On 29 May 2020, the Chancellor announced that the Coronavirus Job Retention Scheme will continue in its present form only until 30 June 2020 (one month earlier than anticipated). After that date, the Scheme will continue in a more flexible form until 31 October 2020, with employers gradually being asked to contribute to its cost from 1 August. Some employers may be surprised to learn that claims from July onwards will be restricted to employers currently using the Scheme and previously furloughed employees. This means that the last date that employers can furlough employees for the first time will be 10 June 2020. In this update, we summarise what we know so far about the revised Scheme and answer some of your key questions.
The key details of the revised Scheme, as outlined by the Chancellor on 29 May 2020, are set out below. It is expected that further guidance on flexible furloughing and how employers should calculate claims will be published by the government on 12 June.
- Employees who are furloughed on a full time basis will remain entitled to 80% of pay, to a maximum of £2500 per month for the remainder of the Scheme until it ends on 31 October 2020.
- The Chancellor said that the revised Scheme will involve “maximum possible flexibility”. From 1 July (one month earlier than anticipated), employers will be able to allow furloughed employees to return to work on a part-time basis. The Chancellor gave the example of an employee working two days a week (during which time the employer would pay their wages as normal) and then being furloughed for three days a week.
- Claims from 1 July onwards will be restricted to employers currently using the Scheme and previously furloughed employees
- To allow for the more flexible scheme from 1 July, the current scheme (which does not allow furloughed employees to work for their employer) will close to new employers on 30 June. This means the last date employers will be able to furlough employees under the current Scheme will be 10 June (allowing for a minimum 3 week furlough period) and the revised Scheme operative from 1 July will not be open to new applicants
- No other details have been provided as yet.
Employers to contribute more from 1 August
- From 1 August, the government’s contribution to employer costs will change
- From 1 August, the revised Scheme will no longer cover employer National Insurance Contributions and minimum employer auto-enrolment pension contributions. This will obviously mean a further expense for employers bearing in mind employer NICs cost 13.8% of gross pay up to the upper earnings limit, and the current auto-enrolment pension rules require employers to contribute 3% of employee pay into a pension scheme. These are currently funded by the Scheme (although you cannot currently claim for any NICs or pension contributions you make because you chose to top up your employee’s wages)
- From 1 September, the government’s contribution will be reduced to 70% of pay up to a maximum of £2190, leaving employers to contribute 10% (in order to top up to 80%)
- From 1 October the government’s contribution will be reduced to 60% of pay up to a maximum of £1875, leaving employers to contribute the remaining 20% (in order to top up to 80%)
- Under the revised Scheme which allows part time working from 1 July, employers will be able to claim for furloughed hours but claims will be for a minimum period of a week so that grants can be calculated accurately across working patterns
- The Scheme will close in its entirety on 31 October 2020.
In light of this announcement, is there anything we should be telling employees?
Employers will no doubt be reviewing their furlough arrangements to decide what the next steps will be for their business. Ideally, employees will be allowed to return to work after furlough and this more flexible scheme gives employers the opportunity to get staff back to the workplace in a financially manageable way. However, many businesses will also be considering how else to cut costs so will be considering redundancies. Staff will be anxious to know what their employers are planning and so keeping them informed on a regular basis will be important. Employers should communicate with furloughed staff to let them know their plans when practicable.
Do we need to obtain the employees’ consent to vary our existing furlough agreement?
Yes, you should make sure that employees consent to any variation of their furlough agreement obtained in advance of the changes taking effect. This will make sure that there is a valid variation of their contract.
Will employers need to enter into fresh furlough agreements with employees if their furlough period continues after the end of June 2020?
Employees under the current Scheme are prohibited from working for their employer so many furlough letters/agreements will state this explicitly. The revised Scheme permits employees to work for their employer on a part time basis from 1 July so it may therefore be necessary for the furlough agreement to be amended. This could be done by side letter or a fresh agreement which outlines the circumstances in which the employer can require the employee to work.
We are currently topping up salary to 100% but won’t want to do this for much longer. What should we do?
This will depend on what you have agreed in your furlough agreement/letter. This would be a variation of their contract of employment so you would need their consent to reduce their pay.
Where are the rules for the revised Scheme?
The rules of the current Scheme are set out in two Treasury Directions which were issued on 15 April and 22 May 2020 to cover the period up to the end of June 2020. These are supplemented by the HMRC guidance available on the gov.uk website. The Chancellor has announced that guidance on the revised Scheme will be published on 12 June. We also expect that a further Treasury Direction will be issued setting out the details of the scheme from 1 July 2020.
Can we continue to place employees on furlough now?
Yes, provided they meet the Scheme’s eligibility requirements. However, after 1 July, employers will only be able to claim for those employees who have been furloughed before 10 June. It is not yet clear whether employees who have been previously furloughed and have already returned to work before 1 July will be able to be re-furloughed at a later date. It seems likely though that an employee who continues on furlough through to 1 July may subsequently be taken on and off furlough under the revised Scheme in the same way as is possible under the current Scheme.
What should we pay employees who are furloughed but work part time?
In order to incentivise employees to return to work, the revised Scheme allows furloughed employees to work part time for you after 1 July. You should pay employees at their normal rate of pay for the hours they actually work. For example, If they work for half their normal hours, they should be paid half their normal pay. Effectively this means they are furloughed for the remaining half of their working week. Therefore, the employer will still be able to claim under the Scheme for such employees’ normal hours not worked but will have to pay in full for any hours worked, and will be responsible for tax and NIC contributions on those payments. More details on precisely how this calculation will work will be provided on 12 June when the government has promised its new guidance.
How do we recall employees from furlough?
It is advisable to provide for this under your furlough agreement/ furlough letter to your employees so that employees are ready to return when they are recalled. Employees must obey a reasonable instruction of their employer so recalling them by giving a few working days notice is probably reasonable in most circumstances. You should bear in mind though that the employee may be working elsewhere, whether paid or volunteering work unless you have specifically forbidden this. Helpfully, the government’s employee guidance points out that the employee needs to be able to return to work for you if you decide to recall them and must be able to undertake any training you require of them.
See our guide to the current Job Retention Scheme. This will be updated again when we receive more detail on the proposals for the revised Scheme on 12 June 2020.
Clyde & Co attorneys are available to assist you with these and other workplace issues. For more information, visit www.clydeco.com.
For more information please contact Joseph Granato, Communications Manager at L&E Global at email@example.com.