The UK Coronavirus Job Retention Scheme – to become more flexible for employers, but also more expensive

Following considerable press speculation, the Chancellor of the Exchequer announced various adjustments to the Coronavirus Job Retention Scheme (the JRS) on 29 May. The full details have not yet been provided and will be published at the end of next week, on 12 June.

In making adjustments to the JRS, the Government is seeking to avoid a sudden rush of redundancies as the scheme comes to an end, as well as assisting businesses who need to re-start operations gradually. The Government is clearly also seeking to take steps to reduce the costs of the JRS, which is proving much more expensive than anticipated.

We will circulate a fuller briefing once the full details are published. In the meantime, the headline points emerging from the Chancellor’s statement are as follows:

Duration of JRS

As had previously been announced, the JRS will run through to the end of October, so by the time it comes to an end employees may have been furloughed for up to 8 months in total.

Much more flexibility

Until now employers have only been able to claim grants under the JRS for employees who are doing no work at all. One of the reasons for this is Governmental concern about the scope for abuse under a flexible arrangement. 

However, in recognition that many employers will only feel able to restart operations gradually, the Government has now accepted that going forward the JRS needs to operate much more flexibly. Failure to have introduced this flexibility would have increased the risk of a slew of redundancies, particularly in companies with neither the short-term work demands nor the financial resources to move furloughed employees straight back onto their old work patterns.

So, from 1 July, employers will be able to choose how much time, if any, their employees will work and still be able to claim under the JRS in respect of unworked time (although the precise work patterns will of course need to be agreed with employees or trade unions). For example, an employer will be able to ask an employee who ordinarily works 5 days per week to return to work 3 days a week, but keep them furloughed for the remaining 2 days - and apply for salary support under the JRS in respect of any furloughed normal hours. Obviously, the employer will need to pay in full for those days or hours that the employee actually works even if they are being paid less for the furloughed days. In principle, it would be possible for employers to seek to agree with employees reduced salary rates for hours worked, but that is likely to be difficult in practice.     

It appears that the flexibility that is being introduced into the JRS will allow employers to increase employee hours on a graduated basis (for example, to start by asking employees to work one day per week, then increasing to two and so on). Conversely, an employer finding economic conditions more challenging than anticipated would be able to dial down working hours and reimpose a greater proportion of furlough time. However it appears that changes may not be permitted more frequently than once a week.

Important timing requirements

Employers who have not yet participated in the JRS, or who now wish to furlough additional members of their workforce, will need to do so promptly if they wish to take advantage of the adjusted arrangements. The JRS will close to new entrants from 30 June. Employers will only be able to seek grants in respect of employees who have been furloughed (on the current terms of the JRS – i.e. on a full-time basis) for three weeks prior to that date. In other words, the furlough period for any relevant employee must have begun by next Wednesday, 10 June.

All claims for reimbursement under the current JRS (ie for the period to 30 June) must be submitted by the end of July.

The increased cost for employers of furlough

The other key change is that the level of Government grants provided under the JRS will start to taper from the beginning of August.

Initially, in August, employers will only be required to pay employer NICs and compulsory employer pension contributions arising in respect of furloughed pay. The Government will still reimburse the employer the full 80% of a furloughed employee’s gross pay (subject to the £2,500 monthly cap). Employers may already be paying the 20% balance to employees and this would continue in accordance with any agreements reached with employees.

In September, however, the employer will also be required to pay 10% of an employee’s gross pay while on furlough, so the Government pays 70% and the employer 10%. In October, the balance of payments will change again, with the employer paying employer NICs and compulsory employer pension contributions arising in respect of furloughed pay, together with 20% of that furloughed pay, with the Government’s contribution dropping to 60%. The JRS will cease to operate at the end of October.

As with the current JRS, we expect there will be considerable complexity in the detail. We will set out our thoughts on the operation of the revised scheme as soon as details are available.