Posted by Gemma Ospedale, Partner
What are the latest changes to the UK furlough scheme?
With approximately 8.4m jobs furloughed, roughly ¼ of the total jobs in the UK, and 1m employers furloughing, costing the Government £15b, it was inevitable that some changes would have to be brought into the furlough scheme. However, the announcements on Friday are less draconian than many had feared.
What this means for employers and employees
From 10 June, employers will no longer be able to add new employees onto the Scheme. Employers who wish to furlough additional employees must submit their claim for those employees by 10 June. However, this deadline will also have an impact of those employers who are currently considering swapping the employees they currently have on furlough.
Some employers have been taking advantage of the possibility of swapping the employees they have furloughed. This would involve furloughing employee A for the first 21 days and then Employee B for the next 21 days, and so on. There are a number of benefits to adopting this approach, the most obvious of which is it helps to maintain an employee’s skills as well as keeping their industry knowledge up-to-date. A further additional benefit employers are beginning to notice is that rotating the employees they have on furlough is helping to maintain the morale of the workforce by keeping employees engaged in the business as well as supporting their wellbeing and general mental health by reducing the amount of time employees are at home unable to work.
Only those employees who have completed 21 full days of furlough prior to 30 June 2020 will be able to be furloughed again later, so it is vital that employers who are currently considering swapping employees take action prior to 10 June 2020.
From 1 July a new scheme will be introduced, which involves a tapering off of the government contributions to the 80%/upper limit of £2,500 payment to workers on a phased basis. This will at least give employers the opportunity to consider their workforce needs as the economy gradually starts to crank into action again, without pulling the rug from under employers’ collective feet immediately – which was one of the concerns when the intention to change the scheme was announced.
How the financial arrangements will change
- For June and July, there will be no change. The Government will continue to pay the full 80% contribution as well as NI and pension contributions.
- From 1 August, the first step of the tapering process with regard to payment will begin. The Government will ask employers to pay NI and pension contributions only. In the final two months of the scheme the phasing of employer contribution to wages begins and the NI and pension contributions remain payable by the employer.
- Contribution to the actual percentage of payments will begin from 1 September, where the government contribution will reduce to 70%, up to a maximum of £2,187.50, and the employer will need to pay the remaining 10%.
- From 1 October until the end of the scheme on 31 October, the payment tapering increases, with the Government paying 60% of wages, up to a maximum of £1,875, and the employer paying the balance of 20%.
- Throughout the entirety of the changes to the payment arrangements, all furloughed employees and workers will continue to receive 80%, or up to £2500, of their normal salary.
- Employers remain free to top up to the 100% of normal salary should they wish to do so at all times.
Flexibility in returning to work
The Government has announced that, with effect from 1 July, a month earlier than previously expected, employers will be able to bring employees back from furlough on a part-time basis should they wish to do so. They will be paid normal salary for the days they work. The Government will pick up the balance, under the furlough scheme, of the days they do not work in accordance with the percentage of furlough payment under the scheme applicable at the time. The cap will be proportional to the hours not worked.
Employers will be required to submit data on the usual hours an employee would have worked, and the actual hours worked in a claim period to continue to claim under the scheme. Employers will need to report and claim for a minimum period of 1 week, but can still report and claim for longer periods as needed.
Further guidance on flexible furloughing and how employers should calculate claims will be published on 12 June.
There are two ways of looking at this…
The first interpretation of the new measures is summed up by the BCC Director General Adam Marshall, who said in response to the Chancellor’s announcement:
“The Chancellor has listened to business communities and struck a careful balance that will help many firms bring furloughed staff back to work flexibly over the coming months. The gradual reduction in furlough contributions from the Treasury will give businesses additional time to rebuild their income streams and cash flows, and the decision to give businesses maximum flexibility to bring people back part-time will be appreciated.
However, he goes on to say:
“The furlough scheme has helped companies preserve millions of jobs through lockdown, but many firms still face significant uncertainty ahead. On that basis, closing the scheme to new applicants in June feels premature, and risks undermining some of the work already done to preserve businesses and jobs.”
This reflects the other school of thought, namely that the scheme will be used to pay for redundancy payments of businesses which need to make employment cuts with a recession guaranteed and the economy unlikely to pick up significantly in the short to medium term.
Although the tapering of payments required by employers to keep the scheme going is a more gentle introduction to employers who will start to need to pay their employees again, those who do not have the finances to pay even this amount will be highly likely to consider bringing forward the consultation while they still have the benefit of the full furlough payments.
It remains to be seen on which side of the fence the extensions to the scheme fall in terms of how employers play this out in the coming weeks and months.
What’s next? Key dates for employers
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