On 12 May 2020, the Government announced that the Coronavirus Job Retention Scheme (the “Scheme”) is extended until 31 October 2020.
The Scheme was introduced by the Government in March 2020, in an effort to keep people in employment throughout the Coronavirus pandemic. Under the Scheme, employers are able to agree with employees that they will be put on a period of leave, during which employers can reclaim a percentage of the furloughed employee’s wage costs from HMRC.
Currently, employees must go on furlough leave for a minimum of three continuous weeks at a time. It is possible for employers to rotate staff on furlough leave, as long as each employee is on furlough leave for the minimum three weeks. Whilst on furlough leave, the employee must not do any work for their employer that generates, or could generate, revenue, or provide any services to their employer. However, the employee may undertake training, so long as this cannot generate revenue for the employer.
Under the Scheme in its current form, employers can submit claims to HMRC for 80% of a furloughed employee’s salary before tax, up to the value of £2,500 per month. Employers can also claim for employer’s National Insurance Contributions (ER NICs) and employer’s minimum auto-enrolment pension contributions in relation to that 80%. Claims are submitted via a portal specifically developed for the Scheme.
As at 29 May 2020 approximately 1 million employers had made use of the Scheme, and around a quarter of the UK workforce (being some 8.4 million employees) had been placed on a period of furlough leave. At this rate, the estimated cost to the Government was around £14 billion per month.
There have been concerns about the sustainability of the Scheme moving forward due to the cost, with calls for the Scheme to be scaled back. However, the Government acknowledged that ending the Scheme is a delicate balancing act between saving the UK taxpayer money, and avoiding mass redundancies following the termination of the Scheme.
Chancellor Rishi Sunak announced on 12 May 2020 that the Scheme would continue until 31 October 2020. However, there would be changes that would phase out the Scheme month by month and in line with the lifting of the lockdown restrictions.
The Scheme will continue in its current form until the end of June 2020.
However, it is very important for employers to note that the Scheme will close to new entrants from 30 June 2020. After 30 June 2020, employers will not be able to claim for employees who have not been on furlough leave for at least three continuous weeks before that date.
This means that employers will need to start considering now whether they will need to furlough any employees (who have not yet been on furlough leave) past 30 June 2020. If the answer is yes, those employees need to go on furlough leave for a period of at least three weeks by 10 June 2020 at the latest.
From 1 July onwards, employers will have the flexibility to bring furloughed employees back to work on a part time basis. Deciding the hours and shift patterns of returning employees will be left up to employers to decide, and to agree with employees.
Employers will be responsible for paying the wages of the returning employees for the days that they work. On the days that the employee does not work, and is instead on furlough leave, the Government will continue to cover 80% of the employee’s salary (up to the £2,500 cap) plus ER NICs and pension contributions as before.
When submitting claims for employees returning to work part time, employers will need to report and claim for a minimum period of a week in order for grants to be calculated accurately across working patterns.
This ‘flexible furlough’ element will continue until the end of the Scheme on 31st October 2020.
From August, the Government no longer pay ER NICs and pension contributions as part of the Scheme. Instead, employers will make these payments.
According to the average claim submitted by employers since the Scheme began, ER NICs and pension contribution costs represent 5% of the gross employment costs the employer would have incurred, had it not been for the Scheme.
The Government will continue to pay 80% of furloughed employee’s wage costs up to the cap of £2,500 in August.
In September, the Government will reduce the salary contributions to 70%, up to a cap of £2,187.50. This means that from the beginning of September employers will pay:
- ER NICs contributions;
- pension contributions; and
- 10% of salary costs.
These payments represent 14% of the gross employment costs the employer would have incurred, had the employee not been furloughed.
Further reductions to the Government’s contributions will come into effect from October. In October employers will pay:
- ER NICs contributions;
- pension contributions; and
- 20% of salary costs.
The Government contributions in October will be reduced to 60% of wages, up to a cap of £1,875 in October.
The announcement of the extension of the Scheme relieves pressure on employers who, without the extension, may have had to consider mass redundancies in order to survive the economic downturn COVID-19 will inevitably cause. Employers who wish to make 100 or more employees redundant are required to inform and consult employee representatives at least 45 days before the dismissal takes effect. This means that, if the Scheme had ceased to exist from the end of June, companies looking to make more than 100 employees redundant would have had to start the consultation period on 18 May 2020 at the latest.
By extending the Scheme, albeit modified from July 2020, the Government is avoiding the potential “cliff edge” of many businesses who were relying on the Scheme making staff redundant in order to cut costs. Although there will inevitably still be some redundancies, this buys employers more time to properly consider options before commencing the required consultation periods. More importantly, the extension of the Scheme until October may give the economy time to recover, meaning that more employees can return to work full time at the end of the Scheme.
For further information about the Scheme, redundancy or any other employment-related matters, please contact our employment solicitors. Get in touch by emailing email@example.com or if your query is urgent, please call 01202 786135.