticipated and HM Treasury have provided a summary and fact sheet here.
Taper of grant funding
It had been widely reported that employers would have to start contributing towards the costs of furloughed employees’ wages from the start of August but the Chancellor has chosen to apply a sliding scale rather than the feared ‘cliff edge’. In summary, the changes are:
- In June and July 2020, the CJRS will continue unchanged and in its current form.
- During August 2020, HMRC will continue to provide the lower of 80% of the salary or £2,500 per month but employers will be required to pay employer National Insurance contributions and pension contributions.
- During September 2020, HMRC will also reduce their contribution to 70% of the salary up to a cap of £2,187.50 with the employer required to pay the remaining 10%.
- During October 2020, HMRC will further reduce their contribution to 60% of the salary up to a cap of £1,875 with the employer required to pay the remaining 20%.
- The scheme will close altogether at the end of October 2020 and we are informed it will not be reopened or amended to another format.
Flexible Furlough Scheme
From 1 July 2020, which is a month earlier than previously stated, flexible furloughing will also be permitted. This is designed to allow employers to furlough employees for only part of their working week. The Chancellor gave the specific example of working for two days a week and being on furlough the other three days.
To permit the flexible furloughing, it is important to note that the Furlough Scheme will close to new entrants from 30 June 2020.
In particular, it will only be open to those who have already been furloughed for at least three weeks under the existing scheme by that closing date. As a result, if an employer wishes to use the revised scheme from 1 July 2020 in regards to an employee who has not yet been furloughed, it must put that employee on furlough under the existing scheme no later than 10 June 2020 to ensure that the required three weeks on furlough have been included. For the avoidance of doubt, any employee who has not been furloughed by or before 10 June 2020 will not be able to participate in the scheme going forward.
We understand that the cap on the Government contribution will be proportional to the hours an employee does not work. This means that any claims for flexible furloughing grants will require the employer to report both the number of hours the employee works and the number of hours they would usually work. The minimum period for which a claim can be made will be one week. This should hopefully allow employers to see how the employee’s return is going whilst still being able to access furlough funds.
We are informed that detailed guidance on how the flexible furloughing process will work will be published on 12 June 2020 . Frustratingly, that is two days after the deadline of 10 June 2020 to have placed people on furlough.
In light of the changes, employers will need to act promptly if they wish to make use of the flexible scheme from 1 July 2020 and determine if there is anyone not furloughed that they wish to place on furlough. In addition, they will need to assess and understand what changes would need to be made to current furlough agreements and/or terms and conditions to enable a flexible furlough. Employers will need to agree the changes with employees which may take some time.
Whilst it had been feared that the drop in HMRC contribution would result in widespread redundancies, the Government hopes that the tapering of withdrawal of the support will ease this. However, with the need for large scale redundancies to involve consultation of 30 or 45 day minimum collective consultation periods and the ending of the Furlough Scheme in October, it may just be that these reductions have been delayed rather than avoided. Businesses should therefore be looking carefully at what operating costs they can fund and seeking advice regarding the timing and process for any potential restructuring.
Indeed, although the Chancellor estimated that National Insurance and pension contributions make up only 5% of claims on average, there will still be employers who will not be able to afford that 5% in August. There are also likely to be employers who wish to make use of the Furlough Scheme to fund some elements of notice payments. We therefore anticipate employers will still need to move swiftly.
If you have questions or we can assist, the Employment Team would be delighted to speak to you.