On 12 June, the UK government published revised guidance on its Coronavirus Job Retention Scheme (JRS) (likely to now be generally referred to as the flexible furlough scheme).
Rather than issuing new guidance, the existing guidance has been updated. Because of the government’s approach to publishing amendments, it is not always easy to spot changes, and the guidance is contained across several documents.
However, it appears that there are no material changes in addition to those that have already been announced. For access to our prior publications on the operation of the JRS, please click here.
Summary of key elements
The key features of the revised JRS are as follows:
- It will remain operational until the end of October 2020.
- It will operate on the current basis until the end of June 2020 (ie participation is only permitted in respect of employees who are suspended from all work activities).
- From 1 July 2020, employers will be able to operate furlough more flexibly (ie employees can return to work on a part-time basis, for which they should be paid by their employer, with the employer able to claim under the JRS in relation to periods when they remain furloughed).
- There will be an increasing cost for employers who participate in the JRS. The government will continue to cover costs on the current basis until the end of July for any days of furlough, but from August employers will be expected to meet employer NIC costs and auto-enrolment pension contributions arising on the pay subsidised under the JRS. Then, from September, employers will also be required to bear the cost of a portion of furlough pay (which will remain at 80 per cent of salary up to the monthly cap of £2,500): the government will subsidise 70 per cent of salary up to the cap, with the employer required to fund 10 per cent. For the final month the JRS is in operation, the employer contribution will rise to 20 per cent and the government contribution will drop to 60 per cent. No further government subsidy will be payable after the end of October.
The purpose behind the extension of the JRS is to avoid a cliff-edge end to the government subsidy, and to mitigate the implications there might otherwise be for widespread redundancies within the UK workforce.
Equally, given the cost to the public purse, the government does not wish to prop up 'zombie' companies indefinitely if they are no longer viable (albeit that recent analysis of the cost of the JRS by the Office for Budget Responsibility suggests that it is not quite as significant as previously thought, having been overestimated by around 30 per cent).
There has nevertheless been considerable criticism from some sectors of business, including the hospitality industry, that even the requirement for employers to pay only limited contributions will be devastating to organisations who have had no revenue since March, and that the total removal of support from the end of October will make operations unsustainable.
Which employees are covered under the revised JRS?
The revised JRS will apply to the same categories of employees as before (ie employees who were employed on 19 March 2020 and who were on the employer’s PAYE payroll on or before 19 March 2020 – together with any employees who stopped working for the employer on or after 28 February 2020 and who were then re-employed and furloughed).
However, employers cannot participate in relation to employees who have not already completed at least one three-week furlough cycle by 1 July (ie they must have been furloughed for at least 3 consecutive weeks taking place any time between 1 March and 30 June). That means employees do not necessarily have to be on furlough on 1 July in order to be eligible for further grants under the JRS.
The guidance states that 'only employees that you have successfully claimed a previous grant for will be eligible for more grants under the scheme'. We do not think this requires a claim to have successfully been made through the HMRC portal prior to 1 July, but it does mean that the employee must have completed a qualifying period of leave.
Note the limit on the maximum number of employees in respect of whom a claim can be made under the extended JRS
The number of employees an employer can claim for must not exceed the maximum number of employees it has claimed for under any claim prior to 30 June.
This means that if an employer has been varying the number of employees on furlough to date, it can only claim under the extended JRS for a number of furloughed employees up to the greatest number of employees covered under any one previous claim. The guidance gives an example of an employer that has made three claims, covering 30, 20 and 50 employees respectively. The maximum number of employees who can be covered in any one claim from 1 July is 50. This could create some difficulty for employers who have been rolling employees on and off furlough.
How prescriptive are the rules on flexible furlough?
The arrangements are intended to be as flexible as possible. Employers can continue to fully furlough employees if they wish. But, assuming employers wish employees to work on a part-time basis, they can agree any work pattern with their employees that is appropriate to the employer’s circumstances.
If, for example, an employer concludes it needs employees to work two days a week only, it can furlough them for three working days per week and have them work (and pay them) for the other two. And those hours can be adjusted over time – for example if there is an increase in business.
Bear in mind that the current requirement for employees not to be performing any active work while on furlough will continue to apply on the days that they remain furloughed. Employers will therefore have to be careful to ensure employees only work in their working hours, and not their furlough hours. Employers will need to consider giving strict instructions that employees do not voluntarily work from home over the weekend for example, as this could risk 'tainting' their furlough hours.
Employers will be aware that one of the most difficult issues under the current JRS arrangements has been the question of employee consent. Those same issues arise in relation to any flexible arrangements the employer wishes to introduce.
As before, the guidance emphasises that changes should be made by agreement and employers must have confirmed to their employee (or reached collective agreement with a trade union) in writing that they have been furloughed.
A written record of the agreement must be kept for five years, together with records of how many hours the employees work and the number of hours they are furloughed. The administrative obligations may therefore be significant, particularly if the arrangements are regularly adjusted. It may be possible to build flexibility into the employee agreement up front, but the government’s expectation appears to be that a fresh written record is required each time a change is made.
The guidance continues to confirm that employees do not have to provide a written response to the employer confirmation.
Can I vary the time employees spend on furlough?
Under the current JRS rules, employees must be furloughed for a minimum period of 3 consecutive weeks. That requirement will be relaxed from 1 July, and agreed flexible furlough arrangements can last any amount of time. And employees can enter into flexible furlough agreements more than once.
It should be noted, however, that where a previously furloughed employee starts a new period of furlough before 1 July, that period must last for a minimum three week period even if it straddles 1 July.
Adding a further layer of administrative complexity, employers will not be able to make claims that cross calendar months after 1 July so a separate claim will be needed for the period to 30 June.
What pay is taken into account for the revised JRS?
The position has not changed. The pay taken into account for determining what can be reimbursed under the JRS is determined by reference to an employee’s regular pay (see here for our previous guidance on this topic). However, working out an employee’s level of pay as between usual hours and furloughed hours is potentially more complicated for those on flexible furlough.
Working out an employee’s usual hours and furloughed hours
For employees on flexible furlough, an employer will need to work out an employee’s usual hours, the actual hours worked and their furlough hours. The employee’s usual hours must be calculated for each pay period (or part of a pay period) that falls within the claim period.
The guidance sets out detail on how to complete these calculations, as well as how to calculate the length of the claim period and what to include when calculating wages (which reflects the position of the previous guidance).
- For employees who usually work variable hours and whose pay depends on the number of hours they work, the usual hours will be calculated based on the higher of the average number of hours worked in the 2019/20 tax year and the hours worked in the corresponding calendar period in the 2019/20 tax year.
- For employees who are contracted for a fixed number of hours, employers must calculate based on the hours contracted for (including paid leave) at the end of the last pay period ending on or before 19 March 2020.
For the purposes of the furlough claim, once the number of usual hours has been calculated, employers must then reduce this by the number of hours actually worked (rather than furloughed) in the claim period (regardless of whether this is more or less hours than agreed in advance with the employee).
The increasing cost of the JRS for employers
The table below, lifted from the government guidance, shows how employer costs will increase over the last three months the JRS remains in operation:
|Government contribution: employer NICs and pension contributions||Yes||No||No||No|
|Government contribution: wages||80% up to £2,500||80% up to £2,500||70% up to £2,187.50||60% up to £1,875|
|Employer contribution: employer NICs and pension contributions||No||Yes||Yes||Yes|
|Employer contribution: wages||-||-||10% up to £312.50||20% up to £625|
|Employee receives||80% up to £2,500 per month||80% up to £2,500 per month||80% up to £2,500 per month||80% up to £2,500 per month|
Employers will of course be required to pay employees for any hours that are actually worked under flexible furlough arrangements in accordance with contractual arrangements.
The starting point therefore is that employees are entitled to their full pay for any time when they are working, even if they had been receiving only 80 per cent while on furlough to date. There is no reason in principle why employers could not seek to agree varied pay arrangements with their employees, although national minimum wage requirements will apply in respect of time not spent on furlough and it is unlikely to be feasible to agree arrangements that are not as least as generous as those that apply under the JRS.
Note the timing requirements for claims
There is a final date under which claims can be submitted for periods ending up to and including 30 June. No such claims will be considered if submitted after 31 July.
Conversely no claims are permitted for days in July prior to 1 July.
Under the revised arrangements, the period employers claim for must normally be a minimum period of seven calendar days. A claim for a period of fewer than seven calendar days is permitted if the period claimed for includes the first or last day of the calendar month and the employer is already claiming for the period immediately before it.
The claim process will be (even) more complicated for employers
Because of the increased flexibility of the JRS going forward, the claim process will inevitably become more complicated. Unlike the current arrangements, which have no maximum length for claim periods, claim periods must start and end within the same calendar month. Only one claim may be made for any claim period – all employees will therefore need to be included even if they are paid at different times. The guidance indicates that the claim period should be matched to the dates the employer processes payroll. It also suggests that when claiming for employees who are flexibly furloughed the employer should not claim until it is sure of the exact number of hours they will have worked during the claim period.
Have you got your calculations right?
Finally, a note of warning. There is increasing press speculation that the government will give employers a 30-day window to correct any mistakes in claim submissions, with a penalty applying for any deliberate non-compliance. HMRC is expected use its Connect computer system to flag anomalies in claims. Criminal and civil liabilities are likely to apply, at least where non-compliance has been deliberate.